Miller Industries(MLR) - 2020 Q2 - Quarterly Report

FORM 10-Q Filing Information Provides key filing details for Miller Industries, Inc.'s Form 10-Q report - Miller Industries, Inc. filed its Quarterly Report on Form 10-Q for the period ended June 30, 2020, confirming its status as an accelerated filer and not a shell company[1] Condensed Consolidated Balance Sheets (in thousands) | Metric | Value | | :----- | :---- | | Commission file number | 001-14124 | | Shares outstanding (July 31, 2020) | 11,405,468 | | Securities registered | Common Stock, par value $0.01 per share (MLR on NYSE) | FORWARD-LOOKING STATEMENTS Highlights inherent risks and uncertainties impacting forward-looking statements, including COVID-19 and industry factors - The report contains forward-looking statements, particularly in 'Management's Discussion and Analysis,' subject to risks like COVID-19 impact, industry cyclicality, raw material dependence, and regulatory changes, which could cause actual results to differ materially[6] PART I FINANCIAL INFORMATION Presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis Item 1. Financial Statements Presents unaudited condensed consolidated financial statements and their accompanying detailed notes Condensed Consolidated Balance Sheets Summarizes the company's financial position, showing changes in assets, liabilities, and equity Condensed Consolidated Balance Sheets (in thousands) | Item | June 30, 2020 | December 31, 2019 | | :-------------------------------- | :------------ | :---------------- | | ASSETS | | | | Total current assets | $256,894 | $287,452 | | Total noncurrent assets | $107,079 | $104,515 | | TOTAL ASSETS | $363,973 | $391,967 | | LIABILITIES AND SHAREHOLDERS' EQUITY | | | | Total current liabilities | $89,571 | $124,282 | | Total noncurrent liabilities | $9,514 | $9,758 | | Total liabilities | $99,085 | $134,040 | | Total shareholders' equity | $264,888 | $257,927 | | TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $363,973 | $391,967 | - Total assets decreased by $27,994 thousand (7.1%) from December 31, 2019, to June 30, 2020, primarily due to a decrease in accounts receivable[9] - Total liabilities decreased by $34,955 thousand (26.1%), mainly driven by a reduction in accounts payable[9] - Shareholders' equity increased by $6,961 thousand (2.7%)[9] Condensed Consolidated Statements of Income Details the company's revenue, expenses, and net income performance over specified periods Condensed Consolidated Statements of Income (in thousands, except per share data) | Item | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Sales | $128,529 | $222,346 | $304,583 | $419,559 | | Costs of Operations | $110,802 | $197,133 | $268,318 | $371,749 | | Gross Profit | $17,727 | $25,213 | $36,265 | $47,810 | | Operating Expenses (SG&A) | $10,067 | $10,968 | $21,041 | $21,183 | | Income Before Income Taxes | $7,506 | $13,467 | $14,620 | $24,927 | | Net Income | $5,826 | $10,683 | $11,257 | $19,343 | | Basic Income Per Common Share | $0.51 | $0.94 | $0.99 | $1.70 | | Cash Dividends Declared Per Common Share | $0.18 | $0.18 | $0.36 | $0.36 | - Net sales decreased significantly by 42.2% for the three months and 27.4% for the six months ended June 30, 2020, compared to the prior year, primarily due to COVID-19 impacts[11] - Net income also saw substantial declines, falling 45.4% for the quarter and 41.8% for the six-month period[11] Condensed Consolidated Statements of Comprehensive Income Reports net income and other comprehensive income components, including foreign currency adjustments Condensed Consolidated Statements of Comprehensive Income (in thousands) | Item | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Income | $5,826 | $10,683 | $11,257 | $19,343 | | Foreign currency translation adjustment | $(312) | $(930) | $(384) | $(653) | | Comprehensive Income | $5,514 | $9,753 | $10,873 | $18,690 | - Comprehensive income decreased by 43.5% for the three months and 41.8% for the six months ended June 30, 2020, reflecting the decline in net income and continued foreign currency translation adjustments[14] Condensed Consolidated Statements of Shareholders' Equity Outlines changes in shareholders' equity, including net income, dividends, and other adjustments Condensed Consolidated Statements of Shareholders' Equity (in thousands) | Item | Dec 31, 2019 | Mar 31, 2020 | June 30, 2020 | | :-------------------------------- | :----------- | :----------- | :------------ | | Common Stock | $114 | $114 | $114 | | Additional Paid-In Capital | $151,055 | $151,249 | $151,249 | | Accumulated Surplus | $112,261 | $115,639 | $119,412 | | Accumulated Other Comprehensive Loss | $(5,503) | $(5,575) | $(5,887) | | Total Shareholders' Equity | $257,927 | $261,427 | $264,888 | Key Changes (Six Months Ended June 30, 2020) * Net income: $11,257 thousand * Foreign currency translation adjustments: $(384) thousand * Issuance of common stock to non-employee directors: $194 thousand * Dividends paid: $(4,106) thousand - Total shareholders' equity increased from $257,927 thousand at December 31, 2019, to $264,888 thousand at June 30, 2020, driven by net income partially offset by dividends paid and foreign currency translation adjustments[17] Condensed Consolidated Statements of Cash Flows Analyzes cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (in thousands) | Activity | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash flows from operating activities | $23,035 | $8,325 | | Net cash flows from investing activities | $(7,503) | $(8,430) | | Net cash flows from financing activities | $(4,300) | $702 | | Effect of exchange rate changes on cash | $(188) | $(398) | | Net change in cash and temporary investments | $11,044 | $199 | | Cash and temporary investments, beginning of period | $26,072 | $27,037 | | Cash and temporary investments, end of period | $37,116 | $27,236 | Supplemental Disclosure (in thousands) | Item | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Cash payments for interest | $1,203 | $1,655 | | Cash payments for income taxes, net of refunds | $1,710 | $5,249 | - Net cash provided by operating activities significantly increased to $23,035 thousand for the six months ended June 30, 2020, from $8,325 thousand in the prior year, primarily due to decreased cash usage for new production and continued receivables inflow[19] - Cash used in financing activities shifted from a net inflow of $702 thousand in 2019 to a net outflow of $4,300 thousand in 2020, mainly due to dividend payments and net repayments on credit facility[19] Notes to Condensed Consolidated Financial Statements Provides detailed explanations and disclosures for the condensed consolidated financial statements 1. BASIS OF PRESENTATION Explains the basis for preparing the unaudited interim consolidated financial statements - The condensed consolidated financial statements are unaudited, prepared in accordance with SEC rules and GAAP, and include all normal recurring adjustments, with interim results not necessarily indicative of full fiscal year results[20] 2. RECENT ACCOUNTING PRONOUNCEMENTS Discusses the adoption and expected impact of recent accounting pronouncements - The Company adopted ASU 2018-15 (Intangibles – Goodwill and Other – Internal-Use Software) in Q1 2020, with no material impact[22] - ASU 2019-12 (Income Taxes) will be effective after December 15, 2020, and is not expected to have a material impact[23] 3. BASIC INCOME PER SHARE Defines the calculation method for basic income per share and capital structure - Basic income per share is calculated by dividing net income by the weighted average number of common shares outstanding, with the Company having a simple capital structure and no dilutive instruments[24] 4. REVENUE Details revenue recognition policies and disaggregation of net sales by geographic region - Substantially all revenue is from sales of towing equipment, recognized when products are shipped or control transfers under bill and hold arrangements[26] - Revenue is disaggregated by geographic location[27] Net Sales by Geographic Location (in thousands) | Region | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | North America | $107,460 | $191,753 | $251,316 | $355,646 | | Foreign | $21,069 | $30,593 | $53,267 | $63,913 | | Total Net Sales | $128,529 | $222,346 | $304,583 | $419,559 | Contract Liabilities (in thousands) | Date | Balance | | :--- | :------ | | June 30, 2020 | $287 | | December 31, 2019 | $324 | - $37 thousand of contract liability recognized into earnings during the six months ended June 30, 2020[29] 5. INVENTORIES Describes inventory valuation methods and composition, net of reserves - Inventories are valued at the lower of cost or net realizable value, using the first-in, first-out (FIFO) method, with costs including materials, labor, and factory overhead[31] Inventories, net of reserves (in thousands) | Category | June 30, 2020 | December 31, 2019 | | :------------- | :------------ | :---------------- | | Chassis | $6,816 | $6,561 | | Raw materials | $41,223 | $39,444 | | Work in process | $16,694 | $16,520 | | Finished goods | $26,169 | $25,440 | | Total