Q2 2020 Miller Industries Inc Earnings Call

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We'll go through I'll tell you later, good day, ladies and gentlemen, and welcome to the Miller Industries second quarter 2020 results Conference call. Please note. This event is being recorded and now at this time I would like to turn the call over to Brendan don't look at Ft. I consulting. Please go ahead Sir.

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 2022nd quarter results, which were released after the close of market yesterday.

With us from the management team today, our Bill Miller Chairman of the Board will Miller, President and co CEO, Jeff Badgley co CEO W. admire executive Vice President and CFO and frankly, the Onea Executive Vice President Secretary and General Counsel.

Today's call will begin with formal remarks from 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 formally described in the Companys 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 turn the call over to yes. Please go ahead Jeff.

Thank you and good morning, everyone over the last few months, we have experienced an unprecedented in house and economic crisis due to the covert 19 and government.

Despite the uncertainty caused by this crisis Miller industries has remained committed to providing best in class products to keep roadways clear around the globe.

Moving onto our financial results our performance during the quarter was significantly impacted by co. Good related shutdowns at our facilities as well as shutdowns in our supply chain, which resulted in a decline in topline sales.

Revenue during the second quarter decreased 42.2% to 128.5 million versus 222.3 million a year ago.

The economy was impacted by co good 19, and shutdowns in our supply chain reduced our production levels.

That said, we were able to quickly adjust our operations to reduce cost and minimize overall inefficiencies, while continuing to meet the needs of our customers.

Quarterly gross profit decreased by 29.7% year over year to $17.7 million. However, our gross margin expanded approximately 250 basis point points year over year to 13.8% due to favorable product mix.

And operational adjustments made during the quarter.

Net income was $5.8 million or 51 cents per share compared to net income of $10.7 million or 94 cents per share in the second quarter of 2019.

Although market conditions remain unpredictable, we are confident in our ability to continue meeting the needs or customers, while maintaining stringent social distancing sanitary protocols and the other governmental guidelines to protect the health and safety of our employees.

As we move into the second half of the year, we're working closely with our distribution network as they adjust their inventory to meet customer demand.

Further we continue to invest and technological improvements in our production facilities to increase overhaul production efficiency and enhance the safety of our employees I.

I'm pleased to announce to roll out of these improvements is progressing as planned.

Despite the ongoing uncertainty in the broader market. These improvements will position us well to capitalize on future growth.

When the cobot 19 crisis subsides.

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

Good morning, everyone.

So for the second quarter, 2020, or $128.5 million versus 222 million <unk> $226.3 million for the second quarter 2009.

42.2% year over year decrease driven by ongoing impacts from the kind of impacting transaction.

Cost of operations decreased 43.8% to $110.8 million for the second quarter 2020, compared to $197.1 million the second quarter 2019 needed to the decline in our topline sales.

Cost of operations as a percentage of net sales declined approximately 250 basis points, the 86.2% from the prior year period.

Gross profit was $17.7 million or 13.8% of net sales for the second quarter 2020, compared to $25.2 million or 11.3% of net sales for the second quarter 2019, reflecting favorable product mix and by minimizing operational inefficiencies.

As a result of adjusting production schedule and eliminating overtime.

As DNA expenses were $10.1 million for the second quarter 2020, compared to $11 million for the second quarter 2019.

As a percentage of sale SDMA increased approximately 290 basis points, the 7.8% from 4.9% in the prior year period.

Interest expense net for the second quarter, 2020, but $429000 compared to $721000 for the second quarter 2019, as we pay down our credit facility.

He says.

Interesting payment.

Other income expense for the second quarter 2020 was a net income of $275000 compared to a net expense of $57000 for the second quarter 2019 is currency exchange rate fluctuations.

Net income for the second quarter, 2000, $25.8 million or 51 cents per share.

Net income for the second quarter, 2019 was $10.7 million or 94 cents per share.

Now let me briefly review our results for the six month ended June 32020.

Net sales for the first six months 2020 or $304.6 million compared to $419.6 million in the prior year period.

Decreased 27.4%.

Gross profit for the six month ended June Thirtyth 2020.

$36.3 million are 11.9% of sales compared to $47.8 million or 11.4% of sales for the first six months of 2019.

Net income for the first six months of 2020 was $11.3 million or 99 cents per share decreased to 41.8% compared to net income for the first six months of 2019 of $19.3 million or $1.70 cents per share.

Now turning to our balance sheet cash and cash equivalents as of June 32020.

$37.1 million compared to $43.1 million as of March 31, 2020, and $26.1 million as of December 31, 2019.

Accounts receivable at June Thirtyth 2020.

$123.2 million compared to $168.9 million as of March 31 to 2020 and $168.6 million as of December 31st 2019.

[noise] [noise] inventories were $99 million as of June Thirtyth 2020, compared to $92.6 million as of March 30, Onest 2020, and $88 million as of December 30, Onest 2019.

Accounts payable at June 32020, let's say $59.5 million compared to $96.8 million as of March 30, Onest 2020, and $95.8 million as of December 31st 2019.

