Miller Industries(MLR) - 2021 Q3 - Quarterly Report

FORWARD-LOOKING STATEMENTS This section identifies cautionary statements regarding future expectations and outlines key risk factors that could cause actual results to differ materially - Forward-looking statements are identified by words such as "may," "will," "should," "could," "continue," "future," "potential," "believe," "project," "plan," "intend," "seek," "estimate," "predict," "expect," "anticipate" and similar expressions[6] - Key risk factors include the overall impact of the COVID-19 pandemic, dependence on outside suppliers for raw materials and truck chassis, recent supply chain challenges, changes in material prices and availability, labor issues, cyclical industry nature, economic conditions, and international operation uncertainties[6] - Additional risks include intellectual property assertions, IT system disruptions, changes in tax regimes, catastrophic loss of manufacturing facilities, environmental liabilities, loss of key executives, and product warranty/liability claims[9] PART I. FINANCIAL INFORMATION This part presents the company's unaudited condensed consolidated financial statements and management's analysis ITEM 1. FINANCIAL STATEMENTS This section presents the company's unaudited condensed consolidated financial statements and related notes Condensed Consolidated Balance Sheets This section presents the company's financial position, detailing assets, liabilities, and equity Condensed Consolidated Balance Sheets (in thousands) | Metric | Sep 30, 2021 (in thousands) | Dec 31, 2020 (in thousands) | Change (vs. Dec 31, 2020) | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total Current Assets | $296,931 | $286,269 | +$10,662 | | Total Assets | $408,625 | $398,410 | +$10,215 | | Total Current Liabilities | $113,716 | $110,682 | +$3,034 | | Total Liabilities | $118,756 | $115,957 | +$2,799 | | Total Shareholders' Equity | $289,869 | $282,453 | +$7,416 | Condensed Consolidated Statements of Income This section presents the company's financial performance, including revenues, expenses, and net income Condensed Consolidated Statements of Income (in thousands, except per share) | Metric (in thousands, except per share) | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | Change (YoY) | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | Change (YoY) | | :-------------------------------------- | :-------------------------- | :-------------------------- | :----------- | :-------------------------- | :-------------------------- | :----------- | | Net Sales | $164,715 | $168,366 | -2.2% | $515,785 | $472,949 | +9.1% | | Gross Profit | $17,832 | $17,843 | -0.1% | $54,253 | $54,108 | +0.3% | | Income Before Income Taxes | $5,357 | $8,591 | -37.7% | $17,865 | $23,211 | -23.1% | | Net Income | $3,846 | $6,553 | -41.3% | $13,540 | $17,810 | -23.9% | | Basic Income Per Common Share | $0.34 | $0.57 | -40.3% | $1.19 | $1.56 | -23.7% | | Cash Dividends Declared Per Common Share| $0.18 | $0.18 | 0.0% | $0.54 | $0.54 | 0.0% | Condensed Consolidated Statements of Comprehensive Income This section presents net income and other comprehensive income components Condensed Consolidated Statements of Comprehensive Income (in thousands) | Metric (in thousands) | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | Change (YoY) | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | Change (YoY) | | :-------------------------------- | :-------------------------- | :-------------------------- | :----------- | :-------------------------- | :-------------------------- | :----------- | | Net Income | $3,846 | $6,553 | -41.3% | $13,540 | $17,810 | -23.9% | | Foreign currency translation adjustment | $(1,501) | $2,861 | -152.4% | $(162) | $2,477 | -106.5% | | Comprehensive Income | $2,345 | $9,414 | -75.1% | $13,378 | $20,287 | -34.1% | Condensed Consolidated Statements of Shareholders' Equity This section details changes in the company's equity accounts Condensed Consolidated Statements of Shareholders' Equity (in thousands) | Metric | Sep 30, 2021 (in thousands) | Dec 31, 2020 (in thousands) | Change (vs. Dec 31, 2020) | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total Shareholders' Equity | $289,869 | $282,453 | +$7,416 | Condensed Consolidated Statements of Cash Flows This section reports cash generated and used by operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (in thousands) | Metric (in thousands) | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | Change (YoY) | | :------------------------------------ | :-------------------------- | :-------------------------- | :----------- | | Net cash flows from operating activities | $7,036 | $44,129 | -84.1% | | Net cash flows from