Inventories | $90,902 | $87,965 | 6. LONG-TERM OBLIGATIONS Outlines the company's credit facilities and other long-term debt obligations - The Company maintains a $50,000 thousand unsecured revolving credit facility with First Horizon Bank, maturing May 31, 2022, and was in compliance with all covenants[33] - A French subsidiary has an unsecured fixed-rate loan of $185 thousand due September 30, 2020[36] Outstanding Borrowings (in thousands) | Obligation | June 30, 2020 | December 31, 2019 | | :-------------------------------- | :------------ | :---------------- | | Credit Facility | $5,000 | $4,998 | | French Subsidiary Loan | $185 | $368 | Credit Facility Activity (in thousands) * March 2020: Drew $25,000 for working capital due to COVID-19 * Q2 2020: Repaid $25,000 as cash position strengthened 7. COMMITMENTS AND CONTINGENCIES Details the company's leasing activities, other commitments, and potential contingencies Leasing Activities Describes the company's operating and finance lease agreements and related obligations - The Company leases equipment and facilities under operating and finance lease agreements, expiring through 2026[37] - Right-of-use assets and lease obligations are recognized based on the present value of lease payments, using the incremental borrowing rate[38][39] Lease Obligations and Costs (in thousands) | Item | June 30, 2020 | December 31, 2019 | | :-------------------------------- | :------------ | :---------------- | | Operating Lease Obligation | $1,430 | $1,807 (undiscounted) | | Finance Lease Obligation | $48 | $61 (undiscounted) | Total Lease Cost (in thousands) | Period | 2020 | 2019 | | :-------------------------------- | :--- | :--- | | Three Months Ended June 30 | $245 | $509 | | Six Months Ended June 30 | $466 | $967 | Weighted Average Lease Terms (June 30, 2020) * Operating leases: 5.1 years * Finance leases: 2.2 years Other Commitments Presents the company's capital commitments for property, plant, equipment, and software licenses Commitments (in thousands) | Category | June 30, 2020 | December 31, 2019 | | :-------------------------------- | :------------ | :---------------- | | Property, Plant and Equipment | $11,964 | $3,583 | | ERP System Software License Fees | $6,179 | $8,430 | - Property, Plant and Equipment commitment includes $10,000 thousand for upgrading fabrication equipment at Greeneville, TN[44] Contingencies Discusses potential financial obligations from repurchase agreements and legal proceedings - The Company has repurchase agreements with third-party lenders for repossessed products from distributors, with a maximum potential repurchase amount of $93,737 thousand at June 30, 2020[45] - Litigation arising in the normal course of business is accrued for when probable and estimable, and management believes any excess liability will not materially impact financial position[48] 8. INCOME TAXES Provides information on the company's income tax position and carryforwards - As of June 30, 2020, the Company had no federal net operating loss carryforwards and no significant state operating loss carryforwards[49] 9. SUBSEQUENT EVENTS Reports significant events occurring after the balance sheet date, such as dividend declarations - On August 3, 2020, the Board of Directors declared a quarterly cash dividend of $0.18 per share, payable September 14, 2020, to shareholders of record as of September 7, 2020[50] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's analysis of financial condition, operating results, COVID-19 impact, and liquidity Executive Overview Provides an overview of the company's business, key performance indicators, and industry factors - Miller Industries is the world's largest manufacturer of towing and recovery equipment, operating globally under various brand names[53] - Management monitors revenue, operating income, gross margin, net income, EPS, capital expenditures, and cash flow, with revenue influenced by economic conditions, product demand, technological competitiveness, and raw material costs[54][55] - The Company emphasizes innovation, investing in robotics, advanced manufacturing technologies, an R&D facility, and an ongoing ERP system migration[56] - The industry is cyclical, and the Company is concerned about factors like consumer confidence, credit market volatility, fuel/insurance costs, and raw material price changes[57][58] Impact of COVID-19 Assesses the operational and financial effects of the COVID-19 pandemic on the company - The COVID-19 pandemic led to operational modifications, including limited shutdowns and