Welcome to the Miller Industries fourth quarter and full year 2015 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 zero. After today's presentation, 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 Mish , Executive VP and CFO, Frank Madonia, Executive Vice President and 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 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 in 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 with you today our fourth quarter and 2015 year performance. 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 positioning ourselves to take advantage of the expected increasing volume of activity during the year. We remain committed to our efforts to grow our business, ramp up production, and meet our increasing demand. We reported fourth quarter sales of $136.4 million, a decrease of 8% compared to $147.8 million in the prior year period.
Net income was $3.9 million, or $0.34 per share, compared to net income of $5.7 million 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 fourth quarter performance in 2014 was a result of the culmination of a number of deliveries of government-related orders that were made in the quarter. These deliveries, combined with the timing of several other factors in the quarter, yield exceptional revenue and income growth for 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 at 11.2%. Operating profitability saw a slight decrease in the fourth quarter of 2015 as employee-related expenses increased in the quarter. We are proud of the work our employees have done, particularly with the quick and focused ramp-up in productivity, and we compensated them for it. As a result, SG&A, as a percentage of net sales, was roughly 6.5%, up from 4.8% in the fourth quarter of 2014. Our order levels remain strong, and overall quoting activity continues to drive business forward. We are pleased with our backlog and continue to invest in our production capability. Customer 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 for the long term. Now I'll turn the call over to Vince, who will 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 $136.4 million versus $147.8 million for the 2014 fourth 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 continued the ramp-up of production levels from recent quarters. Cost of operations decreased 7.7% to $121.1 million. Excuse me, in the 2015 fourth quarter compared to $131.2 million last year, driven primarily by sales volumes as discussed previously, and costs related to production levels.
Gross profit was $15.3 million, or 11.2% of net sales in the fourth quarter of 2015, compared to $16.6 million or 11.2% of net sales in the fourth quarter of 2014. SG&A expenses were $8.9 million in the fourth quarter of 2015 compared to $7.1 million in the fourth quarter of 2014. As a percentage of sales, SG&A increased to 6.5% from 4.8% in the prior year period. 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 of 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 in the 2015 fourth quarter was $3.9 million, or $0.34 per diluted share.
The income attributable to Miller Industries in the 2014 fourth quarter was $5.7 million, or $0.50 per diluted share. Let me briefly review our results for the full year period ended December 31st, 2015. Net sales in 2015 were $541 million compared to $492.8 million in the prior year period, an increase of 9.8%. Gross profit in 2015 was $57.6 million, or 10.7% of sales compared to $53 million or 10.8% of sales in 2014. Net income attributable to Miller Industries for the full year of 2015 was $16 million, or $1.41 per diluted share compared to net income for the full year of 2014 of $14.9 million or $1.31 per diluted share. 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 31st, 2015 were $38.5 million compared to $41 million as of September 30th, 2015 and $39.6 million at December 31st, 2014. Accounts receivable at December 31st, 2015 totaled $109.2 million compared to $115.4 million as of September 30th, 2015 and $116.5 million at December 31st, 2014. Inventories were $66.2 million as of December 31st, 2015 compared to $64.5 million as of September 30th, 2015 and $56.5 million at December 31st, 2014. The increase in inventories is attributable to the ramp up in production in 2015. Accounts payable December 31st, 2015 were $73.4 million compared to $76.7 million as of September 30th, 2015 and $70.6 million at December 31st, 2014. We operated with no borrowings under a $30 million unsecured revolving credit facility as of December 31st, 2015.
As of February 29th, 2016, we have borrowed $10 million under the facility to help fund our three-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 28th, 2016, to shareholders of record at the close of business on March 21st, 2016. 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 costs and improve operating efficiencies over the past several quarters continues to drive increased profitability. We maintain our strategic commitment to enhance our production capacity. The work on consolidation and expansion of our Pennsylvania manufacturing facility continues, and we maintain our commitment to enhance the facilities at our Ooltewah, Tennessee, and Greenville, Tennessee, plants over the next year. During the year, we continued to expand our product offerings and 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. We expect demand to remain healthy going into 2016. Fourth 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. Our balance sheet is 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 year, we are positioned to take advantage of the opportunities that we see.
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 are ready to take your questions, and I thank you.
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. Again, press star one to ask a question, and we'll pause just a moment to allow everyone an opportunity to signal for questions. 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. It seems to me that over the previous four to six quarters, the strength of the dollar has been a pretty strong or at least a mild headwind on international activity. The dollar, as you know, is stabilized and dependent upon the currency is slightly down over the past quarter. Has your activity internationally been reflective of that? Is it easier to do business internationally now than it had been, say, over the past year?
I think what we're seeing over the last eight weeks is an increase in European backlog.
I think you make a good point, Walter. 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. It is tougher in some regions of the world than it is in others. I've seen a decrease in our business in Mexico. It varies based on currency strength country to country.
Okay. Thank you.
Does that make sense?
Yeah. It does. Thank you.
Thanks, Walter.
Can you give some time frames on the three plant expansion projects, when you would expect completion?
