Miller Industries, Inc. Price & Performance (MLR)

And good morning, everyone. I would like to welcome you to the Miller Industries conference call. We are here to discuss the company's twenty twenty four fourth quarter and full year results which were released after the close of market yesterday. With us from the management team today are Bill Miller Miller, Chairman of the Board Will Miller, President and CEO Debbie Whitmire, Executive Vice President and CFO and Frank Madonia, Executive Vice President, Secretary and General Counsel. Today's call will begin with formal remarks from management followed by a question and answer session. Please note in this morning's conference call, management may make forward looking statements in accordance with the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. I'd like to call your attention to the risks related to these statements are more fully described in the company's annual report filed on Form 10 ks and other filings with the Securities and Exchange Commission. At this time, I'd like to turn the call over to Will. Please go ahead, Will.

Hello, and good morning.

Thank you all for joining us today. Before we begin, as a reminder and for anyone new to our story, Miller Industries is the world's largest manufacturer of towing and recovery equipment, Our products range from light medium and heavy duty recovery to car carriers, specialty transport rotators and military recovery vehicles. Have 10 manufacturing facilities located in The United States.

France, and The United Kingdom.

We firmly believe our success is rooted in having the best people, [indiscernible] and distribution network in the towing and recovery industry.

Moving on to our results.

We are extremely proud of our 2024 performance. Which was another record year for Miller Industries.

Our record revenue, gross profit net income and EPS for fiscal year twenty twenty four are a testament to the efforts of our employees, suppliers, customers and shareholders. I'd like to thank our incredible team their dedication and hard work Their commitment has been instrumental in making this another outstanding year. Now I'd like to turn the call over to Debbie, who will review our fourth quarter and full year financial results.

In more detail. Following her remarks, I'll come back with some key thoughts our markets in 2025, discussion on opportunities that lie ahead. And finish by addressing our capital allocation strategy and guidance.

Thanks, Will, and good morning, everyone.

I'll start by walking through our results for the full year and move on to our quarterly financials. Net sales for the full year were $1,260,000,000 compared to $1,150,000,000 the prior year period, an increase of 9% driven by continued strong demand for all of our products. Gross profit for the full year was $170,800,000 or 13.6% of sales compared to $151,900,000 or 13.2% of sales 2023. Year over year improvement in gross margin driven by an improvement in our overall product mix which I will touch on in a few slides, and to a lesser extent improvements in our supply chain. Lastly, net income for the full year 2024 was $63,500,000 or 5 point $0.47 per diluted share compared to net income for 2023 of $58,300,000 or $5.07 per diluted share.

With increases of 8.9% and and 7.9% respectively. We are also incredibly proud of the fact that in 2024, we returned $11,600,000 to shareholders through our industry leading dividend and share repurchases. Returning capital to our shareholders has always been a core part of our identity and will continue to be a key area of focus as we move forward. For the fourth quarter of twenty twenty four, we generated $221,900,000 in sales compared to $296,200,000 in the fourth quarter of twenty twenty three a decrease of 25.1%.

The year over year decrease was primarily driven by a For additional context, chassis shipments in the fourth quarter of twenty twenty three were significantly elevated due to the inconsistent inconsistent delivery schedule from the OEMs as they recovered from the previous supply chain disruptions. To $38,600,000 or 13% of sales for the same period in 2023. [indiscernible] The margin improvement was driven largely by product mix and a relatively higher percentage of manufactured bodies compared to chassis. As we say each quarter, our gross margins vary due to product mix particularly this quarter. I will get into further detail on those dynamics in the next slide. Net income for the fourth quarter of twenty twenty four was $10,500,000 $0.91 per diluted share compared to net income of $16,700,000 dollars or $1.45 per diluted share in the fourth quarter of twenty twenty three. Shifting to the balance sheet, we had a cash balance of $24,300,000 as of 12/31/2024, [indiscernible] compared to $40,600,000 as of 09/30/2024. A significant portion of the cash used this quarter was related to the reduction in our accounts payable, which dropped by nearly $90,000,000 Accounts receivable as of 12/31/2024 was $313,400,000 compared to $374,000,000 as of 09/30/2024, a reduction of over $60,000,000 We expect our receivables to continue to decrease over the balance of the year as inventory levels for both Miller Industries and our distributors normalize.

Inventories were $186,200,000 as of 12/31/2024, compared to $190,300,000 as of 09/30/2024. Slowly but surely, our inventory balance has begun decreasing as a result of our strategic investments in inventory throughout 2024 to meet the increased demand levels we were seeing. As we move into 2025, with more of a normalized market, we anticipate an increase in our free cash flow generation. Our debt balance was $65,000,000 at the end of the year We feel comfortable about our current leverage position. However, we'd like to remind you that we are a debt diverse company and reducing debt levels will be one of our focuses as cash conversion improves in 2025. We are also continuing our history of returning cash to shareholders with the Board recently approving a quarterly cash dividend of $0.2 per share payable 03/24/2025, to shareholders of record at the close of business on 03/17/2025. The fifty seventh consecutive quarter that the company has paid the dividend. Moving to a discussion on margins. As previously stated, our blended margin is correlated directly to our product mix. On Slide eight, you'll see that we've illustrated this dynamic visually to provide a clearer explanation. Before COVID, the spread between peaks and valleys of margins and chassis deliveries was much narrower what we've seen post COVID.

