Miller Industries, Inc.

Good day, ladies and gentlemen, and welcome to the Miller Industries third quarter 2022 results conference call. Please note this event is being recorded. And at this time, I'd like to turn the call over to your host, Mike Goudreau at FTI Consulting. Please go ahead, sir.

Thank you, and good morning, everyone. I'd like to welcome you to the Miller Industries conference call. We are here to discuss the company's 2022 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, Debbie Whitmire, Executive Vice President and CFO, Frank Madonia, Executive Vice President, Secretary and General Counsel, Vince Tiano, Chief Revenue Officer, and Jameson Linden, Chief Manufacturing Officer. Today's call will begin with formal remarks from management, followed by a question and answer session. Please note in this afternoon'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 Debbie. Please go ahead, Debbie.

Thank you, and good morning, everyone. Will is traveling today, so I'll be providing today's update. We were pleased by our third quarter results, both the continued strong demand in our end markets and the sequential revenue growth. Sales in the quarter increased 24.8% to $205.6 million compared to the third quarter last year. Gross profit for the third quarter was $23.2 million, an increase of 30% compared to the prior year quarter. resulting in a gross margin of 11.3%. We are encouraged by the profitability improvement as we've benefited from our pricing initiatives. Our results also reflect strategic actions taken since the last downturn to build information systems with our business partners, giving us more visibility into sales trends and helping us adjust production to the proper levels for our products. However, we continue to experience significant supply chain challenges. We still had difficulty sourcing certain parts that are critical to the completion of finished goods, though slightly fewer than we had in prior quarters. Despite these continued challenges, we have taken steps to strengthen our supply chain in recent quarters that we anticipate will yield positive results going forward. Our backlog remains strong, and despite the macroeconomic environment, we have had an insignificant number of cancellations to date, which gives us confidence in the resiliency of our business and our end markets. Moving on to our international business, demand remains strong for our products, despite the ongoing conflict in Ukraine. While we are experiencing some impacts of increased raw material and component pricing, higher freight and energy costs, and unfavorable exchange rates, net all the impacts international operations have performed steadily to meet customer demand in spite of headwinds. Now, I'd like to turn to the review of the third quarter financial results in more detail. Net sales for the third quarter 2022 were $205.6 million versus $164.7 million for the third quarter of 2021, a 24.8% year-over-year increase driven largely by the continued strong demand for our products our pricing actions, and an ability to ship more finished goods. Cost of operations increased 24.2% to $182.4 million for the third quarter 2022, compared to $146.9 million for the third quarter 2021. Cost of operations as a percentage of net sales decreased approximately 45 basis points from the prior year period to 88.7%. Gross profit was $23.2 million, or 11.3% of net sales for the third quarter 2022 compared to $17.8 million, or 10.8% of net sales for the prior year period. The year-over-year increase in gross margin was driven largely by a more favorable product mix. SG&A expenses were $14.7 million in the third quarter 2022 compared to $12 million in the third quarter 2021. However, as a percentage of sales, SG&A decreased approximately 14 basis points to 7.1% from 7.3% in the prior year period. The dollar increase was due to one-time expenses to support our strategic initiatives, as well as increases in employee wages and benefit costs, including training and development. Net interest expense for the third quarter 2022 was $1 million, up from $286,000 for the third period 2021, primarily related to increases in distributor floor plan financing costs, which flex up and down with revenue, as well as the increase in our outstanding debt and rising interest rates. Other expense for the third quarter 2022 was $666,000 compared to $206,000 for the third quarter 2021. attributed largely to currency exchange rate fluctuations and the relative strength of the U.S. dollar. Net income for the third quarter of 2022 was $5.2 million, or 46 cents per diluted share, compared to net income of $3.8 million, or 34 cents per diluted share in the third quarter of 2021, increases of 36% and 35.3% respectively. Before moving to the balance sheet, I'd like to quickly recap our results for the first nine months of the year. Net sales for the first nine months of 2022 were $622.6 million compared to $515.8 million in the prior year period, an increase of 20.7%. Gross profit for the nine months ended in September 30, 2022, with $56.9 million, or 9.1% of sales, compared to $54.3 million or 10.5% of sales compared to the same period last year. Net income for the first nine months of 2022 was $11.1 million or 97 cents per share compared to net income for the first nine months of 2021 of $13.5 million or $1.19 per share, representing decreases of 18.4 and 18.5% respectively. Turning to the balance sheet, cash and cash equivalents as of September 30, 2022 was $33.2 million compared to $31.1 million as of June 30, 2022 and $50.4 million as of September 30, 2021. Accounts receivable as of September 30, 2022 was $167.9 million compared to $191.2 million as of June 30, 2022, and $131.1 million as of September 30, 2021. Inventories were $144.4 million as of September 30, 2022, compared to $141.2 million as of June 30, 2022, and $108.8 million as of September 30, 2021. Accounts payable as of September 30, 2022 was $107.5 million compared to $137.7 million as of June 30, 2022 and $87.8 million as of September 30, 2021. We are hopeful that we have hit the peak of our working capital requirements as inventory increased only moderately compared to the prior quarter. Traditionally, we are a debt-averse company However, we feel that increasing our debt to fund our working capital needs is in the best interest of our customers and our shareholders given our significant backlog. We will continue to invest in our working capital as necessary to have the critical parts available for us to turn inventory into finished goods and get product into the customer's hands as quickly as possible. Lastly, The Board of Directors approved our quarterly cash dividend of 18 cents per share, payable December 12, 2022, to shareholders of record at the close of business on December 5, 2022, marking the 48th consecutive quarter that the company has paid the dividend. Finally, some closing remarks. The third quarter was extremely encouraging as we saw sequential revenue growth, saw the effects of our pricing actions flow through our results, and began to experience success of our actions to alleviate some supply chain constraints. As I mentioned earlier, getting product to the customers is our top priority, and we are working closely with all of our customers, distributors, and partners to ensure that we further strengthen these relationships. While there are still many issues related to parts sourcing, rising interest rates, conflict in Europe, and foreign exchange headwinds, we remain encouraged by the strength of our business. In closing, we'd like to thank all of our stakeholders for their continued support of Miller Industries. At this time, we'll open the line for any questions.