Miller Industries, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; compared with the three months ended March 31, 2020. Miller manufactures towing and recovery equipment and sells primarily through independent distributors. Financial amounts below are in millions of dollars unless noted.
Key financial results
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Net sales | $169.912 | $176.054 | Down 3.5% |
| Gross profit / margin | $15.831 / 9.3% | $18.538 / 10.5% | Down $2.707 |
| Income before taxes | $4.229 | $7.114 | Down 40.6% |
| Net income | $3.178 | $5.431 | Down 41.5% |
| Basic EPS | $0.28 | $0.48 | Down $0.20 |
| Operating cash flow | $2.847 | $(1.852) | Improved |
| Capital expenditures | $2.489 | $3.526 | Down $1.037 |
Costs of operations were 90.7% of sales, versus 89.5% a year earlier; management attributed the margin decline primarily to product mix. SG&A was $11.051 million, or 6.5% of sales, versus $10.974 million, or 6.2%. The effective tax rate was 24.9%, compared with 23.7%.
North American sales rose to $146.687 million from $143.856 million, while foreign sales declined to $23.225 million from $32.198 million, primarily because of lower exports. Interest expense declined to $0.275 million from $0.359 million; other expense increased to $0.276 million from $0.091 million, including a $0.271 million foreign-exchange loss.
Liquidity, debt, and financial position
- Cash and temporary investments were $56.199 million at March 31, 2021, versus $57.521 million at year-end. Operating cash flow was positive, but investing outflows of $2.489 million and dividends of $2.054 million contributed to the $1.322 million net decrease in cash.
- No borrowings were outstanding under the $50 million unsecured revolving credit facility, which matures May 31, 2027. The company reported covenant compliance and expected continued compliance. Total liabilities were $143.123 million, including lease obligations; there was no funded credit-facility debt.
- Current assets were $315.385 million and current liabilities $137.910 million. Accounts receivable increased to $167.694 million from $141.642 million at year-end; accounts payable rose to $113.351 million from $85.534 million.
- Cash dividends declared and paid were $0.18 per share. On May 3, 2021, the board declared another $0.18 quarterly dividend, payable June 14 to shareholders of record June 7.
Material changes, outlook, and risks
- Management said first-quarter deliveries were significantly delayed, particularly for higher-margin products, by the initial deployment of a new enterprise software system, supply-chain disruptions, and severe weather and freight constraints. The delivery schedule had returned to meeting current customer demand by quarter-end.
- Management cited a strong backlog and said it believed operating results could improve substantially in 2021 beyond the first quarter. It also expected cash on hand, operating cash flows, and possible revolver borrowings to meet cash needs for the rest of 2021 and several years. These are expectations, not quantified earnings guidance.
- Supply constraints affected chassis, raw materials, and purchased parts; steel prices were described as record high. The company warned that shortages, delayed deliveries, tariffs, and higher input costs could impair production, margins, and customer demand, and that passing costs through to customers may take time or may not be possible.
- COVID-19 safety measures continued to affect productivity, and future pandemic effects remained uncertain. Management also cited cyclicality, customer financing access, foreign-exchange exposure, and dependence on suppliers as risks.
- Capital expenditure commitments were approximately $5.190 million; software license fee commitments for the ERP migration were approximately $5.247 million. Two remaining ERP implementation phases were expected over the next two years.
- Distributor-lender repurchase arrangements had a maximum potential repurchase amount of approximately $43.836 million. The company said the value of repossessed products mitigates the exposure and that a material liability was not considered probable. Routine litigation was disclosed; management did not expect it to materially affect financial position or results.
- Phase one of the ERP migration was completed in Q1. The company also adopted an accounting standard on income taxes with no material financial-statement impact.
Important facts for investors to verify
- Whether backlog converts to shipments and the quarter-end delivery recovery is sustained.
- Whether chassis and other supply constraints, elevated steel prices, and freight availability continue to limit production or compress margins.
- Whether the ERP rollout proceeds without renewed delivery disruption and produces the expected efficiency and customer-service benefits.
- Whether the substantial increase in receivables and payables reverses into consistent cash generation as sales and shipments progress.
- The scope and potential impact of distributor repurchase commitments, and the company’s ability to remain within credit-facility covenants while funding capital projects and dividends.