Q3 2019 Earnings Call

Please standby.

Good day, ladies and gentlemen, and welcome to the Miller Industries third quarter 2019 results Conference call. Please note. This event is being recorded.

And now at this time watching the conference over to Britain Dunlap <unk> F. T. I consulting. Please go ahead Sir.

Thank you good morning, everyone I'd like to welcome you to the Miller Industries Conference call. We are here to discuss the company's 29 teams third quarter results, which were early after the close of market yesterday.

With us from the management team today, our Bill Miller Chairman of the Board, Jeff Badgley Co CEO , Debbie Whitmire Executive Vice President and CFO , and Frankman Danya Executive Vice President Secretary and General Counsel.

Today's call will begin with formal remarks for 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 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 third quarter results with you today.

This was a solid quarter Miller industries increased its gross profits expanded its gross margins and continued to strengthen its balance sheet.

This strong execution during the third quarter reflects our continued focus on driving operational excellence across our business.

Revenue during the third quarter decline 110th of one person to 195.5 million versus 195.7 million a year ago, which reflects temporary supply chain challenges with certain chassis manufacturers.

These challenges have been addressed by both both those suppliers and ourselves and we do not anticipate this will impact the fourth quarter.

Despite these temporary challenges we were able to increase gross profits by 1.3% year over year to $21.7 billion and expand our gross margins 10 basis points year over year to 11.1 person.

Which reflects our strong cost control and discipline.

As such net income was $8.1 million or 71 cents per share compared to net income of $8.7 million or 76 cents per share.

The third quarter of 2018.

Additionally, during the quarter, we continue to invest in our business by enhancing our software capabilities to better serve our customers, which resulted in a 50 basis point increase in SGN, a as a percentage of net sales to 5.3%.

The investments, we're making in technology will enable us to increase our administrative efficiency improve our data analytic capabilities and increase our service levels for our customers.

We are currently in the early phases of Rolling up this new technology, and a month and I am pleased to announce that the implementation is on schedule.

As we move into the fourth quarter, we remain confident in the underlying strength of our business.

Both domestic and international and are committed to providing best in class service to our customers, while investing for long term growth.

Further our balance sheet remains healthy as we continue to pay down debt and strategically deploy our resources to drive long term organic growth and profitability to meet the demands of our customers and creates sustainable value for our shareholders.

We remain confident in our competitive position and in our financial outlook.

Now I'll turn the call over to Debbie who will review the third quarter financial results after that I'll be back with comments about the market environment and some closing remarks Debbie.

Thanks, Jeff Good morning, everyone.

Net sales for the third quarter, 2019 were $195.5 million versus $195.7 million for the third quarter 2018, 0.1% year over year increase driven by Tim decrease I'm, sorry, driven by February supplier related.

As mentioned earlier.

Cost of operations decreased 0.3% to $173.7 million the third quarter 2019.

Compared to $174.2 million for the third quarter 2018, as a result of our continued commitment to increasing production efficiency.

Cost of operations as a percentage of net sales contracted approximately 15 basis points to 88.9% from the prior year period.

Gross profit of $21.7 million or 11.1% of net sales for the third quarter 2019, compared to $21.5 million for 11% net sales for the third quarter 2018, reflecting our stringent cost control efforts.

SGN expenses were 10.5 dollars for the third quarter 2019, compared to $9.5 million for the third quarter 2018, as a percentage of sales SGN, a increased approximately 50 basis points to 5.3% from 4.8% in the prior year.

Period, driven by escalated marketing efforts and the investments we've made to implement our new systems technology.

Interest expense net for the third quarter 2019 was $424 compared to $525000 for the third quarter 2018, which decrease was primarily due to increases in interest income on distributor receivables.

Other expense for the third quarter 2019 was a net expense of $231000 compared to net expense of $76000 for the third quarter 2018.

The currency exchange rate fluctuations.

Net income for the third quarter, 2019 was $8.1 million or 71 cents per diluted share.

