Q3 2023 Miller Industries Inc Earnings Call
And modernization.
In 2019, we built a freestanding research and development facility to accelerate product development increase research and integration of automation and robotics reduce our environmental impact and improve safety within our operating footprint.
Unfortunately, given the macroeconomic environment over the last two to three years.
We have really we have not really had an opportunity to see these investments bear fruit.
Our results and.
Well this year.
We believe that the strong performance we've reported thus far this year is attributed to our team's execution on the strategic initiatives. We put in place investments. We have made over the last decade, both in improving our facilities, increasing capacity and attracting and retaining the best talent in the industry.
Those investments in our production capabilities and our strategy to accumulate inventory to service our elevated backlog are paying off this year.
Third quarter of 2023, we generated revenues of $274 6 million, an increase of 33, 6% year over year, mainly due to execution on our healthy backlog in the form of improved deliveries of finished goods to our customers.
Gross profit for the third quarter was $42 $9 million, an increase of 84, 9% compared to the prior year quarter.
While our gross margin of 15, 6% improved 430 basis points year over year, and 220 to 220 basis points sequentially.
The year over year increase is largely due to the impact of those productivity enhancements I mentioned earlier.
Favorable product mix and the stabilization of raw material costs compared to the prior year.
In addition, we also wanted to provide an update on our recent acquisition of southern hydraulic cylinder or S. H C, which.
Which we announced in May of this year.
We're very pleased with the way SAP is performing as part of our portfolio.
As we've said previously we knew the company extremely well prior to our acquisition and it is clear that this familiarity is paying dividends as it relates to integration.
The <unk> team has been in seamlessly and the.
Position has helped shore up our supply chain tremendously, particularly because cylinders are some of the products that historically have longer lead times.
S. H C is meeting if not exceeding all of our expectations in year, one and delivering a return on investment ahead of our calculations.
During the early days of my tenure, we focus on organic investments in our business and this transaction demonstrates that we are willing to make smart acquisitions, if they are accretive and complementary to our overall strategy.
Despite all of the positives we are not completely out of the woods on supply chain difficulties.
Some chassis suppliers have had disruptions in production and it is difficult to determine when that dynamic will improve.
That said the overall supply chain is in much better health than it was a year ago and our results. So far this year have demonstrated that we can continue to perform at a high level despite facing some macro challenges.
Additionally, I would like to note that we have not experienced any disruptions from any of the large OEM strikes thus far.
Demand for our products remains high across all of our end markets.
Backlog remains healthy and no longer at record levels due to our improved improvement in deliveries.
After all of our execution this year and strong year over year sales growth in the first nine months backlog is still substantially higher than pre pandemic levels.
Because of the immense customer demand our strategy now remains the same as it has been throughout the year investing in our inventory and in our business to improve lead times and ship finished goods to our customers as quickly as possible.
We are extremely focused on managing our inventory levels and expect inventories to grow at a slower rate than they have in the prior year.
However, with the demand we're seeing we continue to believe it is the best use of our cash at the moment.
Lastly, before I hand, the call over to Debbie I want to quickly touch on our international military business, which makes up approximately 10% of our sales.
As in our domestic business demand remains strong.
We are starting to see more activity in the military space and we are encouraged by the performance of this aspect of our business as well now.
Now I will turn the call over to Debbie who will review the third quarter financial results in more detail. Following our remarks I'll provide some closing comments and an update on our outlook Debbie. Thanks.
Thanks will and good morning, everyone.
Net sales for the third quarter, 2023, or $274 6 million.
Versus $205 $6 million for the third quarter of 2020 at 33, 6% year over year increase driven largely by improved deliveries of finished product and supply chain disruptions continue to recover.
Cost of operations increased 27% to $231 $7 million for the third quarter 2023, compared to $182 $4 million to the third quarter 2020 to the.
The increase in our cost of operations is due largely to an increase in deliveries to meet demand.
Cost of operations as a percentage of net sales decreased approximately 430 basis points from the prior year period to 84, 9%.