As you recall in our first quarter earnings call, we preemptively drew down $25 million from our existing credit facility to ensure that we had sufficient liquidity to whether that coated 19 crisis.

During the second quarter, we repaid the $25 million, we borrowed during the first quarter, reducing our current credit facility balance to $5 million. As we are now confident that we have adequate liquidity to weather foreseeable impacts of the pandemic.

Overall, our balance sheet remains strong and we believe we have sufficient capital resources to handle the challenging environment.

Lastly, the company also announced that its board of directors approved our quarterly cash dividend of 18 cents per share payable September 14th 2020 to shareholders of record at the close of business on September seven 2020.

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

Thank you Debbie.

Bill Miller and I are very proud of the continued dedication of our employees throughout the ongoing pandemic.

Our unwavering commitment to operational excellence and best in class customer service provides us with the expertise and capability to meet the needs of our customers.

Despite the challenging economic environment.

While taking precautions to provide a safe work environment for our employees.

Additionally, we remain dedicated to returning capital to shareholders as evidenced by our declared dividend of 18 cents per share.

The strength of our balance sheet and our ample liquidity provides us the financial flexibility needed to persevere through these challenging times as we move into the second half for the year. The covert 19 situation remains fluid and we anticipate the path.

And then we'll continue to have a material adverse impact on our business.

Going forward, we will continue to monitor the covert 19 situation and attempt to actively mitigate any future impacts on the business.

Although it is impossible to predict.

When these circumstances will be resolved, we're confident that our ongoing operational improvements and healthy balance sheet position us favorably to emerge from this crisis as a stronger and more efficient company than ever before.

In closing I'd like to thank our employees customers suppliers and shareholders for their ongoing support of Miller industries. Thank you again for joining us this morning.

And operator, please open the line for questions.

Thank you, ladies and gentlemen, if he would like to register for a question. Please press the one follow up with a four you live here, it's pretty tough comp technology request. If your question husband on certain you would like to withdraw your registration. Please press the one follow up either.

Once again, ladies and gentlemen on the phone lines. If you have a question. Please press the one follow up in the far.

And our first question is from the line of Jamie with.

Looking at real capital. Please go ahead your line is open.

Hi, Good morning could you update is on the status of your supply chain and many parachuting so issues.

Jim I'm, sorry, and would you repeat that question.

Yeah, I get an update on all your supply chain issues and also the production issues that you talk part really related from due to covert or how you. What are you back to what percent of normally you back to pre corporate level.

Currently Jim we or most of our major or supply chain issues have been solved.

More somewhat mitigated we have taken stuff so well.

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I find alternative ours.

In regards to our own facilities due to those their shoes.

In.

The second quarter, we had some plant closures.

They happened at the end of the second quarter and some of those closures extended into could be getting them for third quarter, but we want we are now fully operational.

So.

Or is it fair to say that you can supply whatever demand you're seeing right now 100%.

We are certainly I'm able to supply.

To our customer.

Level of domain.

Yes.

And just fall by dividing environment, what how would you care dot characterize the demand environment right now and is it.

Are you seeing demand back to what percent level pretty cold that.

Let me pass what you could look at the decline in Q2 in your sales.

How much would you attribute that to supply and facility issue versus demand issues.

Well as we entered Q2, we had a fairly large backlog.

That backlog was driven by a very strong market condition from the end users that backlog as we entered Q2 and there were closures and also stay at home orders, the we gave or just.

Attributed there's an opportunity to look at what they had on order from has to make sure. They were not in an oversupply ppas oversupply position based on current economic conditions.

We continue to build.

But we did give them an opportunity to lower or in fact cancel certain orders if they felt uncertainty about their customers desire to take the product.

Coming out of the.

Stay at home orders and I apologize, let me back up little bit those stay at home orders impacted in particular.

A couple of segments of what we build particularly particularly in the light duty segments, both the carriers and rikers as we entered in to past opening up or the beginning of the economy opening up we started.

To see a tick up.

Of orders from our distributors.

And that ticked up is still progressing today although.

I haven't done the math I don't know, where we are from an order entry level will free coven to now where are you in domestically I.

I think oh.

Over the past four to six weeks, we've seen an increase back in orders from domestic distribution.

70% range.

After our backlog shrink substantially I believe that we're building.

Products to meet the customer Stan demand at the appropriate rate at this time.

Right, but Jim I wouldn't I mean, both well and myself are.

I will in particular are monitoring our distributor inventory levels, along with our VP of sales men's Toronto to make sure that they are not putting themselves in a position that may weaken them in the future I'm on the international side I would say France is.

Yes.

Ticking back up and probably or somewhere in the neighborhood of I wouldn't say, 70% for maybe 60% of pre covidien and toward in terms of order entry. The UK. However is probably a 35, 40%.

Of free cobot.

Got it and so how does that answer.

Yes, hi, so how do you guys think about I mean.

How about staying at home, but did impact from your products you know with mild thing Kevin still I would say Bobby.

Oh well below.

Takeover level, how does how do you think that impact that going forward as there's probably less need for told trucks are less wear and tear out on the trucks.

Yes, well I believe that certainly you know in the domestic in the U.S. market miles driven certainly effects.

