Miller Industries(MLR) - 2020 Q1 - Quarterly Report

FORWARD-LOOKING STATEMENTS This section outlines cautionary statements regarding future expectations, noting actual results may differ due to various factors - Forward-looking statements are identified by words such as "may," "will," "should," "expect," and "anticipate"[7] - Actual results may differ materially due to various factors, including the effects of COVID-19, industry cyclicality, economic conditions, raw material prices, and international operational uncertainties[7] - The company does not undertake to update these statements[7] PART I. FINANCIAL INFORMATION This part presents the company's financial statements, management's discussion, market risk, and controls ITEM 1. FINANCIAL STATEMENTS This section provides the company's unaudited condensed consolidated financial statements, including balance sheets, income, and cash flow Condensed Consolidated Balance Sheets This section presents the company's financial position, detailing assets, liabilities, and shareholders' equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | March 31, 2020 | December 31, 2019 | Change | | :----------------------------- | :------------- | :---------------- | :----- | | Cash and temporary investments | $43,094 | $26,072 | +$17,022 | | Total current assets | $312,355 | $287,452 | +$24,903 | | Total assets | $417,886 | $391,967 | +$25,919 | | Total current liabilities | $121,813 | $124,282 | -$2,469 | | Long-term obligations | $29,998 | $4,998 | +$25,000 | | Total liabilities | $156,459 | $134,040 | +$22,419 | | Total shareholders' equity | $261,427 | $257,927 | +$3,500 | Condensed Consolidated Statements of Income This section reports the company's financial performance, including net sales, costs, gross profit, and net income Condensed Consolidated Statements of Income Highlights (in thousands, except per share data) | Metric | 3 Months Ended Mar 31, 2020 | 3 Months Ended Mar 31, 2019 | YoY Change | | :----------------------------------- | :-------------------------- | :-------------------------- | :--------- | | Net Sales | $176,054 | $197,213 | -10.7% | | Costs of Operations | $157,516 | $174,616 | -9.8% | | Gross Profit | $18,538 | $22,597 | -17.9% | | Operating Expenses (SG&A) | $10,974 | $10,215 | +7.4% | | Income Before Income Taxes | $7,114 | $11,460 | -37.9% | | Net Income | $5,431 | $8,660 | -37.3% | | Basic Income Per Common Share | $0.48 | $0.76 | -36.8% | | Cash Dividends Declared Per Common Share | $0.18 | $0.18 | 0.0% | Condensed Consolidated Statements of Comprehensive Income This section details comprehensive income, including net income and other comprehensive income items Condensed Consolidated Statements of Comprehensive Income Highlights (in thousands) | Metric | 3 Months Ended Mar 31, 2020 | 3 Months Ended Mar 31, 2019 | YoY Change | | :-------------------------------- | :-------------------------- | :-------------------------- | :--------- | | Net Income | $5,431 | $8,660 | -37.3% | | Foreign currency translation adjustment | $(72) | $277 | N/A | | Comprehensive Income | $5,359 | $8,937 | -40.0% | Condensed Consolidated Statements of Shareholders' Equity This section outlines changes in shareholders' equity, reflecting net income, dividends, and other adjustments Condensed Consolidated Statements of Shareholders' Equity Highlights (in thousands) | Metric | March 31, 2020 | December 31, 2019 | March 31, 2019 | | :------------------------------------ | :------------- | :---------------- | :------------- | | Total Shareholders' Equity | $261,427 | $257,927 | $234,602 | | Net Income (3 months) | $5,431 | N/A | $8,660 | | Foreign currency translation adjustments (3 months) | $(72) | N/A | $277 | | Dividends paid per share (3 months) | $0.18 | N/A | $0.18 | Condensed Consolidated Statements of Cash Flows This section summarizes cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | 3 Months Ended Mar 31, 2020 | 3 Months Ended Mar 31, 2019 | YoY Change | | :----------------------------------- | :-------------------------- | :-------------------------- | :--------- | | Net cash flows from operating activities | $(1,852) | $(17,854) | +$16,002 | | Net cash flows from investing activities | $(3,516) | $(3,155) | -$361 | | Net cash flows from financing activities | $22,850 | $12,848 | +$10,002 | | Net change in cash and temporary investments | $17,022 | $(8,058) | +$25,080 | | Cash and temporary investments, end of period | $43,094 | $18,979 | +$24,115 | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and additional information supporting the condensed financial statements 1. Basis of Presentation This note describes the accounting principles and rules used in preparing the unaudited condensed financial statements - The unaudited condensed consolidated financial statements are prepared in accordance with SEC rules and GAAP, with certain disclosures condensed[24] - Management believes they fairly present the financial position, results