Yeah, certainly. Will, 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. Chattanooga should be online, pretty much complete by September. The Pennsylvania facility, they'll allow us into the building sometime in the July timeframe to start setting up new equipment and getting people into the new building. 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.
Okay. I appreciate it. Great quarter. Thank you.
Thank you, Walter.
Again, that is star one if you'd like to ask a question. Again, we'll pause for a moment. We'll take our next question from Brian Rafn , 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. How much dollar revenue capacity will that add, let's say if you went three shifts?
Well, number one, going three shifts, we're working almost 20 hours a day today in most of our facilities.
Okay.
I doubt that we'd ever get to the point where we'd have three shifts, eight hours a day due to the complex nature of the process. In terms of capacities, the expansions themselves, the one in Pennsylvania is aimed at both capacity and efficiency. 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 eight or nine weeks. Increase the margin based on process.
From a standpoint of true capacity 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. 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.
Does that answer your question?
Yeah. No, I appreciate that. From the standpoint, what would you say, asked a little differently, from a time horizon, would these planned expansions give you forward runway for a couple of years or for five to eight years, or indefinitely? I'm just getting a sense as to how-
Yeah
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, yes, we are.
Okay.
On the wrecker side, depending on what happens both internationally and from a military standpoint, we may have to make some more adjustments in the Ooltewah facility if we're successful in those other endeavors.
Yeah. Okay. Yeah, that's fair. Given the stance, we've just initiated some positions in Miller, so we're a little bit infantile here on understanding. From the standpoint of when you look at the wrecker side of the business or the carrier, what do you see driving the demand? Is it fleet size, obsolescence age? Is it growing capacity in towing an older car fleet or truck fleet? What drives that demand?
I think you just mentioned them all. You answered your own question. Yeah, I was just going to say yes. Yes.
All right. Okay. You guys talked to me a little bit about international. What is some of maybe the divergences or differences between the U.S. domestic carrier and wrecker market versus international?
The U.S. domestic market-- I want to go back and understand your question completely. Are you asking about the product configuration? Are you asking about the service providers and what kind-
Yeah.
The question can be answered several ways.
I would say the product, first off. Certainly, the difference, size, capacity, horsepower.
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 cabover 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 U.S. having a straight frame with clean rails.
From the standpoint of, as you guys look at adding capacity, what's been your labor content from the standpoint of hiring, shortages, engineers, welders, assembly guy? Where do you see bottlenecks, or are you getting enough people to match your increased product capacity?
I think our biggest bottleneck would be welders. However, the company continuously looks at enhancing robotics. 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.
Absolutely.
Okay. Just on what do you guys see from the standpoint of your commodity feedstock, your input costs, 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. Please keep in mind that, and I guess you said you are a new shareholder, part of our strength, part of Miller Industries' ability to have a position of strong market share, especially in the U.S., is our constant development of the product in introducing new product. We're not cookie cutters here. We're 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, delineates some of the volume runs you might get if you were sitting there milking the cow. We believe that's the way we should approach this industry.
Okay. From the standpoint of the new plan expansions, what, from the standpoint I guess two questions. One, what kind of life cycle do you have with your product development? When you look at carriers or wreckers, is this something where you design something that is in the market for three to five years, or eight years, or is more of the market custom design and you don't really have prototypes or standard models? I'm just understanding how fast your engineering designs turn.
Yeah. The basic engineering design is driven by changes in, one, what you're mounting your carrier or wrecker to. Secondly, what you are towing or what you are picking up. Really, the life cycle depends upon the life cycle of vehicles in the market, in terms of design. I can take you back in history rather than talk forward, because it may mean more to you.
Sure.
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 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 the wheel lift, that actually now picked up a vehicle by its tires versus the bumper of the car. Luckily, we're strong enough in the industry, and well-known enough in the industry, 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 seven.
Although we sell through distributors, when you deal in an industry that are 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.
Okay.
To be successful.
I got you. When you look at those in-field mom-and-pops, what type of a product life cycle or lifespan are you talking a wrecker 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? Are there rental markets? Do they trade ups? Is there a secondary market? What's the dynamic of the market you're selling into?
Yeah. Starting from the beginning. Our distributors, Jeff, how many questions was that? More than 1, Bill. You know, our distributors, 90% of them are exclusive to the towing and recovery industry. All they do is market towing and recovery equipment. 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 the back end will last longer than the depreciation does. The front end depends totally, or the chassis depends totally on the miles driven. 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. Probably not in the market between Milwaukee and Chicago, which is a high volume market. That's number 1. Your second part of that question was what?
I think you guys covered it pretty well. I appreciate it. Thank you very much. Appreciate the clarity.
No problem. Thank you.
At this time, that will conclude today's Q&A session. I'd like to turn it back over to our speakers for any additional or closing remarks.
We would like to thank you for joining the call. I have said this several times in my remarks, we're extremely pleased with our 2015 results, and we are grateful to our customers and to our shareholders and to our employees. Thank you very much.
This concludes today's event. Thank you for attending today's presentation.