workforce rotations, to ensure employee safety[62] - The Company drew and subsequently repaid $25,000 thousand from its credit facility as a precautionary liquidity measure[63] - Material curtailments of new chassis deliveries and reduced product orders caused domestic and international plant shutdowns, negatively impacting Q2 revenues but strengthening the order backlog[64] - The future impact of COVID-19 on operations and financial performance remains highly uncertain, depending on the pandemic's duration, severity, and economic recovery[65] Critical Accounting Policies Identifies key accounting policies requiring significant management judgment and their stability - The Company's critical accounting policies, requiring significant management judgment, include those related to accounts receivable, inventory, long-lived assets, warranty reserves, revenues, and income taxes, with no significant changes during the first six months of 2020[66] Results of Operations – Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019 Compares financial performance for the three months ended June 30, highlighting key variances Financial Performance (Three Months Ended June 30, in thousands) | Item | 2020 | 2019 | Change (%) | | :-------------------------------- | :--- | :--- | :--------- | | Net Sales | $128,529 | $222,346 | -42.2% | | Costs of Operations | $110,802 | $197,133 | -43.8% | | Gross Profit | $17,727 | $25,213 | -29.7% | | SG&A Expenses | $10,067 | $10,968 | -8.3% | | Income Before Income Taxes | $7,506 | $13,467 | -44.3% | | Net Income | $5,826 | $10,683 | -45.4% | | Basic Income Per Common Share | $0.51 | $0.94 | -45.7% | - Net sales decreased due to COVID-19 related supply chain issues, shutdowns, and safety adjustments[69] - Costs of operations decreased as a percentage of sales (86.2% vs 88.7%), reflecting enhanced margins from product mix changes[70] - SG&A expenses decreased in absolute terms but increased as a percentage of sales (7.8% vs 4.9%) due to reduced fixed cost absorption[71] - Interest expense, net, decreased due to lower credit facility and floor plan interest[72] Results of Operations – Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019 Compares financial performance for the six months ended June 30, detailing significant changes Financial Performance (Six Months Ended June 30, in thousands) | Item | 2020 | 2019 | Change (%) | | :-------------------------------- | :--- | :--- | :--------- | | Net Sales | $304,583 | $419,559 | -27.4% | | Costs of Operations | $268,318 | $371,749 | -27.8% | | Gross Profit | $36,265 | $47,810 | -24.2% | | SG&A Expenses | $21,041 | $21,183 | -0.7% | | Income Before Income Taxes | $14,620 | $24,927 | -41.3% | | Net Income | $11,257 | $19,343 | -41.8% | | Basic Income Per Common Share | $0.99 | $1.70 | -41.8% | - Net sales decreased due to COVID-19 impacts, including supply chain issues and shutdowns[75] - Costs of operations decreased as a percentage of sales (88.1% vs 88.6%), primarily due to product mix differences[76] - SG&A expenses remained relatively flat in absolute terms but increased as a percentage of sales (6.9% vs 5.0%)[77] - Interest expense, net, decreased due to lower credit facility and chassis interest[78] - Other (income) expense, net, shifted from a net loss of $315 thousand in 2019 to a net gain of $189 thousand in 2020, primarily from foreign currency exchange gains[79] Liquidity and Capital Resources Analyzes the company's cash position, sources, and uses of capital, and future liquidity - Cash provided by operating activities increased significantly to $23,035 thousand for the six months ended June 30, 2020, from $8,325 thousand in 2019, due to reduced cash usage for new production while receivables from prior quarters continued to flow in[80] - Cash used in investing activities was $7,503 thousand, primarily for property, plant, and equipment purchases[81] - Cash used in financing activities was $4,300 thousand, mainly for cash dividends[82] Cash and Commitments (in thousands) | Item | June 30, 2020 | | :-------------------------------- | :------------ | | Cash and cash equivalents | $37,116 | | Commitments for property, plant and equipment | $11,964 | | Commitments for software license fees | $6,179 | | Cash held by foreign subsidiaries | $17,761 | - Expected sources of cash include operations, cash on hand, and credit facility borrowings, deemed sufficient for the next several years[84] Credit Facilities and Other Obligations Details the company's credit facilities, outstanding debt, and other contractual obligations - The