of operations, and cash flows[24] - Interim results are not necessarily indicative of full fiscal year results[24] 2. Recent Accounting Pronouncements This note discusses the impact of recently adopted and upcoming accounting standards on financial statements - ASU 2019-12 (Income Taxes), effective after December 15, 2020, is not expected to have a material impact on the financial statements[25] - ASU 2018-15 (Intangibles – Goodwill and Other – Internal-Use Software) was adopted in Q1 2020 and had no material impact on the financial statements[26] 3. Basic Income Per Share This note explains the calculation of basic income per share, based on net income and weighted average common shares - Basic income per share is computed by dividing net income by the weighted average number of common shares outstanding, as the company has a simple capital structure with no stock options[27] 4. Revenue This note details revenue recognition policies and provides a breakdown of net sales by geographic location - Substantially all revenue is generated from sales of towing equipment, recognized when performance obligations are satisfied, typically upon shipment[29][30] Net Sales by Geographic Location (in thousands) | Net Sales | For the Three Months Ended March 31, 2020 | For the Three Months Ended March 31, 2019 | | :---------- | :---------------------------------------- | :---------------------------------------- | | North America | $143,856 | $163,893 | | Foreign | $32,198 | $33,320 | | Total | $176,054 | $197,213 | 5. Inventories This note describes the valuation method for inventories and provides a breakdown of inventory categories - Inventories are stated at the lower of cost or net realizable value, determined on a first-in, first-out (FIFO) basis[34] Inventories, net (in thousands) | Inventory Category | March 31, 2020 | December 31, 2019 | | :----------------- | :------------- | :---------------- | | Chassis | $7,721 | $6,561 | | Raw materials | $40,014 | $39,444 | | Work in process | $17,179 | $16,520 | | Finished goods | $27,727 | $25,440 | | Total Inventories, net | $92,641 | $87,965 | 6. Long-Term Obligations This note outlines the company's long-term debt, including credit facilities, borrowings, and covenant compliance - The company has a $50,000 thousand unsecured revolving credit facility with a maturity date of May 31, 2022, and has been in compliance with its covenants[36] - Borrowings under the credit facility during Q1 2020 were partially for working capital needs and partially as a precautionary measure due to operational disruptions from the COVID-19 pandemic[38] Outstanding Borrowings (in thousands) | Obligation | March 31, 2020 | December 31, 2019 | | :-------------------------------- | :------------- | :---------------- | | Outstanding borrowings under credit facility | $29,998 | $4,998 | | French subsidiary loan | $276 | $368 | 7. Commitments and Contingencies This note discloses the company's contractual commitments, lease obligations, and contingent liabilities Total Lease Cost (in thousands) | Lease Cost | 3 Months Ended Mar 31, 2020 | 3 Months Ended Mar 31, 2019 | | :---------------------- | :-------------------------- | :-------------------------- | | Total finance lease cost | $6 | $6 | | Total operating lease cost | $102 | $200 | | Short-term lease cost | $113 | $252 | | Total lease cost | $221 | $458 | - The company had commitments of approximately $3,067 thousand for property, plant, and equipment, and $7,949 thousand for software license fees related to an ERP system migration as of March 31, 2020[46] - The maximum amount of collateral the company could be required to repurchase under distributor default arrangements was approximately $76,751 thousand at March 31, 2020[47] 8. Income Taxes This note provides information on the company's income tax position, including carryforwards and effective rates - As of March 31, 2020, the company had no federal net operating loss carryforwards and no significant state operating loss carryforwards[50] 9. Subsequent Events This note reports significant events that occurred after the balance sheet date but before statement issuance - On May 4, 2020, the Board of Directors declared a quarterly cash dividend of $0.18 per share, payable on June 15, 2020[51] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's analysis of financial performance, condition, and key operational drivers Executive Overview This overview introduces the company's business, key performance indicators, and factors influencing financial results - Miller Industries is the world's largest manufacturer of towing and recovery equipment, operating globally under various brand names[54] - Key indicators monitored by management include revenue, operating income, gross margin, net income, earnings per share, capital expenditures, and cash flow[54] - Revenues are sensitive to general economic conditions, demand for products, technological competitiveness, raw material costs (aluminum, steel, petroleum-related products), and competition[55] - The company emphasizes innovation, research and development, and manufacturing modernization, including the introduction of the M100, the world's largest tow truck, in late 2019[56] - The industry is cyclical, and the company is concerned about the continuing effects of economic factors and raw material price volatility[57][58][59] Impact of COVID-19 This section details the operational and financial effects of the COVID-19 pandemic on the company's business - The COVID-19 pandemic led to limited shutdowns and safety modifications at all domestic facilities, including workforce rotation and sanitation efforts, which adversely impacted plant productivity[60] - In March 2020, the company drew $25,000 thousand on its credit facility for working capital and as a precautionary measure due to COVID-19 uncertainty[61] - Material curtailments of new chassis deliveries occurred due to supplier shutdowns in March 2020, with many facilities reopening at reduced capacity[62] - The full impact of the COVID-19 pandemic on operational and financial performance remains uncertain, depending on its duration, scope, and severity, though the company's backlog remains healthy despite some cancellations[63] Critical Accounting Policies This section identifies accounting policies requiring significant management judgment and their financial reporting impact - Critical accounting policies, requiring significant management judgment, include those related to accounts receivable, inventory, long-lived assets, warranty reserves, revenues, and income taxes[64] - There have been no significant changes in critical accounting policies during the first three months of 2020[64] Results of Operations – Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019 This section analyzes financial performance, comparing key revenue and expense metrics between the two periods Key Financial Performance Indicators (in thousands, except percentages) | Metric | 3 Months Ended Mar 31, 2020 | 3 Months Ended Mar 31, 2019 | YoY Change | | :----------------------------------- | :-------------------------- | :-------------------------- | :--------- | | Net Sales | $176,054 | $197,213 | -10.7% | | Costs of Operations | $157,516 | $174,616 | -9.8% | | Costs of Operations (% of sales) | 89.5% | 88.5% | +1.0 pp | | Selling, general and administrative expenses | $10,974 | $10,215 | +7.4% | | SG&A (% of sales) | 6.2% | 5.2% | +1.0 pp | | Interest expense, net | $359 | $668 | -46.3% | | Net foreign currency exchange loss | $84 | $252 | -66.7% | | Effective tax rate | 23.7% | 24.4% | -0.7 pp | - The decrease in net sales was largely attributable to modified production schedules, trade show cancellations, and supply chain issues due to the COVID-19 pandemic[66] - Costs of operations and SG&A expenses increased as a percentage of sales, reflecting inefficiencies from reduced fixed cost absorption and workforce reorganization in response to COVID-19[68][69] Liquidity and Capital Resources This section assesses the company's ability to generate and manage cash, including sources and uses of funds Cash Flow Activities (in thousands) | Cash Flow | 3 Months Ended Mar 31, 2020 | 3 Months Ended Mar 31, 2019 | YoY Change | | :----------------------------------- | :-------------------------- | :-------------------------- | :--------- | | Net cash flows from operating activities | $(1,852) | $(17,854) | +$16,002 | | Net cash flows from investing activities | $(3,516) | $(3,155) | -$361 | | Net cash flows from financing activities | $22,850 | $12,848 | +$10,002 | | Cash and cash equivalents, end of period | $43,094 | N/A | N/A | - Cash used in operating activities was impacted by a rise in finished goods inventory and slower revenues due to COVID-19 related supply chain issues[73] - Primary cash requirements include working capital, capital expenditures, declared cash dividends, and debt payments[76] - Expected sources are cash flows from operations, existing cash, and additional credit facility borrowings[76] - As of March 31, 2020, $20,447 thousand of the company's cash and temporary investments were held by foreign subsidiaries[77] Credit Facilities and Other Obligations This section details the company's credit arrangements, outstanding borrowings, and contractual obligations - The company's $50,000 thousand unsecured revolving credit facility had $29,998 thousand outstanding at March 31, 2020, an increase from $4,998 thousand at December 31, 2019, and the company remains in compliance with all covenants[78][79] - The French subsidiary has an unsecured fixed-rate loan with $276 thousand outstanding at March 31, 2020, maturing September 30, 2020[81] Non-cancelable Lease Obligations (in thousands) | Obligation | March 31, 2020 | December 31, 2019 | | :------------------------------- | :------------- | :---------------- | | Non-cancelable operating lease obligations | $1,728 | $1,807 | | Non-cancelable