Earnings Call: Q2 2015

Aug 6, 2015

Hello. This is the Chorus Call operator. Welcome to the Miller Industries Second Quarter Twenty King 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'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 Katie Pyra. Please go ahead. Thank you. Thank you, and good morning, everyone. I'd like to welcome you to the Miller Industries conference call. We are here to discuss the company's 2015 second quarter results. Which were released after the close of market yesterday. With us from the management today are Bill Miller, Chairman of the Board Jeff Badgley, co CEO Will Miller, President and co CEO Vince Misch, Executive VP and CFO, Frank Donia, Executive Vice President, Secretary and General Counsel Debbie Whitmire, vice president and corporate controller, Alice Poten, Director of Finance. Today's call will begin with formal remarks for management followed by a question and answer period. Please note in this morning, 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 report our excellent performance in our second quarter of 2015, growing top and bottom line results on a year over year and sequential basis. Our results were driven paired with strong operational execution, cost discipline and continued progress on our strategic initiatives. We have capitalized on ongoing efforts to ramp up our production levels and keep ahead of demand We reported 2015 second quarter sales of $151,500,000 approximately 24% higher than sales of $122,400,000 in the prior year period. Net income of $5,900,000 or $0.52 per share represents an increase of approximately 73% compared to net income of $3,400,000 or $0.30 per share in the 2014 second quarter. Our operating profitability increased as well. Gross margin for the quarter was 11.6 percent of net revenues up from 10.2% in the prior year period. SG And A as a percentage of net sales was roughly 5% of net sales, down from 5.7% in the second quarter of 2014. Our order levels and backlog remained strong and overall pruning activity has been encouraging. Customer sentiment continues to improve and our core business is operating in a position of financial strength. We continue to demonstrate our ability Now I'll turn the call over to Vince, who will review the second quarter and 6 months 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 A. Mr. Mish. Thanks, Jeff, and good morning, everyone. As Jeff mentioned, net sales for the second quarter of 2015 were $151,500,000 versus 100 $22,400,000 for the 2014 second quarter, a 23.8% year over year increase. The continued strong order flow from domestic and international markets led to our decision in previous quarters to ramp up production levels. Which resulted in our significant revenue growth in the 2nd quarter. Cost of operations increased 21.9 percent to $134,000,000 in the 2015 second quarter compared to $109,900,000 last year, driven primarily by the higher sales volumes and costs relating to increasing production levels. Gross profit was $17,500,000 or 11.6 percent of net sales in the second quarter of 2015 compared to $12,500,000 or 10.2 percent of net sales in the second quarter of 2014. Primarily due to the higher sales volumes. SG and A expenses were $7,600,000 in the second quarter of 2015 compared to $7 percent from 5 point for the second quarter was a loss of $265,000 related to foreign currency transaction losses compared to a net loss of $55,000 in the second quarter of 2014. Interest expense in the 2015 second quarter was $245,000 compared to $126,000 in the second quarter of 2014. Net income attributable to Miller Industries quarter was $5,900,000 or $0.52 per diluted share. Net income attributable to Miller Industry in the 2014 second quarter was $3,400,000 or $0.30 per diluted share. Now let me briefly review our results for the 6 months ended June 30, 2015. Net sales for the 1st 6 months of 2015 were $278,300,000 compared to $226,600,000 in the prior year period. An increase of 22.8 percent. Gross profit for the 6 months ended June 30 2015 was $29,500,000 or 10.6% of sales compared to $23,400,000 or 10.4 percent of sales for the 1st 6 months of 2014. Net income attributable to Miller Industries in the 1st 6 months of 2015 was $8,900,000 or $0.79 per diluted share, which is a 55.2 percent increase from net income in the 1st 6 months of 2014 of $5,700,000 or $0.51 per diluted share. Turning now to our balance sheet, Cash and cash equivalents as of June 30, 2015 were $36,000,000 compared to $38,300,000 at March 31, 2015 $39,600,000 at December 31, 2014. COUNTS receivable at June 30 2015 totaled $131,300,000 compared to 100 $16,100,000 at March 31, 2015 $116,500,000 at December 31, 2014. The increase in sales volume drove accounts receivable higher from the year end levels. Inventories were $57,600,000 as of June 30, 2015, compared to $61,800,000 as of March 31, 2015, and $56,500,000 at December 31, 2014. Accounts payable at June 30, 2015 were $81,800,000 compared to $79,900,000 at March 31, 2015, and $70,600,000 at December 31, 2014. On June 11, 2015, we renewed and extended the maturity date of our unsecured revolving credit facility to March 31, 2018, and increased the amount of the credit line from $25,000,000 to $30,000,000. We continue to operate with no borrowings under our $30,000,000 unsecured revolving credit facility. The company also announced its Board of Directors has declared a quarterly cash dividend of $0.16 per share, payable September 21, 2015, to shareholders of the