Miller Industries, Inc. — FY 2021 Form 10-K
Business context and reporting period
Annual report for the fiscal year ended December 31, 2021; figures below are in U.S. dollars, with financial statement amounts reported in thousands unless stated otherwise. Miller Industries manufactures towing and recovery equipment, including wreckers, car carriers and trailers, and sells primarily through independent distributors. The filing is annual, not a standalone fourth-quarter report.
Key financial metrics
| Metric | 2021 | 2020 |
|---|---|---|
| Net sales | $717.5 million | $651.3 million |
| Gross profit / gross margin | $69.9 million / 9.7% | $78.4 million / 12.0% |
| Operating expenses, SG&A | $46.2 million | $39.7 million |
| Income before tax | $21.8 million | $38.1 million |
| Net income / diluted and basic EPS | $16.3 million / $1.42 | $29.8 million / $2.62 |
| Operating cash flow | $15.3 million | $60.7 million |
| Cash and temporary investments at year-end | $54.3 million | $57.5 million |
| Current assets / current liabilities | $329.0 million / $144.3 million | $286.3 million / $110.7 million |
| Credit-facility borrowings at year-end | None | None |
Gross margin fell to 9.7% from 12.0%; net margin was approximately 2.3%, compared with 4.6%. The company reported no borrowings under its $50 million unsecured revolving facility, which matures in 2027. Current ratio was approximately 2.3 at year-end. Annual dividends declared were $0.72 per share, unchanged from 2020. The filing does not provide a standalone free-cash-flow measure.
Material changes versus 2020
- Sales rose 10.2%, largely because facilities did not have the COVID-related shutdown periods experienced in 2020. Domestic sales increased to $627.6 million; foreign sales decreased to $89.9 million.
- Despite higher sales, net income fell about 45.5% and EPS declined from $2.62 to $1.42. Costs of operations rose 13.0%, faster than revenue, amid inflation, supply constraints and higher labor costs; SG&A also increased.
- Cash from operations declined to $15.3 million from $60.7 million, reflecting higher working-capital needs, increased inventory purchases and labor costs. Inventory increased to $114.9 million from $83.9 million, while accounts payable increased to $119.0 million from $85.5 million.
- Capital expenditures were $9.2 million, compared with $17.5 million in 2020. Cash dividends paid totaled $8.2 million.
Outlook, commentary and risks
Management said supply-chain constraints and workforce challenges materially pressured production and results, particularly in the second half of 2021, and expected those pressures to continue through the first half of 2022 or longer. The company reported historically high backlog but did not quantify it. Management saw an opportunity to substantially improve 2022 operating results, conditional on easing supply constraints and workforce difficulties; this is not quantified guidance.
Price increases and surcharges implemented in 2021, with additional increases scheduled for the first half of 2022, were intended to offset higher input costs. Management noted that pricing takes time to implement while higher costs are incurred sooner. The company also cited COVID-19 uncertainty, supplier and chassis delays, raw-material inflation, skilled-labor retention, foreign exchange, cyclical demand and geopolitical developments including the Russia-Ukraine conflict as risks.
Open purchase-order obligations were $90.5 million at year-end and were expected to be settled during 2022. The company also disclosed $5.1 million of property and equipment commitments and $3.8 million of remaining software payments. Its maximum potential obligation to repurchase distributor products repossessed by third-party lenders was approximately $47.9 million; management said the related liability was not probable or material, and no repurchases were required in 2021 or 2020. Ordinary-course litigation was disclosed; management did not expect matters beyond recorded accruals and insurance to materially affect results.
The independent auditor issued an unqualified opinion on the financial statements and reported effective internal control over financial reporting. Income taxes were identified as a critical audit matter, involving judgment over tax provisions and deferred-tax-asset realizability.
Important facts for investors to verify
- Whether supply-chain and labor constraints eased as expected, allowing backlog to convert into shipments and cash.
- Whether price increases and surcharges recovered input-cost inflation, and how gross margins developed after 2021.
- How working-capital requirements, inventory and operating cash flow changed as production and deliveries normalized.
- The status and terms of the $90.5 million purchase-order obligations and the potential distributor-product repurchase exposure.
- Dividend capacity under credit-facility covenants and the company’s ability to sustain quarterly payments.