Q3 2021 Miller Industries Inc Earnings Call
Bye.
Good day, ladies and gentlemen, and welcome to the Miller Industries' third quarter 2021 results Conference call. Please note. This event is being recorded.
And now at this time I'd like to turn the call over to Mike Goodreau at F. T. I consulting. Please go ahead Sir.
Yeah.
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 2021 third quarter results, which were released after the close of the market yesterday.
With us from the management team today are Bill Miller Chairman of the Board will Miller, President and co CEO, Jeff Badgley co CEO, Debbie 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.
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 to 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 Jeff. Please go ahead, Jeff.
Thank you and good morning, everyone.
Our third quarter results are a testament to the perseverance of our workforce despite prepare as supply chain and labor shortages that are affecting nearly every company in the United States.
Third quarter revenues were slightly lower year over year.
Increasing supply chain disruptions.
It's difficult to obtain all necessary materials. So complete finished goods more specifically compared to the same period a year ago, our sales decreased two 2% to $164 $7 million.
Gross profit for the third quarter remained flat from the prior year period at 17 $8 million, while gross margin in the third quarter increased approximately 23 basis points year over year with an increase in efficiencies offset significantly by inflationary pressures.
On the cost of purchased materials and component parts.
As a reminder, we continue to strive to pass on price increases to customers to cover the increased costs. We are incurring. However, it takes time to reap the benefits of these price increases as we generally on or contract prices within our increasing backlog, which result.
In near term margin pressure.
Our domestic business demand for our products sits at near all time highs, however, shortages in raw materials and component parts, resulting from supply chain issues have continued to impact the amount of finished goods, we can produce and ship.
As always we continue to leverage all available resources to actively mitigate supply chain disruptions and inflationary pressures in our international business European recovery from Covid, which lagged recovery slightly here in the U S increased demand and are back.
<unk> in the third quarter, notably our European entities experienced a very strong quarter, while export activity from the U S.
Has yet to reach pre pandemic levels due to global shipping constraints. However, as these constraints are lifted we hope to see continued growth in our international markets.
We are seeing the operational benefits of our fabrication equipment upgrades implemented during 2020, and our enterprise enterprise software upgrades completed in the first quarter of 2021 now.
Now that these upgrades are complete we expect to be able to truly leverage the full capabilities of these enhancements now I'll turn the call over to Debbie who will review the third quarter financial results and then I will finish by providing some commentary on the current marketing.
Our men and some closing remarks Debbie.
Thanks, Jeff and good morning, everyone.
Net sales for the third quarter, 2021, or $164 7 million versus.
$168 4 million for the third quarter of 2022, 2% year over year decrease driven largely by supply chain issues and raw material shortages.
Cost of operations decreased two 4% to one $146 9 million for the third quarter 2021 compared to $155 million.
For the third quarter 2020, due to enhanced operational effectiveness stemming from our ERP and other initiatives and a slight year over year decline in sales.
Cost of operations as a percentage of net sales decreased approximately 23 basis points to 89, 2% from the prior year period.
Gross profit was $17 8 million or 10, 8% of net sales as of third quarter 2021 compared to $17 8 million or 10, 6% of net sales for the third quarter 2020, largely driven by our operational enhancement.
SG&A expenses were $12 million for the third quarter 2021, compared to $9 2 million for the third quarter of 2020, resulting from cost associated with our ERP system rollout and increased investments in human capital to support the growth needs of the business as a percentage of sales.
SG&A increased approximately 180 basis points to seven 3% from five 5% in the prior year period moving forward, we would expect our SGA SG&A expense to return to a more normal typical run rate for the company.
Interest expense net for the third quarter 2021, with $286000 up from $230000 for the third quarter 2020, resulting from an increase in customer floor plan financing costs to support our distribution network. Other income expense for the third quarter 2010.
One was a loss of $206000 compared to income of $209000 for the third quarter 2020.
The increase was largely largely attributable to currency exchange rate fluctuations.
Net income for the third quarter, 2021 was $3 8 million or <unk> 34 per share compared to net income of $6 6 million or <unk> 57 per share in the third quarter of 2020.
Now let me briefly review our results for the nine months ended September 32021.
Net sales for the first nine months of 2021.
$515 8 million compared.
Compared to $472 9 million in the prior year period, an increase of nine 1%.
<unk> profit for the nine months ended September 32021 was $54 3 million or 10, 5% of sales compared to $54 1 million or 11, 4% of sales for the first nine months of 2020.
Net income for the first nine months of 2021 was $13 5 million or $1 19 per share a decrease of 23, 7% compared to net income for the first nine months of 2020 at $17 8 million or $1 56 per share.
Now turning to the balance sheet cash and cash equivalents as of September 32021 was $50 4 million compared.
Compared to $53 9 million as of June 32021, and $57 5 million as of December 31, 2020.
Accounts receivable as of September 32021 totaled $131 3 million compared to $161 8 million.
