Miller Industries, Inc. — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014; compared with the three months ended March 31, 2013. Miller manufactures vehicle towing and recovery equipment. Unless noted otherwise, dollar amounts are in thousands.
Financial performance
- Revenue: $104.2 million, up 22.6% from $85.0 million. Management attributed the increase to stronger domestic and international demand and higher production.
- Profitability: Gross profit was $10.9 million, up from $8.6 million; gross margin was approximately 10.5%, versus 10.2%. Selling, general and administrative expenses were $7.2 million (6.9% of sales), compared with $6.7 million (7.9%). Income before taxes increased to $3.6 million from $1.9 million. Net income was $2.3 million; net income attributable to Miller Industries was $2.4 million, versus $1.3 million.
- Per-share results and dividend: Basic and diluted EPS were $0.21, compared with $0.12. The dividend declared per share was $0.15, versus $0.14.
- Cash flow: Operating activities used $0.7 million, versus providing $0.7 million. Investing activities used $0.2 million, compared with $0.8 million; capital expenditures were $0.2 million. Financing activities used $1.5 million, mainly for dividends. Cash declined by $2.3 million to $40.5 million.
- Liquidity and debt: Current assets were $187.0 million and current liabilities $63.6 million at quarter-end (current ratio approximately 2.9). The company had no borrowings under its $25 million unsecured revolving credit facility, which matures March 31, 2016. Operating lease obligations were approximately $1.2 million. The facility bears interest at LIBOR plus 1.50% and includes covenants that may restrict dividends.
- Other balance-sheet items: Inventories were $56.7 million, up from $54.2 million at year-end 2013; accounts receivable was $82.0 million, up from $80.8 million. Total shareholders’ equity was $163.6 million.
Material changes and unusual items
- Revenue increased across both North America ($82.8 million versus $72.6 million) and foreign markets ($21.4 million versus $12.3 million).
- The company sold its interest in the Delavan joint venture to its partner, with the sale closing March 31, 2014. Q1 results included $0.152 million of pretax losses directly attributable to the venture and an $0.083 million loss on deconsolidation. The Greeneville facility stopped manufacturing Delavan products at quarter-end; management expected no further venture losses.
- Foreign currency translation contributed $0.260 million to other comprehensive income. Foreign currency transaction gains were $0.021 million; the quarter-end derivative liability was $0.263 million.
- The board declared a further $0.15-per-share quarterly dividend on May 5, payable June 23, 2014.
Outlook, risks and contingencies
Management said available cash, expected operating cash flow and access to the revolver were expected to meet cash needs during 2014 and for the next several years, while noting that performance and economic conditions could affect that assessment. No specific revenue or earnings guidance was provided. Management highlighted the industry’s cyclicality, customer access to credit and floor-plan financing, raw-material and transportation costs, competition, regulation, foreign exchange, and labor and product-liability risks. Routine litigation is ongoing; management said any exposure beyond accruals and insurance was not expected to materially harm financial position or results. Potential customer-default repurchase obligations had a maximum amount of approximately $29.4 million, mitigated by the value of the products. Property and equipment commitments were approximately $0.462 million.
Key facts for investors to verify
- Whether stronger demand and production levels continued after Q1, and how product mix and chassis resale affected margins.
- Whether operating cash flow improved as inventory and receivables converted to cash.
- Whether the Delavan sale fully ended associated direct and indirect losses.
- Availability under the revolver and compliance with its covenants, including dividend restrictions.
- Exposure to customer repurchase guarantees, litigation, raw-material costs, foreign exchange and other disclosed industry risks.