Miller Industries, Inc. — Q2 2020 Form 10-Q
Business and period: Miller Industries manufactures towing and recovery equipment, primarily selling through independent distributors. This report covers the quarter and six months ended June 30, 2020; financial statement amounts below are in thousands of dollars, except per-share data.
Financial performance
| Metric | Q2 2020 | Q2 2019 | First half 2020 | First half 2019 |
|---|---|---|---|---|
| Net sales | $128,529 | $222,346 | $304,583 | $419,559 |
| Gross profit | $17,727 | $25,213 | $36,265 | $47,810 |
| Gross margin | 13.8% | 11.3% | 11.9% | 11.4% |
| Net income | $5,826 | $10,683 | $11,257 | $19,343 |
| Basic EPS | $0.51 | $0.94 | $0.99 | $1.70 |
- Q2 sales fell 42.2% year over year; first-half sales fell 27.4%. Net income decreased 45.5% for Q2 and 41.8% for the first half.
- Costs of operations were 86.2% of sales in Q2 versus 88.7% a year earlier, and 88.1% versus 88.6% for the first half. SG&A declined in dollars, but rose as a share of sales to 7.8% from 4.9% in Q2 and to 6.9% from 5.0% in the first half, reflecting lower sales and fixed-cost absorption.
- Cash and temporary investments were $37,116 at June 30, up from $26,072 at December 31, 2019. Current assets were $256,894 and current liabilities $89,571 (about 2.9x current-asset coverage).
- Six-month cash flow statement reports operating cash flow of $23,035, investing cash outflow of $7,503, and financing cash outflow of $4,300. Operating cash flow benefited from collection of receivables generated by earlier, higher sales.
- Credit-facility borrowings were $5,000 at June 30; the company had drawn $25,000 in March as a precaution and repaid it during Q2. The unsecured revolving facility is $50,000 and matures May 31, 2022. A French subsidiary also had $185 of debt due September 2020. The company reported covenant compliance.
- Capital expenditures were $7,545 in the first half. Commitments included approximately $11,964 for property, plant and equipment, including about $10,000 for Greeneville fabrication equipment, plus $6,179 in ERP software license fees.
Changes, outlook, and risks
- Management attributed the steep sales decline to COVID-19-related supply-chain constraints, reduced chassis deliveries, facility shutdowns, and safety-related operating changes. Domestic and international plants experienced shutdowns; domestic closures extended into the third quarter. These actions and demand reductions materially affected Q2 revenue, while the company said its order backlog strengthened.
- Management said it expected cash on hand, operating cash flow, and available credit to meet needs for the remainder of 2020 and the next several years, but emphasized that this depended on performance and uncertain COVID-19 developments. It was considering delaying some capital spending and scalable cost reductions. No specific revenue or earnings guidance was provided.
- Key uncertainties include the duration and severity of the pandemic, future customer demand and cancellations, chassis and other supplier deliveries, possible renewed shutdowns, and the impact of broader economic conditions. Raw-material prices and availability, foreign exchange, and the cyclical nature of the industry are also risks.
- The company reported no material supply disruption for parts and materials but did report material curtailments in chassis deliveries. It had not applied for or received CARES Act or other government-program loans or grants.
- On August 3, 2020, the board declared a quarterly dividend of $0.18 per share, payable September 14 to shareholders of record September 7.
- Management said ordinary-course litigation was not expected to materially affect the company. Potential distributor-loan repurchase exposure was approximately $93,737, mitigated by the value of products; the related liability was assessed as not probable and not material.
Important facts for investors to verify
- The cash-flow statement reports first-half operating cash flow of $23,035, while MD&A states $23,450. The filing text does not reconcile this discrepancy.
- Whether chassis deliveries, production capacity, customer orders, and the reported backlog recover or deteriorate after quarter-end.
- Timing and funding of the stated capital and ERP commitments, and any resulting changes to planned capital spending or liquidity.
- Progress in repaying the French subsidiary loan due September 2020 and continued compliance with credit-facility covenants.
- Potential impact of COVID-19-related disruptions, customer cancellations, supplier constraints, and any additional facility shutdowns on subsequent results.