Miller Industries, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Miller Industries manufactures towing and recovery equipment. Unless otherwise stated, financial amounts below are in millions; the filing presents most amounts in thousands.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Net sales | $300.3 (+49.0%) | $201.5 | $582.5 (+39.7%) | $417.0 |
| Gross profit / margin | $39.9 / 13.3% | $18.4 / 9.1% | $70.3 / 12.1% | $33.7 / 8.1% |
| Net income / margin | $14.9 / 5.0% | $3.8 / 1.9% | $24.1 / 4.1% | $5.8 / 1.4% |
| Diluted EPS | $1.29 | $0.33 | $2.10 | $0.51 |
| Interest expense, net | $1.7 | $0.6 | $2.7 | $1.0 |
- Sales gains reflected higher production and deliveries as parts availability improved, continued customer demand, and realized price increases. Costs of operations fell as a share of sales: to 86.7% from 90.9% in Q2 and to 87.9% from 91.9% for the first half.
- SG&A was $19.5 million in Q2 and $37.4 million for the half, versus $12.7 million and $25.0 million, respectively. Management cited higher volume-related expenses, executive compensation, and investor-activity-related professional and legal fees ($1.0 million in Q2; $2.5 million for the half).
- Cash and temporary investments were $30.5 million at June 30, down from $40.2 million at year-end. Debt under the revolving facility was $60.0 million, up from $45.0 million; net debt was approximately $29.5 million. The $100 million unsecured facility matures May 2027, leaving $40 million available. The stated June 30 borrowing rate was 6.3%.
- Current assets were $468.9 million and current liabilities $224.6 million (current ratio approximately 2.1). Receivables rose to $264.5 million from $177.7 million at year-end; inventory rose to $167.5 million from $153.7 million.
- For the six months, the cash flow statement reports operating cash flow of $2.9 million, investing cash use of $24.2 million, and financing cash inflow of $10.9 million. Investing included $17.8 million for the SHC acquisition and $6.6 million of capital expenditures. Cash-flow discrepancy: MD&A reports operating cash flow of $2.681 million, versus $2.910 million in the statement of cash flows; the filing text does not explain the difference.
Material changes and notable items
- On May 31, Miller acquired substantially all assets and assumed certain liabilities of Southern Hydraulic Cylinder (SHC), a hydraulic-cylinder manufacturer, for approximately $17.8 million, funded with cash and revolving-credit borrowing. SHC contributed $0.9 million of revenue and $0.03 million of earnings in June. The purchase-price allocation is preliminary; recorded goodwill was $9.0 million and is not tax-deductible.
- Management attributed stronger results to improved supply availability, pricing, and productivity. Foreign-exchange transaction gains were $0.3 million in Q2 and $0.6 million for the half, compared with losses in the corresponding 2022 periods.
- The company corrected previously identified prior-period accounting errors in the comparative financial statements. Management said the errors were not material to previously reported statements; the filing provides revised comparative balances.
- The quarterly dividend remained $0.18 per share. On August 7, 2023, the Board declared another $0.18 dividend, payable September 11 to holders of record September 1.
Outlook, risks, and contingencies
- Management cited a strong backlog, improved supply conditions, pricing actions, and productivity gains as supports for further operating improvement. It also warned that supply constraints, inflation, geopolitical events including the war in Ukraine, recession risk, and broader economic conditions could adversely affect production, results, and cash flow through the rest of 2023. The filing provides no quantified earnings or revenue guidance.
- Management expects cash, operating cash flow, and available credit to meet cash needs for at least the next year, subject to operating performance and external conditions. The company remained compliant with credit covenants and expected continued compliance.
- Variable-rate debt exposes the company to higher interest costs; management said a one-percentage-point rate change would not have materially affected the six-month results or financial position. Other risks include cyclical demand, component and chassis availability and costs, labor, customer financing access, and foreign-exchange movements.
- Potential distributor-lender repurchase obligations had a maximum collateral amount of approximately $118.0 million at June 30, up from $74.1 million at year-end. Management considered loss not probable and recorded no liability; product value mitigates the exposure. Routine litigation was not expected by management to materially affect the company beyond recorded accruals and insurance.
- Capital-expenditure commitments were approximately $10.1 million; software-license commitments were $1.4 million. Disclosure controls were deemed effective, and the filing reported no material changes to risk factors.
Important facts for investors to verify
- Reconcile the $2.910 million cash-flow-statement figure and $2.681 million MD&A figure for first-half operating cash flow.
- Track receivables, inventory, and payables, and assess whether strong reported earnings convert into cash as sales and deliveries grow.
- Monitor revolving-credit borrowings, variable-rate interest expense, covenant headroom, and liquidity after the SHC acquisition and planned capital spending.
- Review SHC’s eventual purchase-price allocation and contribution to results once the valuation is complete.
- Assess whether backlog, supply-chain improvement, and pricing can sustain margins amid the company’s stated macroeconomic and supply risks.