Miller Industries, Inc. — FY2020 Form 10-K
Reporting period: Year ended December 31, 2020; amounts below are in U.S. dollars. This is an annual report, with selected fourth-quarter results noted separately. Miller Industries manufactures towing and recovery equipment and sells primarily through independent distributors.
Financial performance and liquidity
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Net sales | $651.3 million | $818.2 million | Down 20.4% |
| Gross profit / gross margin | $78.4 million / 12.0% | $96.5 million / 11.8% | Margin up 0.2 percentage points |
| Selling, general and administrative expense | $39.7 million | $43.4 million | Down 8.5% |
| Income before taxes | $38.1 million | $50.4 million | Down 24.4% |
| Net income | $29.8 million | $39.1 million | Down 23.7% |
| Diluted earnings per share | $2.62 | $3.43 | Down 23.6% |
| Operating cash flow | $60.7 million | $35.1 million | Up $25.6 million |
| Capital expenditures | $17.5 million | $17.4 million | Approximately flat |
Fourth-quarter sales were $178.3 million, compared with $203.1 million a year earlier. Fourth-quarter net income was $12.0 million versus $11.7 million; management said income substantially exceeded the first three quarters of 2020 as demand, production and deliveries recovered. The filing does not provide a clear fourth-quarter margin value.
Cash and temporary investments were $57.5 million at year-end, versus $26.1 million in 2019. The company ended 2020 with no borrowings on its $50 million unsecured revolving facility, compared with $5.0 million outstanding a year earlier; it repaid a $25 million draw made in March 2020. Total liabilities were $116.0 million, versus $134.0 million. The board declared dividends of $0.72 per share for 2020, totaling $8.2 million.
Operating cash flow benefited in part from collecting receivables while production and sales were lower. Investing cash outflow was $17.2 million, primarily for property and equipment; financing cash outflow was $13.6 million, mainly dividends and debt repayment. These cash-flow figures should be considered alongside the working-capital changes described in the filing.
Material changes and operating context
- COVID-19 affected demand, employee procedures, plant productivity and chassis deliveries. The company reported order reductions and temporary shutdowns at certain domestic and international facilities, particularly in the second and third quarters.
- Domestic sales declined to $556.5 million from $697.0 million; foreign sales declined to $94.7 million from $121.2 million.
- Costs of operations fell 20.6%, slightly faster than sales; costs as a percentage of sales improved to 88.0% from 88.2%. SG&A fell in dollars, but increased to 6.1% of sales from 5.3%, reflecting fixed costs against lower revenue.
- The effective tax rate was 21.7%, compared with 22.4%, which management attributed primarily to increased R&D tax-credit estimates.
- The company had invested more than $97 million in domestic property, plant and equipment over 2016–2020, including facility expansions and modernization. 2020 R&D expense was $4.7 million, up from $3.7 million.
Outlook, risks and contingencies
The filing gives no quantified full-year 2021 guidance. Management reported significant first-half-of-first-quarter 2021 delivery delays tied to implementation of new enterprise software, COVID-related supply-chain disruption, severe weather and freight availability. It said the main software process changes were essentially operational and delivery schedules were returning to current customer demand. Based on its strong backlog and process improvements, management expected an opportunity for substantially improved operating results in 2021 beyond the first quarter; supply-chain issues could recur.
- Management estimated backlog represented approximately five months of production, but noted orders may be cancellable and backlog may not predict future performance.
- Key risks include further pandemic effects, cyclical demand and customer access to credit; availability and cost of chassis, steel, aluminum and other components; tariffs; skilled-labor constraints; and foreign-exchange and Brexit-related uncertainty.
- Repurchase commitments to third-party lenders for products repossessed after distributor defaults had a maximum potential amount of $56.8 million at year-end, down from $74.0 million. No repurchases were required in 2020 or 2019; management said the exposure was mitigated by the value of the products.
- Other purchase and capital commitments totaled $48.3 million, including $34.3 million in normal-course purchase orders, $5.3 million in software license fees and $7.1 million in capital projects. The company also disclosed ordinary-course litigation; management did not expect matters beyond accruals and insurance to materially affect results.
- The amended credit facility extends to May 2027 and raises the minimum tangible-net-worth covenant to $190 million; reported tangible net worth was approximately $271 million. Dividends remain subject to credit-facility covenants and board discretion.
Important facts for investors to verify
- Whether 2021 deliveries and margins recovered after the software implementation and first-quarter disruptions, and whether the company’s anticipated improvement occurred.
- Whether chassis and component availability, freight capacity and customer demand remained adequate, and whether costs or tariffs pressured margins.
- How much of the estimated five-month backlog converted to sales, including the timing and cancellation risk of orders.
- Whether cash generation and the $57.5 million year-end cash balance support planned capital spending and dividends while maintaining credit-covenant compliance.
- Whether distributor defaults, product warranty claims, litigation or the $56.8 million maximum repurchase commitment produced material costs.