Net income for the third quarter, 2018 was $8.7 million or 76 cents per diluted share.

Now let me briefly reviewing the results for our nine months ended September Thirtyth 2019.

Net sales for the first nine months of 2019 were $615 million compared to $531.7 million in the prior year period, an increase of 15.7%.

Gross profit for the nine months ended September Thirtyth, 2019 was $69.6 million or 11.3% of sales compared to $61.1 million.

Our 11.5% of sales for the first nine months since 2018.

Net income for the first nine months of 2019 was $27.4 million or $2.41 per diluted share increased 19.5% compared to net income for that first nine months of 2018 of $22.9 million or $2 and once.

Per diluted share.

Now turning to our balance sheet.

Cash and cash equivalents as of September Thirtyth, 2019 was $27.5 million compared to $27.2 million.

As of June Thirtyth, 2019, and $27 million at December 31 to 2018.

Sounds receivable at September Thirtyth, 2019 totaled $165.8 million compared to $197.8 million as of June Thirtyth, 2019, and $149.1 million at December 31, 2018.

Inventories were $98.1 million as of September Thirtyth, 2019, compared to $91 million as of June Thirtyth 2019.

$93.8 million at December 30, Onest 2018.

Accounts payable at September Thirtyth, 2019 was $114.9 million compared to $129.4 million as of June Thirtyth 2019, $98.2 million at December 31, 2018.

We reduced our long term debt by approximately $10 million during the quarter from the prior quarter, bringing in the balance to approximately $10 million as of September Thirtyth 2019.

Overall, our balance sheet remains strong and we continue to generate solid free cash flow, which provides us with financial flexibility to invest in our business and continue to drive long term shareholder value.

Lastly, the company also announced that its board of directors approved our quarterly cash dividends of 18 cents per share payable December 16th 2019.

Our holders of record at the close of business on December nine 2019.

Now I'll turn call back to Jeff for further remarks.

Thank you Debbie.

Our performance this quarter was very encouraging as we were able to overcome challenging circumstances face during the quarter.

Reflecting on the first nine months of 2019, we're extremely pleased with our performance specifically the year over year revenue increase during the first nine months of 83.

Point $3 million, along with a gross profit increase of $8.5 million and a 40 some increase in net income per diluted share.

As we move toward year end and look forward into 20, Twond, we continue to be confident in the strength of our backlog and the underlying positive fundamentals in all our end markets.

Understood underscore our continued commitment to returning shareholder value, we have declared our quarterly dividend of 18 cents per share.

Finally, we are confident that we will continue to benefit from our strategic capital investments, while we continue to explore future opportunities.

In closing I'd like to thank our employees, our customers suppliers and shareholders for their ongoing support of Miller industries with that we're ready to take your questions. Thank you.

Thank you and ladies and gentlemen, if you'd like to ask a question. Please say my pressing star one under telephone keypad, if we're using a speaker phone. Please make sure give me a function is turned to apply your signal to reach our equipment again press star one to ask a question, we'll pause for a moment, everyone an opportunity signal for questions.

Our first question today will come from James Lee with Potrero capital.

Hi, Thanks, taking my call.

The supply chain issues regarding our chassis was that did impact.

Domestic or is it also international as well.

No the supply chain issues.

Revenue were surely domestic.

Okay. So I see that domestic that that you guys.

Were up 11%.

They didnt have the supply chain issue, what do you think your growth would have been.

We believe that the supply chain issue with the Chelsea's had.

3% to 4%.

Impact on total revenue.

Okay total revenue not just domestic.

No total revenue.

Right.

And you said that's all that's been that's been fix so that shouldn't impact Q4 correct.

Yeah, we're on the right tracked in Q4.

Okay. So sounds like there's certainly some backlog that'll get pushed to Q4, because you because its supply chain issue that.

So you should see sort of.

Great and delivery in Q4 from the kinda delay in Q3.

