Good day, ladies and gentlemen, welcome to Miller Industries' second quarter 2023 results conference call. Please note, this event is being recorded. Now, at this time, I would like to turn the call over to Mike Gaudreau at 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 2023 second quarter results, which were released yesterday. With us from the management team today are Bill Miller, Chairman of the Board; Will Miller, President and CEO; Deborah Whitmire, Executive Vice President and CFO; and Frank Madonia, Executive Vice President, Secretary, and General Counsel. Today's call will begin with formal remarks from management, followed by a question-and-answer session. 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.
At this time, I'd like to turn the call over to Will. Please go ahead, Will.
Thank you. Good morning, everyone. We are very pleased to report another solid quarter, which demonstrates that our use of capital to reinvest in our facilities over the past decade, in connection with our strategic initiatives we've undertaken over the past several quarters, are continuing to pay off. This is a testament to our commitment to our shareholders, as well as our efforts to invest in our workforce during the pandemic. We generated record revenue of $300.3 million, increasing 49% year-over-year, due to improved supply chain resilience and increased productivity.
Gross profit for the second quarter was $39.9 million, an increase of 117.3% compared to the prior year quarter, while our gross margin of 13.3% improved 420 basis points year-over-year and 250 basis points sequentially. We are seeing continued benefits from the productivity initiatives and pricing adjustments to offset inflationary pressures and are optimistic about what this means for our profitability moving forward. To give a bit more context, to maximize production output after facing the challenges created by the pandemic, we have been focused on vertical integration to minimize production disruptions. This was a large driver behind our decision to acquire Southern Hydraulic Cylinder in May.
The sourcing flexibility this acquisition provides us will continue to improve execution on our delivery of finished goods and consolidate lead times, particularly since hydraulic component availability has recently constrained our ability to maximize production. Historically, custom cylinders have longer than normal lead times. We are experiencing continued strong demand for our products in all of our end markets and have had no significant customer cancellations in 2023 so far. We've improved our ability to deliver finished goods through our productivity enhancements and supply chain dynamics mentioned earlier. Even despite our ability to ship product, our backlog remains elevated and near record levels. As a result of our strong financial results and our elevated backlog, we continue to believe it is prudent to increase our inventory levels to service the demand.
However, we'd expect inventories to grow at a slower rate than in the prior year. In our international business, which makes up approximately 10% of our sales, we are encouraged by the strong demand levels we continue to see. During the second quarter, we experienced improvement in our margins as we finalized the invoicing of orders in our backlog that have not been offered protected pricing. Lastly, before I turn the call over to Debbie, I'd like to make a few comments regarding our workforce. As a reminder, last quarter, we announced changes to our executive compensation plan in order to mirror our peers and align executive compensation to company performance. As part of that exercise, we determined that some non-executive employees' compensation needed to be modified and have made provisions for these adjustments.
It has always been part of our company's culture that we treat our employees with the utmost respect and try our best to retain our incredibly skilled team. These changes will not only benefit their lives, but will benefit Miller Industries as well, as their expertise is critical to our company's success. Now I'll turn the call over to Debbie, who will review the second quarter financial results in more detail. Following her remarks, I'll provide some closing comments and update on our outlook. Debbie?
Thanks, Will. Good morning, everyone. Net sales for the second quarter 2023 were $300.3 million versus $201.5 million for the second quarter of 2022, a 49% increase year-over-year, driven by increased shipments of finished goods and execution on our strong backlog. Cost of operations increased 42.2% to $260.3 million for the second quarter 2023, compared to $183.1 million for the second quarter 2022. The increase in our cost of operations is due largely to our higher revenue levels and an increase in deliveries. Cost of operations as a percentage of net sales decreased approximately 420 basis points from the prior year period to 86.7%.