investing activities | $(7,851) | $(12,648) | +37.9% | | Net cash flows from financing activities | $(6,178) | $(11,470) | +46.1% | | Net Change in Cash and Temporary Investments | $(7,114) | $21,440 | -133.2% | | Cash and Temporary Investments, end of period | $50,407 | $47,512 | +6.1% | Notes to Condensed Consolidated Financial Statements These notes provide additional detail and context for the financial statements 1. BASIS OF PRESENTATION This section outlines the accounting principles and rules used in preparing the financial statements - The condensed consolidated financial statements are prepared in accordance with GAAP and SEC rules, with certain information condensed or omitted compared to annual statements[27] - Interim results are not necessarily indicative of full fiscal year results[27] 2. RECENT ACCOUNTING PRONOUNCEMENTS This section discusses the adoption and impact of new accounting standards - The Company adopted ASU 2019-12 Income Taxes (Topic 740) in Q1 2021, which did not have a material impact on its financial statements[29] 3. BASIC INCOME PER SHARE This section explains the calculation of basic income per common share - The Company has a simple capital structure with only common stock outstanding and no dilutive instruments[30] - Basic income per share is calculated by dividing net income by the weighted average number of common shares outstanding[30] 4. REVENUE This section details revenue sources, geographic segmentation, and recognition policies - Substantially all revenue is generated from sales of towing and recovery equipment[31] Geographic Segment Revenue (in thousands) | Geographic Segment | 3 Months Ended Sep 30, 2021 (in thousands) | 3 Months Ended Sep 30, 2020 (in thousands) | Change (YoY) | 9 Months Ended Sep 30, 2021 (in thousands) | 9 Months Ended Sep 30, 2020 (in thousands) | Change (YoY) | | :----------------- | :----------------------------------------- | :----------------------------------------- | :----------- | :----------------------------------------- | :----------------------------------------- | :----------- | | North America | $142,338 | $149,265 | -4.6% | $450,908 | $400,581 | +12.6% | | Foreign | $22,377 | $19,101 | +17.2% | $64,877 | $72,368 | -10.3% | | Total Net Sales | $164,715 | $168,366 | -2.2% | $515,785 | $472,949 | +9.1% | - Revenue is recognized when performance obligations are satisfied, typically upon shipment of products from the Company's facilities[32] 5. INVENTORIES This section describes inventory valuation methods and provides a breakdown by category - Inventories are stated at the lower of cost or net realizable value, determined on a first-in, first-out basis[37] Inventory Breakdown (in thousands) | Inventory Category | Sep 30, 2021 (in thousands) | Dec 31, 2020 (in thousands) | Change (vs. Dec 31, 2020) | | :----------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Chassis | $6,493 | $6,859 | -$366 | | Raw materials | $51,897 | $36,161 | +$15,736 | | Work in process | $33,932 | $16,282 | +$17,650 | | Finished goods | $16,516 | $24,637 | -$8,121 | | Total Inventories, net | $108,838 | $83,939 | +$24,899 | 6. LONG-TERM OBLIGATIONS This section outlines the company's long-term debt, credit facilities, and covenant compliance - The Company has a $50,000 thousand unsecured revolving credit facility with First Horizon Bank, maturing May 31, 2027[38] - There were no outstanding borrowings under the credit facility at September 30, 2021, or December 31, 2020[40] - The Company has been in compliance with all credit facility covenants throughout 2020 and the first nine months of 2021[38] 7. COMMITMENTS AND CONTINGENCIES This section details contractual commitments, potential liabilities, and repurchase obligations - The Company had commitments of approximately $5,933 thousand for construction and acquisition of property, plant and equipment at September 30, 2021[46] - Commitments for software license fees related to an ERP system migration were approximately $3,754 thousand at September 30, 2021, payable in installments through 2025[46] - The maximum repurchase obligation for repossessed products from independent distributors was approximately $46,183 thousand at September 30, 2021[47] 8. INCOME TAXES This section provides information on the company's income tax position - As of September 30, 2021, the Company had no federal net operating loss carryforwards and no significant state net operating loss carryforwards[51] 9. SUBSEQUENT EVENTS This section discloses significant events occurring after the balance sheet date - On November 1, 2021, the Board of Directors declared a quarterly cash dividend of $0.18 per share, payable December 13, 2021, to shareholders of record as of December 6, 