Miller Industries, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with the three months ended March 31, 2021 unless noted. Dollar amounts are in thousands, except per-share data. Miller Industries manufactures towing and recovery equipment, selling primarily through independent distributors.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change / context |
|---|---|---|---|
| Net sales | $215,545 | $169,912 | Up 26.9%; North American sales rose to $194,351 from $146,687, while foreign sales fell to $21,194 from $23,225. |
| Gross profit / margin | $15,340 / 7.1% | $15,831 / 9.3% | Gross profit declined despite higher sales; costs of operations rose 29.9% and increased to 92.9% of sales from 90.7%. |
| SG&A | $12,386 | $11,051 | Up, mainly due to software licensing and personnel costs; 5.7% of sales versus 6.5%. |
| Income before taxes | $2,484 | $4,229 | Down. |
| Net income / net margin | $2,065 / 1.0% | $3,178 / 1.9% | Down; diluted EPS was $0.18 versus $0.28. |
| Operating cash flow | $(28,936) | $2,847 | Cash use reflected higher receivables and inventory purchases to support sales and address supply constraints. |
| Capital expenditures / investing cash flow | $4,091 / $(4,083) | $2,489 / $(2,489) | Q1 2022 spending included an Ooltewah, Tennessee facility for small-carrier production. |
| Cash and temporary investments | $29,292 at March 31 | $54,332 at December 31, 2021 | About $26,521 was held by foreign subsidiaries. |
| Credit-facility borrowings | $10,000 at March 31 | $0 at December 31, 2021 | Additional $10,000 drawn after quarter-end; $20,000 outstanding at May 4, leaving $30,000 available under the $50,000 facility. |
The effective tax rate was 16.9%, compared with 24.9%, primarily reflecting favorable tax adjustments in foreign jurisdictions. Net interest expense increased to $418 from $275, primarily due to floor-plan interest. The company declared and paid dividends of $0.18 per share during the quarter.
Material changes and financial position
Revenue growth did not translate into higher profit: component price increases, shortages, supply-chain delays, and wage inflation pressured costs and margins. Accounts receivable increased to $193,884 from $153,977 and inventory to $124,348 from $114,908 between year-end and March 31. Total assets were $467,481 and total liabilities were $178,635 at March 31. The company reported $10,000 of long-term obligations, consisting of credit-facility borrowings; lease obligations were also reported.
Outlook, risks, and contingencies
- Management cited a strong backlog, announced price actions, and process improvements as reasons it believes operating results could improve over 2022. It also said supply-chain constraints, inflation, and other factors could materially adversely affect production and net income through the year.
- To address rising input costs, the company increased its previously announced April 1 surcharge from 3% to 11%; a previously announced 5% price increase remained scheduled for June 1. Management cautioned that these actions take effect after higher costs are incurred.
- Risks include availability and cost of chassis, components, and raw materials; hiring and retaining skilled labor; inflation; the war in Ukraine; lingering COVID-19 effects; economic conditions; and the cyclical nature of the industry. The filing reports no material changes to the risk factors in the 2021 Form 10-K.
- At March 31, capital commitments were approximately $9,590 for property, plant, and equipment and $3,751 for ERP software fees payable through 2025.
- Distributor financing arrangements could require repurchase of repossessed company products, with maximum collateral of approximately $55,054 at March 31. Management considered a loss not probable and recorded no liability. Ordinary-course litigation is ongoing; management does not expect any uninsured liability beyond accruals to materially affect results or financial position.
- The $50,000 unsecured revolving facility matures May 31, 2027; the company reported covenant compliance. Its variable interest rate was 1.45% at March 31. A further $10,000 draw after quarter-end brought borrowings to $20,000 by May 4.
- On May 2, the board declared a $0.18-per-share dividend payable June 13. Also on May 2, the Compensation Committee approved an increase in Chairman Bill Miller’s annual salary from $319,737 to $662,500, effective January 1, 2022.
Important facts for investors to verify
- Whether price increases and surcharges recover input-cost inflation quickly enough to improve gross margin.
- Whether supply availability, production delays, and skilled-labor constraints improve, and how backlog converts to shipments and cash collections.
- Receivables and inventory growth, operating cash use, and subsequent borrowing needs; confirm available credit capacity and covenant headroom.
- Exposure to the distributor repurchase commitments and developments in litigation, including whether any loss becomes probable or estimable.
- The financial and governance implications of the chairman’s retroactive salary increase.