Miller Industries, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; balance-sheet comparisons are to December 31, 2022. Miller Industries manufactures towing and recovery equipment. Unless stated otherwise, dollar amounts below are in millions.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Net sales | $282.3 | $215.5 | +31.0% |
| Gross profit | $30.4 | $15.3 | +98.3% |
| Gross margin | 10.8% | 7.1% | +3.7 percentage points |
| SG&A | $17.9 | $12.4 | +44.7% |
| Net income | $9.2 | $2.1 | +346.5% |
| Diluted EPS | $0.81 | $0.18 | — |
| Operating cash flow | $(6.8) | $(28.9) | Improved by $22.2 |
Revenue growth reflected price increases, higher production volume as supply constraints eased, and strong customer demand. Costs of operations rose 25.8%, slower than sales, reducing costs to 89.2% of revenue from 92.9%. SG&A rose to 6.3% of sales from 5.7%; management cited higher sales-related costs, approximately $1.1 million of professional and legal fees associated with recent investor activity, and additional executive compensation. Net interest expense increased to $1.0 million from $0.4 million, primarily due to higher borrowings, interest rates, and floor-plan interest. The effective tax rate was 21.9%, versus 16.9%.
Financial position and liquidity
- Cash and temporary investments were $29.7 million, down from $40.2 million at year-end. Accounts receivable increased to $233.1 million from $177.7 million; inventory increased to $164.4 million from $153.7 million.
- Cash used in operations was $6.8 million, reflecting growth in receivables and inventory purchases. Capital expenditures were $1.7 million; dividends paid were $2.1 million. Cash declined $10.4 million during the quarter.
- Credit-facility borrowings were $45.0 million at March 31, with $55.0 million of capacity available under the $100 million revolving facility, which matures May 31, 2027. The variable rate was 5.92% at quarter-end. The company reported covenant compliance. Management separately stated borrowings had declined to $40.0 million as of April 28, 2023.
- Total liabilities were $256.5 million and shareholders’ equity was $301.7 million at March 31. The company declared a quarterly dividend of $0.18 per share, payable June 12, 2023.
Outlook, risks and notable items
Management said strong backlog, pricing actions, productivity improvements, improving supply availability, and easing raw-material inflation position the company to continue enhancing results. It nevertheless expects supply-chain constraints, inflation, geopolitical conditions and broader economic factors to adversely affect production, financial results and cash flow over the remainder of 2023. Management expects available cash, operating cash flows and credit-facility capacity to meet needs for at least the next year, subject to operating performance and other factors.
- Key risks include component, chassis and raw-material availability and prices; labor costs and staffing; inflation, higher interest rates and recession risk; customer access to financing; industry cyclicality; geopolitical disruption; and foreign-exchange exposure.
- Commitments included approximately $9.2 million for property, plant and equipment and $2.9 million in software-license fees. The maximum distributor-loan repurchase exposure was $88.6 million; management said the product’s value mitigates the risk, and recorded no liability because a loss was not considered probable.
- One customer accounted for approximately 11% of quarterly sales. No customer represented more than 10% of receivables at quarter-end.
- The filing describes corrections to prior-period accounting errors, which management deemed immaterial to previously reported statements; the errors included adjustments to property, plant and equipment, accounts payable and accumulated surplus.
- Routine litigation is disclosed; management does not expect any exposure beyond accruals and insurance to materially affect financial position or results. No material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Whether backlog conversion and easing supply constraints support continued production and margin improvement, given management’s warning of adverse impacts during the rest of 2023.
- How working-capital growth—particularly receivables and inventory—affects cash generation and liquidity.
- The bridge between $45 million of debt at March 31 and management’s $40 million balance reported as of April 28, and the company’s exposure to variable rates.
- The recurring or nonrecurring nature of investor-activity legal/professional costs and additional executive compensation in SG&A.
- Potential outcomes and exposure related to distributor repurchase commitments, litigation, and the corrected prior-period accounting errors.