Yeah, I don't know that it will be totally additives.

I'm not going to do so.

Disagree with your statement, but we are back on the right track with our chassis deliveries.

Internationally right.

And.

Where does that add to read from your press release that that you expect international growth a bounce back to be positive in Q4.

Well, we certainly.

Due to timing of certain contracts.

Three.

Deliveries were down we have started those contracts and in fact in Q4.

Already started delivering on those contracts, so I would expect us to get back to normalized range.

Yes, okay.

And that normalized means growth correct I think in the press release. It reads like I think you say deliveries it does that increase in deliveries in fourth quarter, So I'm expecting.

Really not pretty for delivery, we will increase deliveries in the fourth quarter over the <unk> third quarter that is for that as for sure.

Long term growth, we've been very successful on military contracts and some foreign contracts with.

What's companies.

I would expect the we will continue to be successful, especially on the military side.

But to.

Look at the 2020 growth perspectives over 2019, I think where there.

Based on the backlog, but again there are certain.

Delivery timing issues.

But I have we've completely gone for.

For performance of those contracts and I don't want to mislead you. So hi, I can do that.

Hi, I have the ability to do that and I apologize that I haven't.

Okay.

As you talk to your dealers have you heard from the dealers.

I've expressed macro concerns.

In the U.S. or internationally.

And whether that has impacted a dealer inventory.

Our dealers are still reporting strong sales.

And a busy environment domestically.

So I had.

Don't know that they've impacted their inventory levels, our dealers or.

Our very good business people.

Their inventory.

I have not check their inventory levels, because I know.

International responsibility.

But I don't think they've been impacted another words, I don't say, they're slowing down.

User market seems to be very very good.

Yeah, that's in the U.S., what about internationally, because I think you guys called out Brexit.

Yeah, I don't think Brexit will have very significant impact to Miller industries.

Overall.

Our UK subsidiary mainly cells in the UK.

Customer bases in the UK.

And does very little export business out of the UK. So.

Although I can't guarantee that I can't guarantee what their currency is going to do I can't guarantee what the psychological.

The psychological effect Brexit will have on their customer base.

But overall I don't think it will have a significant impact to Miller industries.

Okay.

And I noticed your your Capex capital budget. This year, it's starting to ramp again.

Could you discuss discuss why because my understanding is that Capex has shut up normalized from lower level. After your plant.

I've got to mention that has completed.

Debbie I'm going to turn that one or two overview.

Okay. Thanks, Jeff.

Part of the Capex for the year is the investment in the systems technology that we mentioned in the 10-Q.

We have.

Started the road other upgrading our ERP system and adding on some different modules to that per day, Alf X artificial intelligence.

That type of.

Technology, so part of that capital expenditure is to invest in that future technology.

Well, what do you think the.

How do you got a capex would trend Oh this year next year.

Obviously, we've got some maintenance coming up for.

Some of our assets that we've put in place over the last few years I would say, it's going to trend pretty pretty much the way that it has been in the last few quarters, you know as we look for opportunities both on it in innovation of our product and investment in.

Robotics, three D printing any of those opportunities that might arise as well as the technology stocks.

I think we'll try to take advantage of those opportunities so I.

Wooden I wouldn't be conservative with it because we do.

Like to take advantage of those opportunities when they arise.

Oh, sorry, I'm, just I'm trying to figure out what what should we expect capex potentially to trend back towards the level that you guys have seen a pass before.

The on the factory better the expansion.

I would say.

Hey.

Good average to use would be 15 million for the year, but again, you know as opportunities arise we may take advantage of those but you know.

Hey, I normalized runway run rate would probably in the neighborhood of 15 million.

And that's the that's the right we should look forward to over the next few years not just this year or next.

Well, we certainly.

Got sick taste, good opportunities do present themselves.

And if were given the opportunity to increase shareholder value by making the proper capex expenditure, we will take advantage of event, especially.