finance lease obligations | $55 | $61 | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section discusses the company's exposure to market risks from changes in interest rates and foreign currency exchange rates Interest Rate Risk This section analyzes the company's exposure to fluctuations in interest rates, particularly on variable-rate debt - The company is exposed to interest rate risk due to variable interest rates on its credit facility (LIBOR Market Index Rate plus 1.00% or 1.25% per annum)[83] - A one percent change in the interest rate on variable-rate debt would not have materially impacted the company's financial position, results of operations, or cash flows for the three months ended March 31, 2020[83] Foreign Currency Exchange Rate Risk This section addresses the company's exposure to foreign currency exchange rate fluctuations from international operations - The company is subject to foreign currency exchange rate risk from its international operations in Europe, which is managed through regular operating and financing activities and occasional forward foreign currency exchange contracts[84] Foreign Currency Impact (in thousands) | Metric | 3 Months Ended Mar 31, 2020 | 3 Months Ended Mar 31, 2019 | | :-------------------------------- | :-------------------------- | :-------------------------- | | Foreign currency translation adjustment | $(72) | $277 | | Net foreign currency exchange loss (P&L) | $84 | $252 | ITEM 4. CONTROLS AND PROCEDURES This section details the company's disclosure controls and procedures and internal control over financial reporting Disclosure Controls and Procedures This section describes the evaluation of the effectiveness of the company's disclosure controls and procedures - Management, including co-Chief Executive Officers and Chief Financial Officer, evaluated the effectiveness of disclosure controls and procedures as of March 31, 2020, and concluded they are effective[88] Changes in Internal Control over Financial Reporting This section reports any significant changes in internal control over financial reporting during the period - There were no significant changes in internal control over financial reporting during the period covered by the report that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[89] PART II. OTHER INFORMATION This part includes information on legal proceedings, risk factors, equity sales, defaults, and exhibits ITEM 1. LEGAL PROCEEDINGS This section describes the company's involvement in litigation and management's assessment of potential financial impact - The company is a party to litigation in the normal course of business, but management believes any ultimate liability beyond insurance and accruals will not have a material adverse effect on its financial position or results of operations[91] ITEM 1A. RISK FACTORS This section outlines significant risks, particularly the adverse effects of the COVID-19 pandemic on operations and financial condition - The COVID-19 outbreak may adversely affect revenues, results of operations, and financial condition due to stringent control measures, operational modifications impacting plant productivity, and reduced ability to meet customers from event cancellations[93][94][95] - The pandemic has caused material curtailments of new chassis deliveries and could negatively impact the supply chain, potentially leading to substantial harm to revenues and operations[97] - The ultimate impact of COVID-19 is unknown and highly uncertain, with potential for material adverse effects on business, financial condition, and results of operations, even after the pandemic subsides, due to economic recession or reduced travel[98] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS This section confirms no unregistered sales of equity securities or use of proceeds during the period - No unregistered sales of equity securities or use of proceeds[99] ITEM 3. DEFAULTS UPON SENIOR SECURITIES This section confirms no defaults upon senior securities during the reporting period - No defaults upon senior securities[100] ITEM 4. MINE SAFETY DISCLOSURES This section states that mine safety disclosures are not applicable to the company's operations - Mine Safety Disclosures are not applicable[101] ITEM 5. OTHER INFORMATION This section indicates that no other information requiring disclosure under this item is present - No other information[102] ITEM 6. EXHIBITS This section lists all exhibits filed with the report, including certifications and XBRL financial data - Exhibits include certifications from Co-Chief Executive Officers and Chief Financial Officer (31.1-31.3, 32.1-32.3) and XBRL formatted financial statements (101)[104][105] SIGNATURES This section provides the official signatures certifying the accuracy and completeness of the report - The report was signed on behalf of Miller Industries, Inc. by Deborah L. Whitmire, Executive Vice President, Chief Financial Officer, and Treasurer, on May 6, 2020[110]