2021[52] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on financial performance, condition, and operations Executive Overview This section introduces the company's business, strategic focus, and key performance indicators - Miller Industries is the world's largest manufacturer of towing and recovery equipment, offering a broad range of products under various brand names[55] - Management focuses on key indicators such as revenue, operating income, gross margin, net income, earnings per share, capital expenditures, and cash flow[56] - The company has invested over $97,000 thousand in property, plant, and equipment from 2016-2020, including sophisticated robotics and advanced technologies to optimize manufacturing processes[59] - Phase one of an enterprise software solution (ERP, human capital management, data analytics, AI) was completed in Q1 2021 to improve administrative efficiency and customer service[58] Impact of COVID-19 and Recent Developments This section discusses the operational and financial impacts of COVID-19 and recent developments - The company enacted operational modifications due to COVID-19, including workforce rotation and sanitation efforts, which continue to adversely impact plant productivity[62] - Significant supply chain challenges, such as shortages and delivery delays in semiconductors and other component parts, and record high steel prices, materially impacted operations during Q3 2021[65] - Increased employee turnover rates and difficulties in hiring skilled workers in Q3 2021 led to higher recruiting, training, and retention costs[65] - The company implemented price increases and surcharges, and increased reliance on in-house fabrication capabilities to mitigate disruptions, which are anticipated to continue into the first half of 2022[65] Critical Accounting Policies This section identifies accounting policies requiring significant judgment and estimation - Critical accounting policies include those related to accounts receivable, inventory, long-lived assets, warranty reserves, revenues, and income taxes[69] - There have been no significant changes in critical accounting policies during the first nine months of 2021[69] Results of Operations – Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020 This section analyzes financial performance for the three-month period - Net sales decreased by 2.2% to $164,715 thousand, primarily due to ongoing supply chain disruptions and bottlenecks[71] - Selling, general and administrative expenses increased to $11,983 thousand from $9,231 thousand, rising to 7.3% of sales from 5.5%, due to increased personnel costs and normalization of marketing/travel spending[73] - The company experienced a net foreign currency exchange loss of $198 thousand, compared to a net gain of $208 thousand in the prior year period[75] - The combined effective U.S. federal, state, and foreign tax rate increased to 28.2% from 23.7%[76] Results of Operations – Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020 This section analyzes financial performance for the nine-month period - Net sales increased by 9.1% to $515,785 thousand, reflecting recovery from COVID-19 impacts, though tempered by Q3 2021 supply chain issues[77] - Costs of operations increased as a percentage of sales to 89.5% from 88.6%, driven by reduced sales from supply chain disruptions and rising raw material prices[79] - Selling, general and administrative expenses increased to $35,053 thousand from $30,272 thousand, rising to 6.8% of sales from 6.4%, due to higher software fees, personnel costs, and normalized spending[80] - Net foreign sales decreased by 10.3% to $64,877 thousand, mainly due to significant decreases in export sales[77] - The combined effective U.S. federal, state, and foreign tax rate increased to 24.2% from 23.3%[83] Liquidity and Capital Resources This section discusses the company's ability to generate and manage cash - Cash provided by operating activities significantly decreased to $7,036 thousand for the nine months ended September 30, 2021, from $44,129 thousand in the comparable 2020 period, primarily due to increased cash usage in production activities as customer demand recovered[84] - Cash used in investing activities decreased to $7,851 thousand from $12,648 thousand, mainly for purchases of property, plant, and equipment[85] - Cash used in financing activities decreased to $6,178 thousand from $11,470 thousand, primarily due to lower payments on long-term obligations in 2021, while cash dividends remained consistent[86] - The company held $50,407 thousand in cash and temporary investments as of September 30, 2021[87] - Approximately $25,080 thousand of the company's cash and temporary investments were held by