Miller Industries, Inc.

Good day, ladies and gentlemen, and welcome to the Miller Industries third quarter 2020 results conference call. Please note this event is being recorded. And now at this time, I'd like to turn the call over to Mr. Brendan Dunlap at FTI Consulting. Please go ahead, sir.

Thank you, and good morning, everyone. I would like to welcome you to Miller Industries conference call. We are here to discuss the company's 2020 third quarter results, which were released after the close of 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 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 of the way, I'd like to turn the call over to Jeff. Please go ahead, Jeff.

Thank you. and good morning, everyone. I don't think I'll surprise anyone by saying that 2020 has been a challenging year for our communities, our customers and our employees. However, I can say with confidence that our employees have risen to the occasion and continue to provide our customers with the best in class service during this pandemic. With that said, I'm extremely encouraged by the changes that we made during the first half of 2020 to help us operate more effectively and safely during this pandemic. These changes, coupled with the beginnings of the reopening of the economy, helped drive the significant sequential improvement that we experienced during the third quarter. More specifically, revenue during the third quarter decreased 13.9% to $168.4 million versus $195.5 million a year ago as the impacts of COVID-19 continued to weigh on our production levels. However, our revenue increased 31% compared to the second quarter of 2020 as our business began to rebound from the sharp declines experienced during that period. Quarterly gross profits decreased by 17.9%, year-over-year to $17.8 million, while gross margin contracted 50 basis points to 10.6%. However, gross margin have expanded approximately 10 basis points year-to-date, reflecting operational improvements and stringent cost controls. Net income was $6.6 million, or 57 cents per share, compared to net income of 8.1 million or 71 cents per share in the third quarter of 2019. Despite the ongoing uncertainty in the macro environment, we continue to invest in our business during the quarter by repurposing a portion of our existing Greenville, Tennessee facility to bring certain production capabilities in-house to mitigate future supply chain constraints. We expect to begin phasing in these production improvements by the end of the year and are confident that these investments will further enhance our production capabilities going forward. Before I turn the call over to Debbie, Will Miller and I would like to take a moment to thank our employees for their incredible efforts and outstanding commitment to operational excellence and best-in-class customer service during these difficult times. 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 market environment and some closing remarks. Debbie?

Thanks, Jeff, and good morning, everyone. Net sales for the third quarter 2020 were $168.4 million versus $195.5 million for the third quarter of 2019, a 13.9% year-over-year decrease driven by ongoing impacts from the COVID-19 pandemic but a 31% improvement from the second quarter of 2020. Cost of operations decreased 13.4% to $150.5 million for the third quarter of 2020 compared to $173.7 million for the third quarter 2019 due to the decline in our top line sales. Cost of operations as a percentage of net sales increased approximately 50 baker's points to 89.4% from the prior year period. Gross profit was $17.8 million or 10.6% of net sales for the third quarter 2020 compared to $21.7 million, or 11.1% of net sales for the third quarter 2019, reflecting a slightly unfavorable product mix. SG&A expenses were $9.2 million for the third quarter 2020 compared to $10.5 million for the third quarter 2019. As a percentage of sales, SG&A increased approximately 20 basis points to 5.5% from 5.3% in the prior year period. Interest expense net for the third quarter of 2020 was $230,000 compared to $424,000 for the third quarter of 2019 as we paid down our credit facility and saw decreases in floor plan interest payments. Other income expense for the third quarter of 2020 was a net income of $209,000 compared to a net expense of $231,000 in the third quarter of 2019 due to currency exchange rate fluctuations. Net income for the third quarter of 2020 was $6.6 million for 57 cents per share. Net income for the third quarter of 2019 was $8.1 million for 71 cents per share. Now, let me briefly review our results for the nine months ended September 30th, 2020. Net sales for the first nine months of 2020 were $472.9 million compared to $615 million in the prior year period, a decrease of 23.1%. Gross profit for the nine months ended September 30, 2020 was $54.1 million or 11.4% of sales compared to $69.6 million or 11.3% of sales for the first nine months of 2019. Net income for the first nine months of 2020 was $17.8 million, or $1.56 per share, a decrease of 35% compared to net income for the first nine months of 2019 of $27.4 million, or $2.41 per share. Turning now to our balance sheet, cash and cash equivalent as of September 30th, 2020, was $47.5 million compared to $37.1 million as of June 30, 2020 and $26.1 million as of December 31, 2019. Accounts receivable at September 30, 2020 totaled $149.8 million compared to $123.2 million as of June 30, 2020 and $168.6 million as of December 31, 2019. Inventories were $87.4 million as of September 30, 2020 compared to $90.9 million as of June 30, 2020 and $88 million as of December 31, 2019. Accounts payable at September 30, 2020 was $93 million compared to $59.5 million as of June 30, 2020, and $95.8 million as of December 31, 2019. During the third quarter, we repaid the remaining $5 million on our existing credit facility, eliminating all long-term obligations as of September 30, and are confident that our financial position provides us with the strength and flexibility to mitigate any future impacts related to the pandemic. Overall, our balance sheet remains strong and we believe we have sufficient capital resources to handle the challenging environment while continuing to invest in our business. Lastly, the company also announced that its board of directors approved our quarterly cash dividend of 18 cents per share payable December 14, 2020 to shareholders of record at the close of business on December 7, 2020. Now I'll turn the call back to Jeff for further remarks.

Thank you, Debbie. Through the first nine months of the year, we have been sharply focused on the aspects of our business within our control. Will and I are very proud of our employees for their continued dedication to operational excellence and their unwavering commitment to providing best-in-class service to our customers. Going forward, We will continue to prioritize the health and safety of our employees as well as continuing to supply our customers with the essential tools to keep America's roadways clear. Additionally, we remain dedicated to returning capital to shareholders as evidenced by our declared dividend of 18 cents per share. Looking into the fourth quarter, visibility remains challenged as many regions around the world are experiencing an uptick in COVID-19 cases. As a result, we anticipate the pandemic will continue to have an adverse impact on our business. However, we will respond as needed in order to actively mitigate any future impacts on our business. While the operating environment remains challenged, we are confident that our operational improvements Healthy Balance Sheet, and Industry-Leading Product Portfolio positions us favorably to capitalize on future growth opportunities. In closing, Will and I would 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.

Absolutely. If you'd like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure that your mute function is turned off to allow your signal to reach our equipment. Once again, that is star 1 if you'd like to ask a question. And we'll pause for just a moment to allow everyone an opportunity to signal. Once again, that is star 1 if you'd like to ask a question. We have no questions at this time. In that case, I'd like to turn the call back over to management for any additional closing remarks.

Yes, thank you again for joining us on the call today, and we look forward to speaking with you again on our fourth quarter results conference call. Thanks.

Thank you. That does conclude today's conference. Thank you all for your participation, and you may now disconnect.