record at the close of business on September 14, 2015. Now I'll turn the call back to Jeff for further remarks. Thank you Vince. The second quarter of 2015 was an excellent quarter for Miller Industries as we continue to see high levels of quoting activity, particularly in domestic markets and healthy activity internationally, despite the effects of the strength of the dollar. The dedication of our employees to increase production levels in line with demand yielded solid revenue and income growth for the second quarter. Our work to control cost and improve operating efficiencies over the past several quarters further enhanced our results. Customer sentiment for our products remains positive and we expect demand to remain healthy throughout the remainder of 2015. During the quarter, we continued to expand our product offerings in existing markets as well as broaden our international footprint. We rolled out new products this year that have been well received by our customers controlled cost and operational efficiency to scale with our business and maintained a strong backlog. Overall, we are very pleased with our performance in the second quarter of 2015. We continued to build upon the momentum and strength of our business and achieve solid revenue and profitability growth. Our balance sheet remains strong and we continue to operate from a position of financial strength. We remain committed to enhancing shareholder value through strong cash flow and our quarterly dividend of $0.16 per share. As we move into the 3rd quarter, we are well positioned to take advantage of the opportunities that we see in our marketplace. For their ongoing support of Miller Industries. With that, we're Thank you. At this time, we'll pause momentarily to assemble our roster. The first question comes from Rick Patel of Columbia. Please go ahead. Good morning. Great quarter. Thanks, Rick. Thank you. Just if you could just generally comment on the manufacturing efficiencies. I know a quarter ago you were using some over time as you've ramped up production, have you mitigated that, Tom, or how do you feel about it? It looks like from the margin standpoint, it looks like that things are improving, but, in general, how would you characterize it? Well, Rick, this is Jeff. We're certainly still using overtime. We probably decreased that overtime amount a little bit in the third quarter. But demand, our customers are distributors are dependent upon our deliveries. So, it's really market driven that we continue to utilize over time somewhat and continue to drive it down but it hasn't gone away. Yeah. That's for sure. Okay. Also, you talked about the impact of a price increase helping Q2, but it would be fully impact in Q3 is that's still the thought process. How much incremental help you're going to get in Q3 on price versus Q2? Rick, I wish I was smart enough to go back and see what kind of cost increases we've seen from our suppliers over the last couple of quarters. I don't think there's been any major, but I think there's probably been some incremental. So I don't think I'm really not in a position to honest you answerly, honestly without doing some studying. I think we'll see some, but to quantify it would be, I'm not in a position to do that today. You had talked about progress on adding worldwide distribution. Do you have any things that you'd like to speak to specifically on that? Well, we've added, we've added distribution in, South America. We continue to add distribution in the Middle East. We have not had much success in adding distribution in the European markets, with American product due to the strength of a dollar. But yes, it's ongoing. Okay. And then also you talked about on the Q4 calls, you spoke to some purchase orders for design work in a small European country and then another prototype design in another country, have they led to, I don't know how, what, what the duration is between design and prototype work and commercial orders is, are those opportunities progressing? Yes, they are. And we feel very good about those opportunities. But as of today, the prototypes are still being built not have to. So the firmness of the orders for the production run won't take place until we we have the units tested in the field. So we believe that the progress is very strong. But I certainly do not want to mislead, anybody because things can go wrong. So we feel good about it, whether or not, whether or not, you want to count it at this point is questionable until we have that firm, firm order. So to the extent they're in Europe, I would think, again, you got currency disadvantages, right? Well, we certainly have currency disadvantages, but in our tenders, we attempt to take away a little bit of that currency disadvantage. We do buy some of the supplies we need for European European fill of contracts and kind of split currency in the bid dollars and euros. So we do our best to mitigate that disadvantage knowing we're going to pay some of our suppliers in euros on dollars. Okay. And then I know on this call, you've talked about continued strong quoting, commercial quoting activity. A quarter ago, you'd all also talked about worldwide military quoting being strong. Won any wins there? And then was there any military business in this in this quarter that you just reported? Well, let's take, let's take the last question first. The, quasi military, which in current, which could be defined either civil defense or military. There was, a minor contract