Miller Industries, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Miller Industries manufactures towing and recovery equipment. Financial statement amounts below are in thousands of dollars, except per-share data.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net sales | $181,158 | $128,529 | $351,070 | $304,583 |
| Gross profit | $20,590 | $17,727 | $36,421 | $36,265 |
| Gross margin | 11.4% | 13.8% | 10.4% | 11.9% |
| Net income | $6,516 | $5,826 | $9,694 | $11,257 |
| Basic earnings per share | $0.57 | $0.51 | $0.85 | $0.99 |
- Q2 sales rose 40.9% year over year; first-half sales increased 15.3%. Management attributed the gains to recovery from pandemic-related weakness in 2020.
- Q2 operating income, calculated as gross profit less SG&A, was $8,571, versus $7,660; first-half operating income was $13,351, versus $15,224. First-half net income fell despite slightly higher gross profit, reflecting increased operating expenses and other items.
- Q2 costs of operations were 88.6% of sales, versus 86.2%; first-half costs were 89.6%, versus 88.1%. Management cited rising raw-material prices, inflation, product mix and, for the first half, higher fixed manufacturing overhead per unit.
- Q2 SG&A was $12,019, up from $10,067; as a share of sales it declined to 6.6% from 7.8%. First-half SG&A was $23,070, versus $21,041, and declined as a share of sales to 6.6% from 6.9%.
- North American sales increased to $161,882 in Q2 from $107,460 and to $308,570 for the first half from $251,316. Foreign sales declined to $19,276 from $21,069 in Q2 and to $42,500 from $53,267 for the first half.
Cash, liquidity and obligations
- Cash and temporary investments were $53,934 at June 30, 2021, down from $57,521 at December 31, 2020. Current assets were $315,161 and current liabilities $132,644; the current ratio was approximately 2.4.
- First-half operating cash flow was $5,219, compared with $23,035 in 2020. The filing attributes the decline in part to increased production and working-capital needs; receivables used $19,784 of cash, inventories used $7,314, while accounts payable provided $22,115.
- Investing cash outflow was $5,414, primarily capital expenditures; financing cash outflow was $4,119, including $4,108 of dividends. Capital-expenditure commitments were approximately $5,012, with software-license commitments of approximately $3,754.
- No borrowings were outstanding under the $50 million unsecured revolving credit facility, which matures May 31, 2027. The company reported compliance with its covenants and said it expected to remain compliant. Lease obligations were approximately $1,385 in total at June 30, 2021.
- The quarterly dividend was $0.18 per share, unchanged from 2020. The board declared another $0.18 dividend on August 2, payable September 13, 2021.
Outlook, risks and other notable items
- Management expected cash on hand, operating cash flow and access to the credit facility to meet cash needs for the remainder of 2021 and the next several years, subject to operating performance and other factors. No quantitative earnings or revenue guidance was provided.
- Supply-chain constraints in the first half—including chassis, semiconductors and other components—limited material availability and coincided with substantial cost increases, including record-high steel prices. Management said these disruptions and production risks could continue through 2021.
- Higher employee turnover and difficulty hiring skilled workers increased recruiting, training and retention costs. COVID-19 safety measures continued to affect productivity; future pandemic effects and any renewed shutdowns remained uncertain.
- Key risks include raw-material and component cost or availability, the ability to pass costs to customers, supply-chain and workforce disruption, cyclical demand, COVID-19 developments, foreign-exchange exposure, and customer financing conditions.
- Potential distributor-lender repurchase obligations had a maximum exposure of approximately $42,326; management considered the related liability not probable and not material, with risk mitigated by the value of products repurchased. The filing also describes ordinary-course litigation and states management did not expect it to have a material adverse effect.
Important facts for investors to verify
- Whether supply availability, production volumes and labor retention improved after the reporting period, and whether input-cost inflation could be passed through in pricing.
- Whether gross margins recover from first-half levels and whether foreign sales stabilize after their year-over-year decline.
- Whether working-capital investment continues to constrain operating cash flow as production and sales grow.
- Progress and remaining costs of the ERP migration and committed capital projects, alongside liquidity and covenant headroom.
- Any subsequent developments in COVID-19 impacts, material contingencies, or the distributor repurchase exposure.