Miller Industries, Inc. — Q3 2021 Form 10-Q
Business context and reporting period. The company manufactures towing and recovery equipment and sells primarily through independent distributors. This filing covers the quarter and nine months ended September 30, 2021; financial amounts below are in millions of dollars unless stated otherwise.
Financial performance and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net sales | $164.7 | $168.4 | $515.8 | $472.9 |
| Gross profit | $17.8 | $17.8 | $54.3 | $54.1 |
| Gross margin | 10.8% | 10.6% | 10.5% | 11.4% |
| SG&A | $12.0 | $9.2 | $35.1 | $30.3 |
| Net income | $3.8 | $6.6 | $13.5 | $17.8 |
| Basic earnings per share | $0.34 | $0.57 | $1.19 | $1.56 |
- Cash flow: Operating cash flow was $7.0 for the first nine months, versus $44.1 in 2020. Investing used $7.9, principally for capital expenditures; financing used $6.2, mainly for dividends. Cash declined $7.1 to $50.4.
- Liquidity and debt: Current assets were $296.9 and current liabilities $113.7 at September 30; the current ratio was approximately 2.6. The company had no borrowings on its $50.0 unsecured revolving facility, which matures May 31, 2027. Lease obligations totaled approximately $1.3.
- Other balance-sheet items: Inventories rose to $108.8 from $83.9 at year-end 2020; accounts receivable were $131.3. Total assets were $408.6 and shareholders’ equity $289.9.
- The quarterly dividend remained $0.18 per share. A further $0.18 dividend was declared November 1, payable December 13, 2021.
Changes versus the prior comparable periods
- Third-quarter sales declined 2.2%; domestic sales fell to $142.3 from $149.3, while foreign sales rose to $22.4 from $19.1. Management attributed the overall decline to supply-chain bottlenecks.
- For the nine months, sales increased 9.1% as activity recovered from pandemic effects in 2020. Domestic sales rose to $450.9; foreign sales declined to $64.9, primarily reflecting lower exports.
- Net income decreased 41% in Q3 and 24% year to date. Higher SG&A, including personnel costs and normalized marketing and travel spending, weighed on results. Year-to-date cost of operations increased faster than sales, and gross margin declined.
- Operating cash flow was substantially lower year over year, in part because higher production and inventory requirements used cash in 2021; 2020 cash flow benefited from production reductions and collection of prior receivables.
Outlook, risks, and contingencies
- Management anticipated that supply-chain disruptions, material price inflation, chassis and component shortages, and hiring and retention difficulties would materially constrain production through the remainder of 2021 and into the first half of 2022. The company had implemented price increases and surcharges and was using expanded in-house fabrication to mitigate effects.
- Management expected cash on hand, operating cash flow, and available credit to meet cash needs for the remainder of 2021 and the next several years, subject to operating performance and factors outside its control. No quantified revenue or earnings guidance was provided.
- Key risks include COVID-19 and related operating impacts, supplier dependence and delays, raw-material prices, skilled-labor availability, industry cyclicality, customer financing access, foreign exchange, and regulatory and product-liability matters. The filing reported no material changes to previously disclosed risk factors.
- The $50.0 million credit facility was undrawn, and the company reported compliance with its covenants. A one-percentage-point rate change was not expected to have materially affected the period’s results or cash flows.
- Potential distributor-lender product repurchases had a maximum exposure of approximately $46.2 million; management said the product value mitigated the risk and the related liability was not probable or material. Ordinary-course litigation was disclosed; management did not expect any uninsured liability beyond accruals to materially affect results or financial position.
- Capital-expenditure commitments were approximately $5.9 million, with software-license commitments of $3.8 million. Management cited supply-chain and workforce challenges as continuing uncertainties.
Important facts for investors to verify
- Whether supply and chassis availability, material inflation, and labor constraints developed as management anticipated, and whether pricing actions offset those pressures.
- Whether inventory growth converted into sales and cash flow, and how operating cash generation progressed after the reported $7.0 million for the first nine months.
- Whether margin performance improved after the year-to-date decline and elevated SG&A costs.
- Whether the undrawn credit facility, covenant compliance, and reported liquidity remained adequate as commitments and operating needs were funded.
- The potential financial effects of distributor repurchase arrangements, litigation, foreign-currency movements, and the ERP implementation.