foreign subsidiaries at September 30, 2021[89] Credit Facilities and Other Obligations This section details the company's credit arrangements and debt covenants - The company has a $50,000 thousand unsecured revolving credit facility maturing May 31, 2027, with no outstanding borrowings at September 30, 2021, or December 31, 2020[90][92] - The company was in compliance with all credit facility covenants throughout 2020 and the first nine months of 2021[90] - Non-cancelable operating lease obligations were approximately $1,319 thousand and finance lease obligations were $21 thousand at September 30, 2021[93] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section details the company's exposure to market risks Interest Rate Risk This section assesses the potential impact of changes in interest rates - Outstanding amounts under the credit facility are subject to variable interest rates (LIBOR Rate plus 1.00% or 1.25% per annum)[95] - A one percent change in the interest rate on variable-rate debt would not have materially impacted financial position, results of operations, or cash flows for the periods presented[95] Foreign Currency Exchange Rate Risk This section discusses the company's exposure to foreign currency exchange rate fluctuations - The company is exposed to foreign currency exchange rate risk from its international operations in Europe, primarily related to the Euro and British pound[96][97] - Foreign currency translation adjustments resulted in a $1,501 thousand decrease for the three months and a $162 thousand decrease for the nine months ended September 30, 2021, recognized as unrealized losses in accumulated other comprehensive loss[97] - Net foreign currency exchange loss was $198 thousand for the three months and $427 thousand for the nine months ended September 30, 2021, compared to net gains in the prior year periods[98][99] ITEM 4. CONTROLS AND PROCEDURES This section confirms the effectiveness of disclosure controls and internal control Disclosure Controls and Procedures This section assesses the effectiveness of controls for timely and accurate financial reporting - Management, including co-CEOs and CFO, concluded that disclosure controls and procedures were effective as of September 30, 2021[100] Changes in Internal Control over Financial Reporting This section reports any material changes in internal control over financial reporting - There were no significant changes in internal controls over financial reporting during the period covered by the report[101] PART II. OTHER INFORMATION This part includes disclosures on legal proceedings, risk factors, equity sales, and exhibits ITEM 1. LEGAL PROCEEDINGS This section addresses the company's involvement in legal proceedings - The company is a party to litigation arising in the normal course of business[102] - Management believes any liability from litigation in excess of insurance coverage and accruals will not have a material adverse effect on the consolidated financial position or results of operations[102] ITEM 1A. RISK FACTORS This section states no material changes to previously disclosed risk factors - There have been no material changes to the risk factors included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2020, as supplemented by the Quarterly Report on Form 10-Q for the quarter ended June 30, 2021[103] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS This section indicates no unregistered sales of equity securities or use of proceeds to report - None[104] ITEM 3. DEFAULTS UPON SENIOR SECURITIES This section confirms that there were no defaults upon senior securities during the reporting period - None[105] ITEM 4. MINE SAFETY DISCLOSURES This section states that mine safety disclosures are not applicable to the company - Not applicable[106] ITEM 5. OTHER INFORMATION This section indicates that there is no other information to report - None[107] ITEM 6. EXHIBITS This section provides a list of exhibits filed with the Form 10-Q - Exhibits include Certifications Pursuant to Rules 13a-14(a)/15d-14(a) by Co-Chief Executive Officers and Chief Financial Officer[108] - Exhibits also include Certifications Pursuant to Section 1350 of Chapter 63 of Title 18 of United States Code by Co-Chief Executive Officers and Chief Financial Officer[108] - Inline XBRL documents (Instance, Schema, Calculation, Definition, Label, Presentation Linkbase Documents) are filed[108][111] SIGNATURES This section contains the official signatures of authorized officers certifying the report's accuracy - The report was signed on behalf of Miller Industries, Inc. by Deborah L. Whitmire, Executive Vice President, Chief Financial Officer and Treasurer[115] - The report was dated November 3, 2021[115]