Miller Industries, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Miller Industries manufactures towing and recovery equipment and sells primarily through independent distributors. Unless stated otherwise, financial amounts below are in millions; the filing reports most amounts in thousands.
Financial performance
- Q3 revenue: $274.6 million, up 33.6% year over year; net income was $17.5 million versus $5.2 million. Diluted EPS was $1.52 versus $0.46.
- Nine-month revenue: $857.1 million, up 37.7%; net income was $41.6 million versus $11.1 million. Diluted EPS was $3.62 versus $0.97.
- Margins: Gross margin was 15.6% in Q3 versus 11.3% a year earlier, and 13.2% for the nine months versus 9.1%. Net margin was approximately 6.4% and 4.9%, respectively, compared with 2.5% and 1.8% in the comparable periods.
- Cash flow: Nine-month operating cash flow was $4.2 million, compared with cash used of $31.6 million in 2022. Investing cash outflow was $27.5 million, including $17.8 million for the SHC acquisition and $9.7 million of capital expenditures. Financing cash inflow was $8.8 million. Cash declined $13.3 million to $26.8 million.
- Liquidity and debt: Current assets were $449.1 million and current liabilities $188.5 million (current ratio approximately 2.38). The company had $60.0 million drawn on its $100.0 million unsecured revolving facility, leaving $40.0 million available; cash less borrowings was approximately negative $33.2 million. The facility matures May 31, 2027, and its interest rate was 6.4% at September 30.
- Other: Accounts receivable was $240.6 million and inventory $176.3 million. Dividends declared were $0.18 per share for Q3 and $0.54 year to date; a further $0.18 quarterly dividend was declared November 6, payable December 11.
Changes and management commentary
- Management attributed higher sales primarily to increased production across product categories, improved component availability and strong customer demand; nine-month growth also reflected pricing actions implemented in 2022 and early 2023.
- Lower operating costs as a percentage of sales reflected pricing, operational efficiencies and stabilizing raw-material costs. SG&A rose in dollars, including from compensation, higher sales activity and workforce investments.
- Interest expense increased to $1.8 million for Q3 and $4.5 million year to date, reflecting higher borrowings, rates and floor-plan interest.
- On May 31, the company acquired substantially all assets and assumed certain liabilities of Southern Hydraulic Cylinder (SHC) for approximately $17.8 million. SHC contributed $3.5 million revenue and $0.9 million earnings from June 1 through September 30. Purchase accounting remains preliminary; recorded goodwill was $9.0 million and is not tax deductible.
- Management said strong backlog, pricing, productivity improvements and easing supply constraints support results, but expects supply-chain, inflationary, geopolitical and broader economic factors to continue adversely affecting production, results and cash flow for the remainder of 2023. It expects cash sources to meet needs for at least the next year, subject to operating performance and other factors. No quantified earnings or revenue guidance was provided.
Risks, contingencies and unusual items
- Operating cash flow remained modest despite substantially higher earnings; increased receivables and inventory used cash. Receivables rose from $177.7 million at year-end to $240.6 million.
- Distributor financing arrangements could require product repurchases if distributors default. Maximum collateral subject to repurchase was approximately $136.7 million, up from $74.1 million at year-end, partly due to higher sales and distributor inventory. The company recorded no liability, citing mitigation from the value of the products.
- The company disclosed ordinary-course litigation and believes any exposure beyond accruals and insurance will not materially affect its financial position or results; outcomes remain uncertain.
- Risks include cyclical demand, supplier and component availability, input and labor costs, higher interest rates, foreign exchange, and geopolitical disruptions. The filing highlights potential effects of California zero-emission truck rules beginning with model year 2024; impact is still being evaluated.
- The company corrected prior-period accounting errors it had assessed as immaterial to previously reported statements; the filing provides revised comparative amounts. SHC purchase-price allocations are subject to completion of valuation work and measurement-period adjustments.
Important facts for investors to verify
- Whether receivables convert to cash and operating cash flow improves, given the large year-to-date working-capital investment.
- Final SHC asset valuations, goodwill allocation, and the acquisition’s ongoing contribution to earnings and supply-chain resilience.
- Actual distributor defaults and potential repurchase losses relative to the disclosed $136.7 million maximum exposure.
- Borrowing costs and covenant headroom under the variable-rate facility, particularly if rates or working-capital needs rise.
- How supply availability, input costs, demand, geopolitical conditions and zero-emission regulations affect production and margins; the filing gives no quantified forward guidance.