With our financial position and our debt levels being so alone so.

Yeah that would be the plan.

Yeah, Jeff.

Jeff Jeff and Lee. This is this is bill Miller I think that what you you have to keep in mind and having been.

The founder and built the company all of our growth historically, which is averaged over.

I think our internal growth rates been over 12% for the entire life.

Life for this company is all done internally with R&D.

New products new ideas.

As Jeff was commenting as to the or.

The current attitude or the distributors, we just introduced a new hundred ton rotator.

Hey, a special showing of which.

What was it Jeff 1500 of our distributors and best customers had their own way there to see it.

And we're all extremely excited so I know that their and I'm very good stead, but I also know that.

If we don't invest in our.

Capex.

We will not be able to continue to get this.

Over 10 per cent per your kind of growth rate.

A good example of on and part of issue, we just built a whole new R&D Center.

Just for the projects that are on the.

On the on the future and the forefront right now.

So that we can continue to get this kind of growth rate.

Forward.

So.

We have we spend money to regenerate money.

Our returns or.

The board doesn't like to look at anything under 30%.

All right and unless it's a capital constraint kind of issue.

Capacity constraint so.

Oh, Yeah, we spend a little money, but our return is a very large.

Compared to making acquisitions or some other all occur.

Got it sorry, I suppose and we've got a capex level prior to your your factor expansion I think it was a neighborhood of five to 10 million per year opting for that so that's not a level that we should be thinking about going forward.

To be that well the only thing I would realize Debbie what what does arc what is our depreciation right.

Oh.

Hi seem to remember it's about.

And well do yeah, 12 million, you've got a little bit more.

And and we historically have tried to leave stay on that kind of a track to continue to replace and build our plant others. In this expansion were tours.

Not a staying up to snuff or better idea and we have and we have an R&D business out there and you [laughter] you're looking at Capex right now our R&D business.

We go out to build these new products.

I'm sorry.

Thanks to the current situation.

We're able to recover that cash.

So.

We are all about new products new ideas.

And ER.

Future growth through our internal growth.

Got it assuming a lot of questions on capital allocation, assuming your device demand environment remains strong and it sounds like capex is going to be like what it wasn't it and when you guys were expanding affairs.

Factory, you should be starting generating more free cash flow. How do you guys thinking about return on capital to shareholders, thereby increasing dividend or perhaps the stock buyback.

We do everything we care.

And we will continue to do everything we care.

To give a great returns to our shareholders.

Which includes.

As you said dividends.

Buybacks.

It was there items that that our board considers every quarter.

And our as we feel comfortable with them.

We didn't move forward with them.

We we kind of put a little freeze on dividend.

For the last a little period because of the Capex we're spending.

And the lack of timing between.

When we generated the cash and when we had to spend.

So we were used our bank loan to offset that now as you can see we've almost got it all paid back now.

And there we would hope in the near future.

Now we'd be back to them.

Or zero debt.

And at that point, we start to look at other ways to enhance our shareholder value.

Are there any big capital projects that you see in horizon that make a stranger a return of capital to shareholders.

No I.

I don't see them.

Hi, Jeff do you see on me.

No Sir you happy.

That's right now I don't see any.

That are in front of us that are.

Net worth or have some kind of or.

Already strength likes the 15 million, we had to spend to be.

Yeah, well to jump from.

500 million too.

Have capacity to get the eight 900 million.

More whatever whatever the customers to me.

Got it right. Thank you.

Thank you and just a reminder, ladies and gentlemen is far one to ask a question at this time.

And with no further questions in the queue that does conclude todays question answer session I like in the call back over to Mr., Jeff badly for any additional for closing remarks.

We'd like to thank you for joining us on our Q3 conference call me look forward to talk to talking to you and reporting.

Our Q4 results in our next call. Thank you very much.

And with that ladies and gentlemen that concludes today's conference call. We would like to thank you again for your participation you may now disconnect.