Miller Industries, Inc. — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017; balance-sheet comparisons are to December 31, 2016. Unless noted otherwise, amounts below are in thousands of dollars. Miller Industries manufactures vehicle towing and recovery equipment, selling through domestic and international distributors.
Financial performance and position
- Revenue: $148.933 million, essentially unchanged from $148.815 million in Q1 2016. North American sales declined to $130.678 million from $133.620 million, while foreign sales increased to $18.255 million from $15.195 million.
- Profitability: Gross profit rose to $15.395 million from $12.970 million; gross margin improved to approximately 10.3% from 8.7%. Net income increased to $3.839 million from $3.360 million, and diluted EPS was $0.34 versus $0.30. SG&A increased to $9.044 million from $8.010 million, and interest expense rose to $378,000 from $198,000.
- Taxes and dividends: The effective tax rate was 35.9%, compared with 34.2%. The company declared a $0.18-per-share Q1 dividend, up from $0.17; the board declared another $0.18 dividend on May 2, payable June 20, 2017.
- Cash flow: Operating activities used $3.077 million, versus $7.691 million used in Q1 2016. Capital expenditures used $6.393 million, compared with $5.749 million. Financing provided $2.957 million, including $5.000 million of net credit-facility borrowings and $2.043 million of dividends paid. Cash declined by $6.616 million to $24.499 million.
- Liquidity and debt: Current assets were $230.889 million and current liabilities $109.304 million (current ratio approximately 2.1). Credit-facility borrowings were $10.000 million at quarter-end, leaving $40.000 million available under the $50 million facility; borrowings were $15.000 million on April 28. The facility was renewed April 5, 2017, extending maturity to May 31, 2019. Cash and temporary investments held by foreign subsidiaries totaled $23.710 million and are generally subject to U.S. tax on repatriation.
- Balance sheet: Total assets were $307.709 million and shareholders’ equity $186.436 million at March 31. Accounts receivable was $132.666 million and inventories $67.561 million.
Changes, outlook, and risks
- Management attributed the gross-margin improvement primarily to product mix and cost monitoring. SG&A growth was mainly related to increased staffing; higher interest expense reflected distributor floor-plan financing, chassis purchases, and credit-facility borrowings.
- Management said demand remained solid in domestic and international markets, but emphasized industry cyclicality and exposure to economic conditions, customer financing availability, raw-material costs, and fuel and insurance costs.
- No specific earnings or revenue guidance was provided. Management expected cash from operations, cash on hand, and available borrowing capacity to meet cash needs during 2017 and for the next several years, subject to operating and market conditions.
- Capital projects include Pennsylvania manufacturing consolidation and expansion, estimated at $24.7 million (about $23.4 million incurred by March 31); Tennessee facility projects estimated at $21.1 million (about $12.5 million incurred); and a planned Ooltewah administrative building estimated at $4.2 million. The filing reports $14.097 million of construction and equipment commitments at quarter-end and says timing and costs may change. A contingent agreement was entered into for potential sale of the remaining Pennsylvania plant location.
- Customer-default repurchase arrangements had a maximum potential collateral repurchase amount of approximately $49.393 million; management said the product value mitigates exposure and the related liability was neither material nor probable. The company also disclosed ordinary-course litigation, unrecognized tax benefits of $1.103 million, potential penalties of $235,000 and interest of $20,000. Management did not expect litigation liabilities beyond accruals and insurance to materially affect results or financial position.
- Key risks include cyclical demand, input-cost and supplier exposure, variable-rate debt, foreign currency movements, customer credit, warranty or product-liability claims, and execution and cost risks on capital projects. The company reported compliance with credit-facility covenants and effective disclosure controls.
Important facts for investors to verify
- Whether improved gross margin persists despite nearly flat sales and higher SG&A.
- Cash conversion and working-capital needs, particularly receivables and inventories, as capital spending continues.
- Remaining project costs, completion timing, and the outcome of the potential Pennsylvania plant sale.
- Borrowing levels, covenant headroom, and sensitivity to variable interest rates.
- Potential exposure from customer repurchase commitments, litigation, and uncertain tax positions.
- Effects of foreign sales, currency changes, and any cash repatriation taxes.