Gross profit was $39.9 million, or 13.3% of net sales for the second quarter 2023, compared to $18.4 million, or 9.1% of net sales for the prior year period. The year-over-year improvement was driven largely by our productivity improvements Will mentioned earlier, a more reliable supply chain environment, and further margin realization from price adjustments we implemented earlier this year. We view our gross margins for 2023 as representative of what the business can achieve in a more normalized environment. That said, as we remind you every quarter, our gross margins are subject to quarter-to-quarter fluctuations based on product mix. SG&A expenses were $19.5 million in the second quarter 2023, compared to $12.7 million in the second quarter 2022.
As a percentage of net sales, SG&A was 6.5%, 20 basis points higher than the prior year period. The increase is due largely to our new executive compensation plan, as well as legal and consulting costs related to our refreshment of corporate governance and investor relations. As Will mentioned earlier, we, we have also provisioned for a new compensation structure for some non-executive employees that contributed to the increase. Moving forward, we would expect quarterly SG&A expenses to be consistent with levels in the second quarter, assuming similar revenue and earnings performance.
Interest expense for the second quarter 2023 was $1.7 million, up from $628,000 for the second quarter 2022, primarily related to an increase in our debt levels related to our acquisition of Southern Hydraulic Cylinder, along with some increase related to our distributor floor plan financing cost, which shifts up and down with revenue. Other income for the second quarter was $229,000, compared to an expense of $275,000 for the second quarter 2022, attributable, attributable largely to currency exchange rate fluctuations. Our effective tax rate for the quarter was 21.4% and slightly lower year-over-year, primarily, primarily due to the benefit of various tax credits.
Net income for the second quarter 2023 was $14.9 million, or $1.29 per diluted share, compared to net income of $3.8 million, or $0.33 per diluted share in the second quarter of 2022. Turning to the balance sheet, cash and cash equivalents as of June 30th, 2023, was $30.5 million, compared to $29.7 million as of March 31st, 2023, and $40.2 million as of December 31st, 2022. Accounts receivable as of June 30th, 2023, was $264.5 million, compared to $233.1 million as of March 31st, 2023, and $177.7 million as of December 31st, 2022.
Inventories were $167.5 million as of June 30th, 2023, compared to $164.4 million as of March 31st, 2023, and $153.7 million as of December 31st, 2022. To provide a bit more context, we continue to increase inventory levels in the form of raw materials, finished goods, and goods near completion. We have taken a number of steps over the past year to improve stability and flexibility in our supply chain to maximize our deliveries, given our elevated backlog. We will continue to invest in our working capital as necessary to have critical parts available for us to turn inventory into finished goods and get product into the customer's hands as quickly as possible.
Accounts payable as of June 30th, 2023, was $188.9 million, compared to $169.5 million as of March 31st, 2023, and $125.5 million as of December 31st, 2022. During the quarter, our outstanding balance on our $100 million revolving credit facility increased to $60 million, related primarily due to the acquisition of Southern Hydraulic Cylinder. As it relates to capital allocation, our focus over the past few years has been returning capital to shareholders through an industry-leading dividend and investing in three core areas of the business: productivity improvements, capacity expansion, and the health and safety of our employees. We will continue to return capital to our shareholders in the form of our dividend and are always seeking out opportunities to invest in the company.
However, our top priority as it relates to capital allocation at the moment, will be reducing our debt balance. As we have always said, we are a debt-averse company, and yet we feel comfortable with our current debt level, as we believe that today, the best use of cash is investing in inventory to service our customers and reduce our debt. Lastly, the board of directors approved our quarterly cash dividend of $0.18 per share, payable September eleventh, 2023, to shareholders of record at the close of business on September first, 2023, marking the 51st consecutive quarter that the company has paid a dividend. Now, I'll turn the call back over to Will for some closing remarks.
Thank you, Debbie. Our second quarter results clearly demonstrate that the strategic steps we've taken in recent quarters are yielding positive results. Our improved product deliveries and enhanced production efficiency are now showing tangible benefits. We are encouraged by the significant increase in our year-over-year profitability and believe we will be able to sustain these pre-pandemic margins, barring any unforeseen circumstances. These achievements instill us with strong confidence in our long-term potential. Building on this solid performance in the first half of 2023, we are confident in our ability to generate over $1 billion in annual revenue, with significantly improved year-over-year profitability. As always, the entire management team and I would like to thank all of our employees, suppliers, customers, and shareholders for their continued support of Miller Industries. At this time, we'd like to open the line for any questions.
Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from Michael Shlisky with D.A. Davidson. Please proceed with your question.
Yeah.
Good morning, Mike.
Good morning. Good morning. Hello. Thanks for taking my questions. Just a couple of quick ones here.
Absolutely.
Great. Yes, thanks so much, Will. Could you give us an update first on chassis supply for trucks, for some of your products? How did it trend throughout the quarter? Maybe how it might look for the back half of the year? Maybe if you can maybe in that commentary, delineate between some of the larger, heavier, Class seven, eight trucks and maybe the Class five, six smaller models that you might be working with.
Yeah, chassis deliveries in the quarter were probably a little slower than expected. Certainly, the chassis OEMs have been dealing with similar supply chain issues that we are still to date. We have not been necessarily negatively impacted at a production level at this point. We believe we have enough chassis on order, and based on our conversations with the OEM, should see appropriate deliveries through the end of the year to meet our customer demands.
Great. Outstanding. I wanna follow up also on some of the employee compensation changes that you made at the company recently. Definitely a hot topic out there in the, the industrial sector. Have you had any early feedback as to whether there's been any cultural change or any, any changes in employee, behavior for those who were, affected by it recently? Or do you feel like that might be still, on the coming year, in the back half of the year?
Mike, you cut out right there at the very beginning of the question. I didn't hear the context. I apologize.
Oh, I apologize. I was just asking about the employee compensation changes that were made recently among the various employees. I was curious if that had an impact on the culture, in, in the office and on the shop floor recently. Is it too early to tell if the changes you've made to compensation are gonna make any changes in, you know, in the everyday operation?
No, I think everything that we've done to date and what we're looking to do in the future will only be beneficial to our employees and how they view the company. We always take great pride in all of our hourly employees, management employees, and I don't believe that we've seen any negative impacts at this point from any of the compensation changes.
Excellent. Actually, I was gonna ask about positive impacts. Have you, have you seen any changes around how people-
Well
are doing absenteeism?
Yeah, we have. I believe that overall employee morale at our facilities is positive at this time. Just last quarter, when every time we hit a, a record quarter, we actually provide a luncheon for all of our employees, which goes over very well. They get a little extra time off of work. We do a luncheon where the executive staff feeds lunch to all of the hourly employees and management employees. That goes over very well. We also just finished our annual picnic for both our facilities in Tennessee and Pennsylvania. We... I'm sorry, all three facilities now in Tennessee. To date, we believe that we have very positive morale in all of our facilities.
Outstanding. Maybe one last one from me, and that is on the M&A deal to acquire Southern Hydraulic. Anything surprise you once you got the key to the building as to how that company operates? Any significant changes that have been made? I'm curious, can you tell us if the company sells to outside customers besides just Miller Industries? Will you continue to sell to those outside customers or make them more of an in-house hydraulic provider?
No, no unanticipated or unknown issues at this time. Everything has gone very smoothly through the inventory audits and things of that nature. We have already made IT adjustments to upgrade security and things of that nature at the facility to get it up to our standards. No major issues. With regards to other customers, they do sell to outside suppliers or to outside customers other than Miller Industries, and we are evaluating the customer list at this time and working on moving those orders into the new order bank. We've had no cancellations from current customers either.
Okay, outstanding. I appreciate the color. I'll pass it along. Thank you.
Absolutely. Thank you, sir.
There are no further questions at this time. I would now like to turn the floor back over to Will Miller for closing comments.
Thank you. I'd like to thank you all again for joining us on the call today, and we look forward to speaking with you on our third quarter conference call. If you'd like information on how to participate and ask questions on the call, please visit our updated investor relations website at millerind.com/investors or email Investor.Relations@millerind.com. Thank you all, and God bless.
This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.