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spk00: Good day ladies and gentlemen and welcome to the Miller Industries second quarter 2021 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 Dunlap at FTI Consulting. Please go ahead sir.
spk04: 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 second 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. At this time, I'd like to turn the call over to Jeff. Please go ahead, Jeff.
spk03: Thank you, and good morning, everyone. Our second quarter results are a testament to the underlying strength of our business, healthy industry demand, and our steadfast commitment to operational excellence. We are pleased to report that our business continues to trend towards pre-pandemic levels and overall industry dynamics continue to improve. More specifically, our second quarter sales increased 40.9% year over year, to $181.2 million, driven by strong customer demand. Gross profit for the second quarter increased 16.2% from the prior year period to $20.6 million, largely due to the rebound in top-line sales growth. Gross margin in the second quarter decreased approximately 240%. basis points largely due to increased raw material prices caused by escalating inflation and a shift in product mix. Of note, we recently announced another price increase to offset some of these inflationary pressures. However, we honor pricing on existing orders in our backlog, which results in some margin pressure in the near term. We have also experienced substantial increases in employee turnover and difficulties in hiring new workers for our skilled workforce, which has caused increased recruiting, training, and retention costs. Supply chain disruptions have also impacted the timing of arrival of certain raw materials and purchase component parts, including chassis, which negatively impacts our ability to complete the production of finished goods and timely ship our product at a pace necessary to match current demand levels. Such supply chain challenges and other inflationary pressures continue to influence our domestic markets, but we are leveraging all available resources to actively mitigate them. In our international business, demand trends continue to improve and our order rates and backlog remain healthy. However, constraints on global shipping routes are negatively impacting the timing of our export shipments. Our operations are beginning to see the benefits of our enterprise software upgrades completed in the first quarter, and we do not anticipate any significant disruptions to our business operations as we work to implement further system improvements across our network. Now I'll turn the call over to Debbie, who will review the second quarter financial results. Then I will provide some commentary about the current market environment and some closing remarks. Debbie?
spk08: Thanks, Jeff, and good morning, everyone. Net sales for the second quarter 2021 were $181.2 million, versus $128.5 million for the second quarter of 2020, a 40.9% year-over-year increase driven by strong demand across all markets and recovery from the 2020 pandemic pressures. Cost of operations increased 44.9% to $160.6 million for the second quarter of 2021, compared to $110.8 million for the second quarter of 2020, due to sharp rebound in the top line growth in the quarter. Cost of operations as a percentage of net sales increased approximately 240 basis points to 88.6% from the prior year period. Gross profit was $20.6 million, or 11.4% of net sales for the second quarter 2021, compared to $17.7 million, or 13.8% of net sales for the second quarter 2020, largely driven by significant pricing headwinds across our supply chain and shipping and transportation networks. SG&A expenses were $12 million for the second quarter 2021, compared to $10.1 million for the second quarter 2020, resulting from employee travel and trade show related expenses, as well as increased software related expenses. As a percentage of sales, SG&A decreased approximately 120 basis points to 6.6% from 7.8% in the prior year period. Interest expense net for the second quarter of 2021 was $340,000, down from $429,000 in the second quarter of 2020 due to decreased customer floor plan financing costs and the elimination of our long-term debt obligations in the third quarter of 2020. Other income expense for the second quarter 2021 was a net gain of $48,000 compared to a net gain of $275,000 for the second quarter 2020 due to currency exchange rate fluctuations. Net income for the second quarter 2021 was $6.5 million or 57 cents per share. Net income for the second quarter 2020 was $5.8 million or 51 cents per share. Now let me briefly review our results for the six months ended June 30th, 2021. Net sales for the first six months of 2021 were $351.1 million compared to $304.6 million in the prior year period, an increase of 15.3%. Gross profit for the six months ended June 30th, 2021 was $36.4 million or 10.4% of sales compared to $36.3 million or 11.9% of sales for the first six months of 2020. Net income for the first six months of 2021 was $9.7 million or 85 cents per share, a decrease of 13.9% compared to net income for the first six months of 2020 of $11.3 million or 99 cents per share. Now turning to the balance sheet, Cash and temporary investments as of June 30th, 2021 was $53.9 million compared to $56.2 million as of March 31st, 2021 and $57.5 million as of December 31st, 2020. Accounts receivable at June 30th, 2021 totaled $161.8 million compared to $167.7 million as of March 31st, 2021 and $141.6 million as of December 31, 2020. Inventories were $92 million as of June 30, 2021, compared to $84.9 million as of March 31, 2021, and $83.9 million as of December 2020. Accounts payable at June 30, 2021 was $108.1 million compared to $113.4 million as of March 31, 2021, and $85.5 million as of December 31, 2020. While faced with supply chain challenges and continuing concerns related to the COVID pandemic, our diligent capital allocation priorities and strong balance sheet provide us with the financial flexibility to continue investing in our business and capitalize on strong industry demand trends. Lastly, the company also announced that its board of directors approved our quarterly cash dividend of 18 cents per share, payable September 13, 2021, to shareholders of record at the close of business on September 3, 2021. Now, I'll turn the call back to Jeff for further remarks.
spk03: Thank you, Debbie. While economic conditions continue to normalize and customer demand trends continue to strengthen, we are confident that we will continue to deliver for our customers. Despite significant constraints across global supply chains and transportation networks, our unwavering commitment to operational excellence and best-in-class customer service position us favorably to continue to meet the needs of our customers. Further, our financial position remains strong and we maintain the financial flexibility to service the surge in customer demand, continue investing in our business, and return capital to shareholders. Looking ahead into the second half of the year, we anticipate further supply chain and transportation headwinds, but we are confident that the overall strength of our business and improving industry trends position us favorably to capitalize on all growth opportunities and generate shareholder value. In closing, Will and I would like to thank our employees, our customers, suppliers, and shareholders for their ongoing support of Miller Industries. Thank you again for joining us this morning. Operator, please open the line for questions.