Gross profit was $42 9 million or 15, 6% of net sales for the third quarter 2023, compared to $23 2 million.
We're 11, 3% of net sales for the prior year period.
The year over year improvement was driven largely by our productivity initiatives that will mentioned earlier favorable product mix and a reduction in raw material cost compared to the prior year period.
While we always remind you that our gross margins are subject to some quarter to quarter fluctuation based on product mix. We are extremely encouraged by our productivity initiatives have begun to yield much improved results compared to the prior year.
SG&A expenses were $19 $3 million in the third quarter 2023, compared to $14 $7 million in the third quarter 2022.
As a percentage of net sales SG&A was 7% 10 basis points lower than the prior year period.
The increase in SG&A expense was largely due to increased bonus accruals as a result of higher adjusted pretax income as set forth by our new executive compensation plan, which we adopted to more closely align management and shareholder interest as well as more investments in training and re training are extremely specialize.
Workforce.
We have always we have also increased our bonus accruals for our employees as they are either easily replaceable arnaud the backbone of everything we were able to achieve here at Miller industries.
Investing in our team is one of the most important aspects of our long term success.
Moving forward, we would expect quarterly SG&A expenses to remain at approximately at these levels.
Interest expense for the third quarter 2023 was $1 8 million up from $1 million for the third quarter of 2022, driven largely by an increase in our debt levels, along with an increase related to customer floor plan financing cost, which is a function of higher revenues.
Other income for the third quarter $294000 compared to an expense of 666000.
For the third quarter of 2022 attributable to foreign currency exchange rate shifts.
Alright. Thanks.
<unk> tax rate for the quarter was 28% slightly lower than year over year sequentially, primarily due to tax credits and favorable adjustments related to our prior year provision.
Net income for the third quarter with.
Third quarter, 2023 was $17 5 million or $1 52 per diluted share compared to net income of $5 2 million or <unk> 46 per diluted share in the third quarter of 2020, a direct result of all the factors I discussed above that impacted our revenues and profit margins.
Turning to the balance sheet cash and cash equivalents as of September 32023 was $26 8 million compared to 33.
$35 million as of June 32023, and $40 2 million as of December 31, 2022.
Accounts receivable as of September 32023.
$246 million compared to $264 $5 million as of June 32023, and $177 7 million as of December 31, 2022.
Inventories were $176 3 million as of September 32023, compared to $167 5 million as of June 32023, and $153 7 million as of December 31, 2022.
While we are continuing to accumulate inventory to meet the immense demand will referred to earlier, we are making significant progress in turning our inventory into finished goods.
This strategy has been a significantly improved year over year results and while it's impossible to determine when this dynamic will shift.
Monitor our planning requirements constantly and are hopeful that we will reach a peak in our inventory levels in the near term.
For now this is one of the best investments, we can make with our working capital.
Accounts payable as of September 32023 was $146 8 million.
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$8 million as of June 32023, and $125 5 million as of December 31, 2022.
Our outstanding balance of $60 million on our $100 million revolving credit facility remained unchanged. This quarter, which includes our acquisition of <unk> in may of 2023.
In terms of our broader capital allocation strategy. Our recent focus has been centered around returning capital to shareholders through an industry, leading dividend, which we've paid for 52 straight quarters, something we are incredibly proud of while we.
We will continue to look for areas to invest in our business as we always have we are prioritizing returning capital to shareholders through this dividend and reducing our debt balance.
We are and have always been a dead averse company and we believe reducing our debt balance will be in the best interest of best Miller industries and our shareholders.
That said, we feel extremely comfortable with our liquidity position and no. We do not expect anything in the short term we have demonstrated that if the right acquisition opportunity materializes, such as S. H D. We have the flexibility to pursue it.
Lastly, the board of directors approved a quarterly cash dividend of <unk> 18 per share payable December the 11th 2023 to shareholders of record at the close of business on December four 2023 now.
Now I'll turn the call back over will for some closing remarks.
Thank you Debbie.
Stepping back a bit I'm incredibly proud of what we've achieved as a company and the first nine months of 2023.
