Miller Industries, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Miller Industries manufactures towing and recovery equipment and sells primarily through independent distributors. Financial figures below are in millions of dollars unless otherwise noted.
Financial performance and position
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Net sales | $201.5 | $181.2 | $417.0 | $351.1 |
| Gross profit | $18.4 | $20.6 | $33.7 | $36.4 |
| Gross margin | 9.1% | 11.4% | 8.1% | 10.4% |
| Net income | $3.8 | $6.5 | $5.8 | $9.7 |
| Diluted EPS | $0.33 | $0.57 | $0.51 | $0.85 |
- Q2 sales increased 11.2%; first-half sales rose 18.8%. Growth was led by North America, while foreign sales declined in both periods.
- Despite higher sales, costs of operations grew faster: 14.0% in Q2 and 21.8% in the first half. Management cited component and raw-material inflation, parts shortages, supply-chain constraints, and wage inflation. These pressures reduced gross profit and margins.
- SG&A increased to $12.7 million in Q2 and $25.0 million in the first half, but declined as a share of sales to 6.3% and 6.0%, respectively. Interest expense also increased, partly due to credit-facility borrowings and floor-plan interest.
- Cash from operations was negative $34.8 million for the first half, versus positive $5.2 million a year earlier. Receivables rose $37.7 million and inventory rose $27.5 million in cash-flow terms, reflecting higher sales, production, and inventory purchases intended to address supply constraints.
- Capital spending was $22.8 million, versus $5.4 million in the prior-year period. Cash and temporary investments were $31.1 million at June 30, down from $54.3 million at year-end.
- At June 30, current assets were $371.0 million and current liabilities $163.4 million. Long-term credit-facility borrowings were $40.0 million, compared with none at year-end; cash exceeded borrowings by $8.9 million. The $50 million unsecured revolving facility had $10 million available at quarter-end. The company drew another $5 million after quarter-end, bringing borrowings to $45 million at August 3.
- Six-month dividends were $0.36 per share. A further $0.18 quarterly dividend was declared August 1, payable September 12, 2022.
Changes, outlook, risks, and unusual items
- Management said supply-chain and workforce challenges continued to constrain timely completion of finished products and increase operating costs. Price actions included raising the surcharge from 3% to 11% effective April 1 and a previously announced 5% price increase effective June 1. Management noted these actions followed cost increases and had not yet fully offset them.
- Based on its backlog, price actions, and process improvements, management believed it was positioned to improve operating results over 2022. However, it expected supply constraints and inflation could continue to materially adversely affect production and net income; outcomes depend on the war in Ukraine, COVID-19 effects, recession risk, and broader economic conditions. No numerical earnings or sales guidance was provided.
- Subsequent to quarter-end, First Horizon committed to expand the revolving facility from $50 million to $100 million on substantially the same terms and with the same May 31, 2027 maturity. Completion of customary amendment documentation remained outstanding.
- Foreign-currency translation produced a $2.3 million loss in other comprehensive income in Q2 and a $2.3 million loss for the first half. Transaction currency losses were $0.3 million and $0.4 million, respectively.
- Capital commitments at June 30 included approximately $8.8 million for property and equipment and $2.9 million in software license fees. The company reported a maximum potential product repurchase obligation of $57.3 million under distributor-lending arrangements; it said collateral mitigates the exposure and recorded no liability. Ordinary-course litigation was disclosed, with management not expecting a material adverse effect beyond accruals and insurance.
- Management expected available cash, operating cash flows, and credit-facility borrowings to meet cash needs for at least the next year, while noting this depends substantially on operating performance and factors outside its control. The company reported compliance with credit covenants. No material changes to the risk factors in its 2021 Form 10-K were reported.
Important facts for investors to verify
- Whether implemented pricing and surcharges catch up with input-cost inflation and restore gross margins.
- Whether supply availability, labor capacity, and production throughput improve, and whether backlog converts to shipments.
- Working-capital conversion, particularly receivables and inventory growth, and the effect on operating cash flow.
- Completion and terms of the proposed $100 million credit-facility expansion, borrowing levels, interest costs, and covenant headroom.
- Progress and spending against capital and ERP commitments, and any change in distributor repurchase exposure or litigation contingencies.