spk00: Thank you, sir. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. We will now take our first question from Arne Usainer from the Usainer Family Office. Please go ahead.
spk07: Hi, good morning, and thank you for taking my questions. I really want to try to focus and drill down a little bit more on the incremental costs that you're incurring to manufacturing. You mentioned the 240 basis point increase in your costs. By the way, I can applaud you for doing a great job on controlling SG&A. But can you spend a little bit more time talking about your component availability, especially chassis, any steps you're taking there? It sounds like the costs of buying materials has gone up. quite dramatically, your labor challenges, and maybe talk about actions or steps you plan to take to improve your gross margin on a go-forward basis. Thank you.
spk03: We'll circle back and talk about, but talking about raw materials and component cost increase, Debbie, I think we calculated that over the first half of the year to be somewhere in the range of 7% to 9% increase. Steps going forward, obviously, we're expanding our supplier base. We're also attempting to reach further out to protect ourselves from further crop cost increase. But we're finding a lot. of our suppliers willing to accept purchase orders, but not willing to lock in on pricing or cost to us. In other words, steel in particular. And we'll take your purchase order, but your cost is going to be ticked at the time we ship, not at the time you order. Now that can have positive effects or negative effects. Secondly, to further, obviously, we have implemented price increases to help offset those costs. We had one at the beginning of the year, Will, that finally we ate through the backlog of orders that were in the system before the price increase, approximately the last two weeks of Q2. So, in effect, we didn't realize any positives from that price increase. During the quarter, we announced another price increase. And we also are going to protect our backlog to keep our distributors strong, which we think is the right thing to do for the long-term viability of our company. But we did, besides a price increase, warn our distributors that there may be a material surcharge packed on in January unless we see some relief of our cost pressures. Vince, can you talk about chassis supply a little bit?
spk06: Yes. I mean, obviously, the chassis manufacturers are struggling with our shortages as well. We're doing our best to mitigate it, and we're being fairly successful at it. There's rumblings of a material surcharge from one of our big suppliers that could be implemented in the next couple weeks. We're obviously not getting it. all chassis that we order monthly, but making sure our strategic partners understand that we need as many as we can get. And so we're doing our best to mitigate the supply.
spk07: Can you, I know you don't give formal backlog numbers, but if you were If you just ran through in the last few weeks of the quarter orders that had been placed where the price increases, I guess I was calculating the backlog for most of the quarter was probably four to seven months. Can you comment on orders you're taking now and when you anticipate possibly shipping them? And I guess I'm wondering why wait until January on a surcharge if your costs are escalating so rapidly right now?
spk03: Well, to... We implemented, along with the warning of a surcharge, an immediate price increase on new orders, just in, again, in Q2. So not only did they get a price increase on new orders, we warned them that that price increase may not cover the rising costs, and if costs continue to rise, they will get a surcharge along with the price increase and the product shifts. We don't divulge our backlog numbers, but I would say that we have currently historic levels of backlog due to demand trends. Hopefully, that I guess from a standpoint in the queue, we don't give actual numbers. We give length of time, and it is four to five months.
spk07: So you're saying it's returning to historic. Was it abnormally high for most of the first part of the year? In terms of order intake? In terms of backlog. Yes. Okay. Can you just remind, I'm a new investor, relatively new investor to your store, remind me of the seasonality of your business, please?
spk03: We are so broad-based that there's very little seasonality.
spk07: Thank you. And you have a fantastic balance sheet. You've spent quite a bit of money expanding capacity earlier in the year. You've put in a new software system. You've made massive investments recently. You've also built up some inventory in terms of dollars. Can you comment on your future priorities for free cash flow, please?
spk03: That really becomes a board decision, and obviously they look at future investments for efficiency and production levels. But it really, they look at all kinds of initiatives. So to give you a, here's what we're going to do answer, that really becomes a board decision.
spk01: Got it. Jeff, we also look at the return to our shareholders as well.
spk02: Yeah, absolutely.
spk07: And final question, with the rising delta, how is the state of Tennessee handling it, and are you hopeful it will not impact your operations in the balance of Q3?
spk03: Yeah, we're very hopeful that it won't impact our operations, and not only our operations, but our suppliers' operations. The state of Tennessee does not have mask mandates. We live by CDC guidelines in our facilities, but keep in mind that we're not only in the state of Tennessee, we're also in the state of Pennsylvania. We're in the country of England and the country of France. So we try very hard to encourage our employees to be safe.
spk05: And we continue the mitigation steps that we implemented last year by going to a four-on, four-off work schedule, really separating the number of employees that are in our facilities at any given time, cutting that nearly in half from pre-pandemic levels, as well as giving us a little bit of extra security If we do have a major issue on one of our teams on a four-day shift, the factories aren't shut down, but they can go to 50% levels, let one shift, return home for a full 12 days off, and then come back to work. During all of last year, we only had that occur during the pandemic at one factory for one shift. So, you know, the mitigation steps that we've put in from a hygiene, cleanliness, as well as headcount at our factories at any given time seemed to work very well last year, and we've continued that on into 2021.
spk07: Thank you for taking my questions.
spk02: Thank you.
spk00: There appears to be no further questions at this time. I would like to turn the call back to management for any additional or closing remarks.
spk02: 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.
spk00: And with that, ladies and gentlemen, that concludes today's conference call. We'd like to thank you again for your participation. You may now disconnect.
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