delivered to a bond. In this quarter. Other than that, it was commercial business, so to speak. As far as quoting activity in other areas of military opportunities. They continue. And we've been awarded anything in the quarter. As in did we get anything awarded during the quarter. The answer is no. Okay. The way you phrased at it does that imply you want something in July or? Okay. Okay. That's I didn't mean to insinuate that. I'm saying that I just tripped over words, I guess, is a good one. Not a problem. I just wanted to make sure I asked the right question. All right, that's it for me. Thank you. That was a quick Our next question is from Walter Ling, Avanoke Partners. Please go ahead. Good morning. Congratulations on a great quarter. I read in May that US motorist drove a record amount of miles according to the FAJ. And I can only assume that's being topped in June. And that topped a previous record setback in 2019, I'm sorry, 2007. Is that and I know your demand is not picking up steadily over a year ago. But is this enhancing the U. S. Demand for your products? And then secondarily, on the the capital commitment that you're allocating towards production on the carrier product lines, do you have a specific return in invested capital goal on that money and isn't measurable? Is that another question in the No. That's it. No. That's it. Are you getting coached in the background? The, let's talk about miles driven and then I'll turn over, the call on return on investment and the expansion in Pennsylvania to other people in the room. Miles driven obviously plays plays on demand in all markets. Obviously, as you cited that that continues to rise. Now our demand is extremely strong. I'm not too sure we're not seeing some pent up demand from past years and filling that pent up demand along with what's happening with miles driven molder. So does it help? Absolutely. Absolutely. It makes a tour. Obviously, feel busy because they are busy. And it puts them in a position of the desire and or the need to buy trucks. So second question Will you want to take over what we're doing in PA and ROI events? Sure. So the goal for the Pennsylvania expansion is to truly create the largest most efficient state of the art carrier manufacturing facility in the world. We are focusing a lot of our time and effort in the design process of the new plant into, automation and robotics. So our plan is to have the capabilities from a total carrier production of approximately 700 carriers a month when we're completed in the 1st to second quarter of next year. With regards to the ROI, I will let Vince handled most of that question, but there is absolutely some measurable items when we look into automation and robotics as far as the ROI. And some of the things that our people are finding equipment wise look like we're still sorting out what the returns are going to be, but it's pretty spectacular stuff. But no, internally, we try to get out of at least a 20% ROI and it may be better than that by the time we're done sorting it all out, that's our internal goal, at least that. And is the, the throughput of 700 a month, is that a material increase from camera protection levels? Yes. That that's a yes. That is a yes. That is a yes. Yeah. The answer to that one is it's probably close to double. Yeah. And, you know, Walter Obviously, the production rate, is twice with the new facility and probably the office. Competition in terms of, worldwide competition, you find the platform used or the carrier used throughout the world and, to compete in that arena. We have to increase our efficiency and take some cost out of the process, because you're normally competing with, smaller local manufacturers. You're building a better product but you're competing with some people that, are price driven. And a local manufacturer has they they're competitive from a pricing standpoint? Well, they don't. I mean, when you talk about a local manufacturer sure you I have to to compete in, let's call it, Brazil. I've got freight. So I've got I've got some expenses that they don't have, obviously. So we're trying to drive our efficiencies and costs down, to expand our world footprint. So a a a a big part of your goal here is driven by the intention to expand globally? No, a big part of, I mean, I'm adding that from an international flavor. Our goal here is to, obviously, improve our efficiencies, improve our profitability and increase our production capabilities, quality. Quality, there's lots of goals Walter. This is Bill. Walter's is Bill. Yeah, the obviously, the objective is to reduce the cost, improve the quality, but most importantly, we have to meet the demand. And there's no way our volume is jumping the way you guys see it unless we're taking business somewhere. And we have to increase our production to be able to stay with that because we've been very successful with a lot of new products. With a lot of new customers. And that's due to a a great team. Okay. I appreciate it. Again, great quarter. Thank you. Thank you. I know additional questions. This concludes the question and our session. I'd like to turn the conference back over to Jeff Badley for any closing remarks. Well, we certainly are excited with our performance of our last quarter. And we look forward to, joining you again with our results of our 3rd quarter results. Thank you very much for joining my call. Goodbye. This concludes today's event. Thank you for attending today's presentation. You may now disconnect.