32021.
And $141 6 million as of December 31, 2020.
Inventories were $108 $8 million as of September 32021, compared to $92 million as of June 32021, and $83 9 million as of December 31, 2020.
Accounts payable as of September 32021 was $87 8 million compared to $108 1 million as of June 32021, and $85 5 million.
As of December 31, 2020.
The supply chain issues present significant challenges and continue to stick to our strategy as diligently allocating capital and preserving our cash we believe that given our accretive capital allocation and our strong balance sheet, we have more than enough financial flexibility to invest in our business and capitalize on strong demand.
<unk> when we move into a more normalized environment.
Lastly, the company also announced that its board of directors approved our quarterly cash dividend of <unk> 18 per share payable December 13, 2021 to shareholders of record at the close of business on December six 2021.
Now I'll turn the call back to Jeff for closing remarks.
Thank you Debbie.
While our market conditions continue to show strength in customer demand sits near all time lows supply chain constraints micro markets anything but normal.
We are positioning the company extremely well for when these adverse conditions eventually pass and we remain committed to our best in class customer service and preserving our culture of operational excellence. Additionally, as Debbie mentioned are fine.
<unk> positioning is strong and we have more than enough financial flexibility to weather any storms caused by these issues and even further capitalize on the spike in demand from our customers when conditions normalize while it is difficult to forecast when supply chains.
And transportation headwinds will subside, we are confident that the strength of our end markets, our operational effectiveness and our strong financial position will allow us to efficiently capitalize on new growth prospects and generate long term shareholder value.
The quarters and years to come.
As always in closing will and I would like to thank our employees customers suppliers and shareholders for their ongoing support renewal or industries.
You again for joining us this morning, operator, please open the line for questions.
Thank you.
If you'd like to ask a question. Please signal by pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
Press Star one to ask a question.
And we'll pause for just a moment to allow everyone an opportunity to signal.
And our first question today comes from Arnie <unk> with family office.
Hi, Good morning can you hear me okay.
Yes, Sir absolutely great great. Good morning, Thanks for taking my questions. My first question is have you attempted to estimate or guess the potential revenue impact.
That youre seeing from the supply chain shortages.
Well if you look at the two you can see that our inventory has been increased quite a bit.
The breakdown to reflects the increase the.
The majority of the increase to be in both raw materials and work.
At the quarter.
We.
Although it is hard to estimate.
Exact amounts of revenue we have seen.
Safe room, this facility and all to all.
As recently as last week.
Approximately.
13, $514 million in billable product being held up.
From moving from web to finished goods.
About $200000.
There's a group of parts and maybe.
Couple of hundred hours of labor not couple of 100 days with a couple of hundred dollars some flavor.
Hopefully that answers your question.
Thank you certainly highlights the real challenges of running a business in today's world with the supply chain issues.
Thank you for that color.
We had talked last quarter I know you have this incredible view that you must treat your customers right I applaud you for that and you didn't want to adjust pricing on orders you have in backlog, but the sense I got was that you're going to run through a lot of the what I'm going to call underpriced or mispriced backlog by the middle of the year.
And you had even mentioned the possibility of adding surcharges to make sure you could recover your cost can you update us on how you're handling the pricing to your customers given this incredibly challenging environment.
We have.
I appreciate it.
For increases throughout this year.
The first inquiries. So I think we're getting full benefit of now.
Second increase.
We'll take place January.
Third in April, but all in I believe middle of next year, we'll capture.
All of the increases we put in place this year.
So could you. Please just clarify youre still taking on you still have backlog.
That does not really reflect the cost pressures youre under now and it sounds like Thats going to continue at least for another four to six months is that the right way to yes unexplored.
Unfortunately.
You understand that.
We deliver not only our product.
<unk> is that go underneath our product.
So managing the flow of our backlog is complicated.
And becomes.
Somewhat.
Situation of what chassis show up when by what manufacturer of the chassis.
So you can have.
Some product they may be going on.
One manufacturer of SaaS fee.
That moves through the backlog quicker than another because the other manufacturers behind scope. So it's.
It's really dependent on quite a few variables of how quick it flows through the backlog.
Okay.
You.
Without being unduly specific could you mentioned, how far accurate how far out your backlog is in terms of delivery schedule.
We really don't disclose our backlog amount so I can't tell you.
I've been here quite a while.
Along with Bill Miller, our chairman I don't think either one of us have seen.
On the type of demand that we have seen over the last five or six months.
I guess.
But actually in indirect.
If I could ask a question in a different way are you. You mentioned you have a price increase in January and another one in April.
The ones in April.
Those orders are the orders do you have that might go out to April already are they at the old price are you able to get you on your back in in 2022.
We're doing everything we can in terms of price increases to get as much back as quickly as we possibly can.
If I can shift you are willing to have already from the supply issue to a different challenge that you've talked about where are you. These days on the labor issue and are you able to get fully staffed or maybe an update on labor.