The investments we made in our business and the strategy, we undertook while navigating the pandemic and global supply chain crisis has paid off in spades.
Just for some perspective in the first nine months of 2023, we have already surpassed previous records for full year revenues and earnings per share.
This to US is validation of our quest for operational excellence, while embracing innovation and managing the business for the long term not quarter to quarter fluctuations.
While we never know what the next hurdle to clear will be I am confident that we have the right strategy and the right team in place to execute on that strategy and overcome any challenges we might face.
As a result, it should come as no surprise that we're still extremely confident in meeting our expectations for over $1 billion in annual revenue and significant year over year improvements of profitability for the full year of 2023.
As I mentioned in my opening remarks, I believe we have the most talented leadership team and workforce in the industry, which has allowed us to execute on our strategic initiatives and delivered record results for the first nine months of this year.
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 wed like to open the line for any questions.
Thank you we will now be conducting a question and answer session.
To ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is that the question queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
First question comes from Mike <unk> with D. A Davidson. Please go ahead.
Good morning, Mike Hello, Good morning, good morning, and thanks for taking my questions.
I wanted to ask first with a quick balance sheet question capital allocation question.
If I, if I map out the inventory increase and just the inventories in general.
And looking at your debt that you've got outstanding it doesn't sound like that much of a stretch that.
Appropriate time.
You'll have the ability to reduce the inventory.
And then take that.
Cash and pay down most of your debt.
It seems like you have enough room demand the right track and then.
And maybe beyond that.
Do you have the ability to some point raised the dividend over time once you reduce the debt to essentially zero.
Good morning, Mike, Yes, you are on the right track.
Yes.
Then Phil likely are reaching that peak inventory levels required based on product mix and the different.
Initiatives that we have going at the moment. So yes, once we get to that peak the intention would be to pay down the debt.
That is certainly a priority for us.
As far as the dividend goes that's that's a board decision. It is analyzed quarterly by the board and the decision is made so that would be a decision they would make at that time.
Okay perfect.
And then speaking of inventories I also wanted to ask.
Your.
The sales growth in the quarter and productivity.
Bill you had mentioned improvements in productivity, but I wanted to see if you.
You had better test of supply in the quarter.
Just having that additional chassis help you at all we're getting more out the door.
And just remind us also to you.
In most cases.
One the chassis at some point or are you simply upgrading just.
So it's a non pass through its bellmon cool. Thank you.
Yes with regards to chassis, we do we do purchase and resell the chassis. So we do own the chassis.
It is not part of our call.
With regards to chassis and being able to meet customer demand and deliveries although.
The chassis Oems did struggle quite a bit in Q3 with deliveries.
They are working diligently to resolve their issues and expect.
Better deliveries in Q4 going into Q1 of next year and into Q2 from the discussions we've had with them.
We believe we have enough chassis on the ground too.
Both at our facilities and in our distribution network.
To continue.
Production levels that we've seen.
So far this year.
Okay.
So you asked about that distribution inventory. So I appreciate you answering that maybe I'll just add.
One more question then on a different topic and that is on the SG&A.
Run rates going forward.
You had mentioned a bit about investing in innovation R&D et cetera.
You also mentioned somewhat consistent going forward on the SG&A side.
I guess do you sense any change.
Changes in the mix of SG&A will you, even though youll be consistent on overall company wide basis.
We intend to increase any of your selling or R&D expenses over time.
And then perhaps have reductions elsewhere.
No I think we have a pretty good run rate at the mental let for everything that we see on the horizon at this point so I believe it is.
Pretty consistent with what we should see going forward.
Alright, well. Thank you for taking my questions I appreciate it.
Absolutely Mike Thank you Sir Thanks, Mike.
There are no further questions at this time I would like to turn the floor over to Williams 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 the fourth quarter Conference call.
We would like information on how to participate and ask questions on the call. Please visit our Investor Relations website.
Miller Dot com forward slash investors or email investors relations at <unk> Dot com.
Yeah.
This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.
Okay.
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