Are the end users demand at our distributor level, although as you know areas of opened back up we've seen distribution in those major metropolitan areas start to pick up rapidly as well.

I think you're certainly seeing it regionally based those regions that are opening back up and people are up back out on the road, you're starting to see distribution recover certainly in areas in the northeast in California, where are those closures are or the openings are much lower.

There's a lot slower level of travel and distribution slower to recover.

Yeah, well a this is bill and are you at the same time.

We also realized that there the U.S. auto fleet.

As we consider it is that its oldest pass it to older age. So that does have some the impact I think it's up to 16 years on average salary or something so [noise].

Let's see what happened.

And he mentioned early that your marketing your dealer inventory because you've talked about how have your dealers and also your and customer being the the co truck owners imagined that in this environment, they're probably not that doing well and I would just be pads or issues, but.

Absent bankruptcy issues with the either at the end customers with the dealers.

No I believe our distribution network is extremely healthy and strong certainly giving them the opportunity to cancel any orders that they felt that they were would be overstock.

Hello, not them not put them in a in a big cash position.

Or a negative cash position.

I'm talking to end users from around the country or certainly a lot of them took advantage of the pp p. money that was a afforded to them and for the most part they seem to be a extremely positive and at this time I've never heard of any.

Major fleets and certainly not any of our distributors in a a financially.

Negative position.

What about the told trouble and like you heard anything and I'd say not as the operators as well I mean, they they took advantage of PTP money and they seem to be a all relatively positive for the outlook in the future.

And you mentioned I think you mentioned it or live I missed it.

You gave your dealers to flexibility to cancel orders what what have you seen on that front on order cancellation.

We gave them a one week window.

Cancer specific orders things that weren't already in the production window that had not been scheduled.

So there was a specific time period, when they can cancel orders and what orders they can cancel.

I can't recall off the top my head exactly how many but it was probably less than 10% of total orders in our backlog that got canceled at that time it was a [noise].

Quite frankly almost insignificant.

With the length of our backlog.

That we had our backlog still remains to be extremely healthy yeah. The I think.

The cancellations as Bill said, we're probably around 10%, but in the height of.

The pandemic closures and stay at home orders what was really are evident.

Was six or eight weeks of extremely low order entry records and we continue to the best of our ability to produce so.

Although there wasn't a lot of cancellations, we did have a dry spell out what I would call can drive smell and order entry, but now as well and suggested or told you we're back to about 70% or pre covert levels.

Got it what about yeah, you talk about what percentage or your sales could be come from government orders.

I'm sorry, what was good question I Didnt.

Then begin.

That number are you talking about new order entry or are you talking about deliveries.

Hi, just revenue represented just kind of get it want to get a sense of how much you did this is is from the government orders and whether the government.

Are those contracts are more stable than than the private operators.

The government orders delivered in the second quarter were approximately $9 million to $10 million.

In terms of order entry.

We've seen push back on a variety of Dove <unk> government projects not canceled not withdrawn but pushed back in time frame.

Okay.

Last questions on pot Capex noticed that you guys are.

Incremental 10 million, new Capex for the Tennessee plant.

I recall that two three years get you guys had elevated capex for between your plants and.

So little surprised that that there's more capex. So surely after is this something that we should expect that every two three years you had I haven't elevated capex for pretty plants.

I'm going to turn my question over to will.

Well, you know a though going through the.

Pandemic and looking at a production rates and the efficiencies that we had.

Seen from our capital expenditures in the past in both our Pennsylvania facilities, and our Chattanooga, who have facility, we had a excess capacity from a labor standpoint in our Greenville, Tennessee facility.

As we look through the pandemic, we took an opportunity at this time to invest in some state of the yard fabrication.

Equipment.

And we're taking a portion of our Greenville facility in in sourcing some of our outsourced fabrication that we currently purchase.

To vertically integrate our production process.

So it's it's not something that I would definitely say would every couple of years, we're going to do however.

With our balance sheet in debt level being where it is we felt that it was an opportunity to to vertically integrate.

And also I think besides vertical integration the pandemic pointed to the fact that.

There were some supply chain issues and some of those issues could be satisfied if in fact, they were under our own control.

So we've we've made the decision which is backed by the board to make those investments in Greenville, not only.

To enhance our efficiencies, but to protect our market.

Okay sounds like the main event that you guys looking for is to help mitigate future supply chain issues by bringing some of the production in house.

Absolutely.

It would it be able to be benefit on the gross margin line as well.

Absolutely.

Bill.

Yep.

The answer.

I didn't hear your answer and I got my answer my answer would absolutely we wouldn't be doing this project if it didnt help on the gross margin.

As well as Dr., Texas or from a supply chain ish.

Got it thank you.

Thank you. Thank you Mr. Li.

Thank you once again as a reminder, it is one where if you have a question one for.

I'm showing no further questions I attended back to <unk>.

Hey, good because interested you off for closing remarks.

Thank you operator, and thank you again for joining us on the call today, and we look forward to speaking with you again on our third quarter results Conference call.

Thanks.

This concludes today's call me. Thank you for your participation.

Hi, Carolyn.

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