We have made some strides on our labor position.
Those strides did cost some money, we had to do sign on bonuses et cetera to get.
Skilled workers into our facilities, but yes, we've we've made.
Think.
Very good strides.
Okay.
But at this point.
Very quick question for Debbie if I can the ERP cost and the impact on SG&A and how long will that continue.
We disclosed in there it's a.
Our multiyear.
<unk>.
Arrangement with our business partner.
That will continue for the next three to four years.
As we continue to roll out different modules of the implementation on additional <unk> costs go into SG&A.
More details about that can be found in that disclosure of what that is over the next three or four years.
Okay. Two more questions. If I can quickly have you given any thought or a view towards your potential capital expenditures for 2022.
Yeah.
We are generally discuss those capital expenditures, we certainly.
Look at.
<unk>.
The position we are in.
Today.
Obviously.
To solve those problems.
<unk>.
The company is use multiple price increases.
We're expanding our supply base.
We're actually redesign redesigning products too.
Move out of sole sourcing on certain components.
We're aligning production to labor availability within our facilities.
<unk>.
Discussing or as.
As you know, we expanded our Greenville operation to put ourselves in a better position to control our destination in fabrication enhancements.
And also to consolidate raw materials snow those if that final strategy works.
We may look at more expansion, but it's it's really.
It really depends.
How we move through the rest of the supply chain disruption.
Okay. My final question and Jeff and Jeff businesses is built from a board standpoint.
There are opportunities out there as we see them, which may come available.
That could do for them.
Hmm.
We will clearly take advantage of other opportunities that might come available.
In this very difficult time.
We're prepared for that.
I would imagine that the challenges you have your smaller competitors must have even bigger challenges. So and you have very successfully added acquisitions along the way. So I think your shareholders would be pretty happy if you find the right ones.
Last question is for the Miller family I first got involved with your company. When you went public at bear Stearns about 30 years ago, and I guess my real question for the Miller family as you would run a great family company, but at the moment really go have public coverage research coverage can you discuss your view.
If you want.
Public coverage research coverage in and how you might get your story better told to the investment community.
There is in <unk> Island.
Think they're passing that question.
Absolutely.
Absolutely okay well.
As the company.
As you said.
We've had a very successful company.
Company.
Over there.
Over the last 30 years as we built them.
At the beginning as a founder too.
To its current position the board.
We've been public for.
Over 25 years and.
We have an independent board hu.
Selects.
All of our senior officers.
I don't get involved in that.
So.
As far as the company goes as a family originally developed.
And the family is still only 3% of the company, which is probably the largest single individual shareholder.
But the bulk of the shares are controlled by them.
Probably various or investment funds around.
They're involved in wall Street and individuals.
As far as the.
Question.
Yeah.
How we look at this company.
I will take.
Our learning from home.
Warren Buffett, who gave me this one time.
His partner, we're setting them together at one time.
He said the stock market is.
On a short term like a voting booth.
And on the long term based upon.
Your ability to generate income in a multiple of that.
Hum.
Understanding that I think that we have had an internal growth rate.
Uh huh.
For the last 20 years, probably.
Well in excess of.
10% per year, we haven't had an acquisition in that period. So all of our growth comes from.
We generated from R&D.
And then new product development things that.
So this market or by market penetration and success of our distributors.
Hi.
I look at all of that and.
I think from a stock standpoint.
As I always tell our as I said, I think our earnings and our growth rate will generate.
Copper.
Multiple for our company.
And be out there.
Aye.
Personally.
And we are talking now we will stay on the line and talk.
On this conference call and answer any questions that any analysts or anybody that wants to follow us.
Or any shareholder as long as we have to.
On the other hand, we choose not to talk in between conference calls.
Quarterly conference calls because we wanted to make sure everybody has exactly the same information.
Whether youre, an analyst new followers or if you're a shareholder Merrill.
And should have an advantage.
We will be at the same time, we do not put out earnings projections to analysts and or to anyone else or das.
Yes.
So I like the Santa Barbara Golf replay out of their lives.
So I would say.
Analysts are very welcome.
But we are not going to chase you and we are not going to give them added information.
That makes them want to follow us.
Because we don't believe that's fair.
Everybody gets the same information everybody gets their access to this conference call and in between this.
We try to give nowhere information, although you are welcome to visit our plants anytime you want.
Let's talk to our people, but there we will not give you any additional information we don't put out on this call.
And we will continue to act that way.
That's our answer.
I. Thank you for the very thorough answer.
And that does conclude today's question and answer session.
I'd like to turn the call back to management for any additional or closing comments.
We would like to thank you for joining our conference call today.
Forward to talking to you when we report fourth quarter and year end results.
Appreciate your support.
Thank you.
And with that ladies and gentlemen. This concludes today's conference call, we'd like to thank you again for your participation you may now disconnect.
[music].
Yeah.