Q2 2023 Miller Industries Inc Earnings Call

Initially.

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.

And historically custom cylinders have longer than normal lead times.

We are experiencing continued strong demand for our products and all of our end markets and have had no significant customer cancellations in 2023, so far.

We've improved our ability to live to deliver finished goods through our productivity enhancements in supply chain dynamics mentioned earlier.

But 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 would 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 continued to see.

During the second quarter, we experienced improvement in our margins as we finalize 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 nonexecutive 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 and.

Hey, good morning, everyone.

Net sales for the second quarter, 2023 were $303 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 four.

42, 2% to $263 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 the delivery cost of operations as a percentage of net sales decreased approximately 40 to 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 nine 1% of net sales for the prior year period.

The year over year improvement was driven largely by our productivity improvements will mentioned earlier.

And more reliable supply chain environment, and further margin realization from price adjustments, we implemented earlier this year.

We view our gross margins for 2023 is 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 six 5% 20 basis points higher than the prior year period.

The increase is due largely to our 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 have also provision 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 628000 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 costs, which.

<unk> up and down with revenue.

Other income for the second quarter was $229000 compared to an expense of $275000 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 <unk> 33 per diluted share in the second quarter of 2022.

Turning to the balance sheet cash and cash equivalents as of June 32023, with $30 5 million compared to $29 $7 million as of March 31, 2023, and $40 2 million as of December 31, 2022.

Accounts receivable as of June 32023, with $264 5 million compared to $233 1 million as of March 31, 2023, and $177 $7 million as of December 31, 2022.

Inventories were $167 5 million as of June 32023, compared to $164 $4 million as of March 31, 2023, and $153 7 million as of December 31, 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 and 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'll 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.

23.

With $188 9 million compared.

Compared to $169 5 million as of March 31, 2023, and $125 5 million as of December .

31 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 cabinet capacity expansion and the health and safety of our employees, we will continue to return capital.

All of 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, we 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 <unk> 18 per share payable September 11, 2023 to shareholders of record at the close of business on September one 2023, marking the 50 <unk> consecutive quarter that the company has paid the dividend now.

Now I'll turn the call back over to will for some closing remarks.

Okay.

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 euro year over year profitability and believe we will be.

Are you able to sustain these pre pandemic margins barring any unforeseen circumstances.

These achievements and still 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 consent 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 he 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 he 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 Mike <unk> with D. A Davidson. Please proceed with your question.

Yes. Good morning, good morning, Good morning, Hello, and thanks for taking my questions.

Just a couple of quick ones here.

Yes. Thanks, so much well can you maybe give us an update first on charges apply for Ford trucks for some of your products.

How did it trend throughout the quarter.

And maybe how it might look for the back half of the year, maybe if you can maybe in.

And that commentary or delineate between some of the larger heavier class eight trucks and maybe the class by six smaller models that you might be working with.

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 production level at this point.

We believe we have enough.

<unk> on order.

And based on our conversations with the Oems should see.

Appropriate deliveries through the end of the year to meet our customer demands.

Great.

<unk>.

I wanted to follow up also on some of the changes that you've made that the company recently.

Definitely a hot topic out there in the industrial sector.

Have you had any early feedback as to whether theres been any cultural change or any and.

Any changes in employee behavior for those who are affected by it recently or do you feel like there might be still.

For the year.

Mike would you cut out right there at the very beginning of the question and I can't I didn't hear the context I apologize.

I apologize I was just asking about.

Employee compensation changes that were made recently among various employees.

I was curious if that helps.

It had an impact on the culture.

And in the office and on the shop floor recently or is it too early to tell a few changes you've made to competition, we're going to make any changes in 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 too.

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.

And you asked about positive impact you're seeing changes around how people, although it's absenteeism.

I believe you mentioned overall.

Overall employee morale at our facilities is positive at this time.

Last quarter.

Every time, we hit a record quarter.

We actually provide a luncheon for all of our employees, which goes over very well.

So they get a little extra time off of work, we do a lunch and where the executive staff feeds launch to all the hourly employees and management employees that goes over very well. We also just finished our.

Annual picnic for both.

Facilities in Tennessee, and Pennsylvania. So we are sorry, all three facilities now in Tennessee.

And.

To date, we believe that we are very positive morale and all of our facilities.

Outstanding.

One last one for me and that is on the M&A deal to acquire southern hydraulic.

Anything surprised you once you've got the Q2 the building until how that.

The operator is too new to changes that have been made.

I am curious do you control the company's sales to outside.

Customers. Besides just the industries and will you continue to sell to those customers or make them more of an in house hydraulic corrado.

So 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 adjustments to upgrade security and things of that nature at the facility to get it up to our standards, but.

But no major issues with regards to other customers they do sell to outside suppliers to outside customers of other than Miller industries, and we are evaluating the customer list.

At this time in working on moving those orders into the new order bank, but 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.

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 <unk> Dot com forward slash investors or E mail investors.

<unk> relations at <unk> Dot com.

You all and God bless.

Yeah.

This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.

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