Miller Industries, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. Miller Industries manufactures towing and recovery equipment, selling primarily through independent distributors. Unless noted, financial amounts below are in millions of dollars; the filing reports figures in thousands.
Financial results
| Metric | Q3 2020 | Q3 2019 | First nine months 2020 | First nine months 2019 |
|---|---|---|---|---|
| Net sales | $168.4 | $195.5 | $472.9 | $615.0 |
| Gross profit | $17.8 | $21.7 | $54.1 | $69.6 |
| Gross margin | 10.6% | 11.1% | 11.4% | 11.3% |
| Net income | $6.6 | $8.1 | $17.8 | $27.4 |
| Basic EPS | $0.57 | $0.71 | $1.56 | $2.41 |
- Q3 sales declined 13.9% year over year; nine-month sales declined 23.1%. Domestic and foreign sales both decreased.
- Q3 costs of operations were 89.4% of sales, versus 88.9% a year earlier; nine-month costs were 88.6%, versus 88.7%. SG&A declined in dollars but rose as a share of sales: 5.5% versus 5.3% in Q3 and 6.4% versus 5.1% year to date.
- Cash provided by operating activities for the first nine months was $44.1 million, compared with $28.0 million in 2019. Investing activities used $12.6 million; financing activities used $11.5 million. Cash flow benefited from customer collections on earlier sales and lower cash use for production.
- At September 30, cash was $47.5 million and current assets were $289.1 million versus current liabilities of $122.1 million. The $50 million unsecured revolving credit facility had no balance outstanding; $5.0 million was outstanding at year-end 2019. Total liabilities were $127.1 million and shareholders’ equity was $272.2 million.
- Capital expenditures were $12.7 million year to date. Declared dividends were $0.18 per share quarterly, or $0.54 per share for the nine months. The board declared another $0.18 dividend payable in December 2020.
Changes, outlook and risks
- Management attributed lower sales to softer demand, COVID-related health and safety operating measures, temporary plant shutdowns, and curtailed chassis deliveries from suppliers. Facilities had reopened by the filing date, and chassis suppliers were operating at levels sufficient to meet requirements by the end of Q3, but renewed disruptions remained possible. Management said Q3 revenue recovered substantially from Q2 but remained materially below Q3 2019; the downturn also strengthened the order backlog.
- The company drew $25 million on its credit facility in March as a precaution and repaid it in full during Q2 and Q3 as cash was stronger than anticipated. Cash at October 31 was described as substantially unchanged from September 30. Management expected available cash, operating cash flow and the credit facility to meet needs for the rest of 2020 and the next several years, while noting dependence on operating performance and uncertain pandemic conditions. No quantified earnings or revenue guidance was provided.
- Management retained options to delay certain capital spending and implement scalable cost reductions. It had not applied for or received CARES Act or other government-program loans or grants. Planned property and equipment commitments were approximately $9.0 million, including $5.9 million for Greeneville fabrication equipment; software license commitments were approximately $5.7 million.
- Key risks include further COVID-19 outbreaks, shutdowns or reduced customer spending; chassis, raw-material and component supply interruptions; cyclical demand; commodity prices and tariffs; foreign-exchange movements; and operating, product-liability and litigation exposures. The filing reports a maximum potential distributor-product repurchase obligation of approximately $66.9 million, mitigated by the value of the products; management said the related liability was not probable or material. Management did not expect ordinary-course litigation liabilities above accruals and insurance to materially affect results.
- Foreign-exchange gains contributed $0.2 million to Q3 other income and $0.4 million for the nine-month period. Currency translation increased accumulated other comprehensive income by $2.9 million in Q3 and $2.5 million year to date.
Important facts for investors to verify
- Whether order demand and the backlog convert into sales, and whether supplier chassis deliveries remain adequate.
- Whether COVID-related production measures, shutdowns or weaker customer spending recur and affect margins or cash flow.
- Execution, timing and total cost of the planned capital projects and multi-year ERP migration.
- Liquidity and covenant compliance if operating conditions deteriorate; the facility matures May 31, 2022 and restricts dividends under specified covenant conditions.
- Potential effects of foreign-currency exposure, distributor repurchase arrangements, and litigation or product claims.