Company's $50,000 thousand unsecured revolving credit facility matures on May 31, 2022, with $5,000 thousand outstanding at June 30, 2020, and the Company was in compliance with all covenants[85][88] - Non-cancelable operating lease obligations were $1,587 thousand and finance lease obligations were $49 thousand (undiscounted) at June 30, 2020[89] - A French subsidiary has a $185 thousand fixed-rate loan due September 30, 2020[90] Item 3. Quantitative and Qualitative Disclosures About Market Risk Discloses the company's exposure to market risks, including interest rate and foreign currency fluctuations Interest Rate Risk Assesses the company's exposure to interest rate fluctuations on its variable-rate debt - The Company is exposed to interest rate risk on its variable-rate credit facility, which bears interest at LIBOR plus 1.00% or 1.25%, though a one percent change would not materially impact financial results for the periods presented[92] Foreign Currency Exchange Rate Risk Evaluates the impact of foreign currency exchange rate fluctuations on international operations - International operations expose the Company to foreign currency exchange rate risk, managed through operating and financing activities and occasional forward contracts[93] - Fluctuations resulted in a $312 thousand decrease in foreign currency translation adjustment for the three months and a $384 thousand decrease for the six months ended June 30, 2020, recognized as unrealized losses[94] - Net foreign currency exchange gains were $273 thousand for the three months and $189 thousand for the six months ended June 30, 2020[95] Item 4. Controls and Procedures Reports on the effectiveness of disclosure controls and changes in internal control over financial reporting Disclosure Controls and Procedures Confirms the effectiveness of the company's disclosure controls and procedures - Management, including co-CEOs and CFO, concluded that the Company's disclosure controls and procedures were effective as of June 30, 2020, ensuring timely and accurate reporting[96][97] Changes in Internal Control over Financial Reporting States that no significant changes in internal control over financial reporting occurred - 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, the Company's internal control over financial reporting[98] PART II OTHER INFORMATION Presents other required information, including legal proceedings, risk factors, and exhibits Item 1. Legal Proceedings Discloses information regarding legal proceedings the company is involved in - The Company is periodically involved in litigation, with accruals established for probable and estimable matters, and management believes any liability exceeding insurance coverage will not materially adversely affect the Company's financial position or results of operations[100] Item 1A. Risk Factors Supplements risk factors, emphasizing the uncertain adverse impacts of the COVID-19 pandemic - The COVID-19 pandemic poses significant risks, including disruptions to business operations, potential further adverse impacts on plant production levels due to safety measures, reduced demand from customers, and supply chain delays for chassis and other materials[102][103][104][105] - The financial impact is uncertain but anticipated to be materially adverse[106] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Reports on any unregistered sales of equity securities and the application of proceeds - There were no unregistered sales of equity securities or use of proceeds to report[107] Item 3. Defaults Upon Senior Securities Reports on any defaults concerning senior securities - There were no defaults upon senior securities to report[108] Item 4. Mine Safety Disclosures Provides disclosures related to mine safety, noting its inapplicability - Mine safety disclosures are not applicable to the Company[109] Item 5. Other Information Includes any other information not covered in preceding items - There was no other information to report[110] Item 6. Exhibits Lists all exhibits filed as part of the Form 10-Q report - The report includes certifications from Co-Chief Executive Officers and Chief Financial Officer (Exhibits 31.1, 31.2, 31.3, 32.1, 32.2, 32.3) and Inline XBRL documents (Exhibits 101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104)[112][115] SIGNATURES Confirms the official signing and submission of the Form 10-Q report - The report was duly signed on behalf of Miller Industries, Inc. by Deborah L. Whitmire, Executive Vice President, Chief Financial Officer, and Treasurer, on August 5, 2020[117][119]