A more narrow spread made it much easier to predict our revenues and margins quarter to quarter. Because of the increased volatility in the chassis supply chain, you can see that chassis deliveries have become much more sporadic creating significant fluctuations in our quarterly revenues and margins since 2022. As we look ahead to the second half of twenty twenty five, we expect this volatility to subside bringing fluctuations closer to pre COVID levels with fewer quarter to quarter spikes and dips in chassis revenue. Based on everything we've seen to date, chassis OEMs now are operating on a much more predictable schedule with reduced lead times helping to stabilize the market. I'd like to emphasize that this graph is intended to clearly illustrate the supply chain fluctuation and is not indicative of business cyclicality. The issue hasn't been the lack of demand for chassis, but rather the cadence and quantity of chassis delivered in one given period. As I said earlier, we're confident that in the second half of twenty twenty five, that timing of chassis deliveries will normalize. Now I'll turn the call back to Will to discuss our markets and our outlook for 2025 and beyond. As we head into 2025, we wanted to detail the key considerations that will likely affect our results.

First, Debbie just mentioned all the dynamics at play with chassis shipments. Those sporadic deliveries caused inventory to build up in our distribution channel. It's a complicated relationship I will get into on the next slide. But overall, inventory reduction is a double edged sword for us.

In the short term, it decreases sales. However, in the long term, it helps to ensure the health of our distribution network. Stabilize the flow of product and give us greater ability to manage Second, the rising cost of equipment ownership is a significant challenge for end market towers. Insurance premiums on their trucks have increased. Interest rates for new trucks have risen and the value of used trucks has fluctuated, affecting trade in values and new equipment purchases. These rioting costs continue to pressure our customers. Third, tariffs are a significant discussion for nearly every industrial company across the globe today. We recognize that there is ongoing significant uncertainty. That said, over the past few years, we have made extensive efforts to in source many parts of our supply chain diversify our suppliers and keep as much of our supply chain in The United States as possible. Over the past few years, we have minimized our direct exposure to China as we continue to source components from around the globe. We believe our diversity and strength of our supply chain leaves us well positioned to navigate these uncertainties. And lastly, what perhaps is the most uncertain is the advanced clean truck regulation.

Which limits our ability to supply our products to customers in six large states. Which I will touch on some more specifics in a few slides. I'd like to spend some time going over the inventory picture in our distribution channel. How it has evolved over time, what it means for us. I talked a bit about the impacts at a high level. But the chart on Slide 10 really illustrates what has happened in the market. As you can see and as Debbie alluded to, we and in turn our distribution partners were inundated with chassis deliveries, earlier than anticipated last year. Leading to a significant buildup in the distribution channel inventory. As we saw this happening through the second quarter, we may the decision to delay some deliveries in the second half of the year to allow our distributors to work through what was currently in the channel. We anticipated this would impact the third and fourth quarter equally. However, due to the nature of chassis deliveries being out of our control, this slowdown did not take place until Q4. [indiscernible] Our decision to delay chassis shipments was not due to a lack of demand. But because maintaining a strong dealer network is essential to our success.

The levels of inventory that they were dealing with through the majority of last year were unsustainable from both an operational and a financial perspective. While this will decrease our sales in the near term, you can see that both chassis and body inventory are reducing and moving closer to This should not only put our distributors in a healthy financial position, but also reduce the inventory on our books and allow us to convert. Receivables into cash at a faster rate.

We expect to return to a synchronized flow of manufactured equipment and chassis deliveries during the second half of twenty twenty five. Moving on to carb and the Advanced Clean Truck initiative, As of January one of this year, new regulations with near zero emission standards have been adopted by certain states, which limit the amount of diesel powered commercial vehicles can be registered. As a result, it limits the number of vehicles we can sell in these states. We have spent significant hours in lobbying dollars working to repeal these standards. Which we feel unnecessarily impact our customers downstream. Who have significant demand for our products, but are unable to meet these needs due to the lack of availability of products that meet the requirements of the new regulations. We have already seen some positive momentum in our favor. As states like Connecticut, Colorado and Pennsylvania have moved away from carb and the ACT standards. And recently, the Trump administration and the EPA have taken actions to repeal this regulation. At this point, the situation remains dynamic. Making it difficult for us to forecast if and when we may be able to resume normal operations and satisfy the continued buildup of demand we have from customers in these states.

That said, we are preparing for nothing to change and to work within the limits of that limits that these new standards create. Our chassis suppliers are working diligently with Cummins Engine Company to design new trucks that meet these requirements. We expect that one of our largest suppliers will begin production of a CARB compliant chassis by the And the majority of Class six chassis suppliers plan to have carb compliant chassis by January of twenty twenty six. [indiscernible] As a result, the majority of our suppliers' products should have carb compliant powertrains by the start of twenty twenty six. [indiscernible] This gives us confidence that as our suppliers roll out CARB compliant chassis, we will be well positioned to meet customer demand the second half of twenty twenty five twenty twenty six and beyond, even with no change in the current regulatory landscape. Despite the challenges impacting our business at the start 2025, we see positive trends that support our outlook. For a solid second half and beyond. A normalized backlog will allow us to more easily manage working capital add flexibility to our distribution network, and reduce lead times resulting in a normalized flow of products to the end customer. [indiscernible] This will improve our balance sheet and cash flow generation as I alluded to earlier.

Normalized supply chain environment allows us to accelerate our inventory reduction reduce working capital and convert accounts receivables to cash. [indiscernible] Lastly, we plan to launch multiple new products across all product categories, which will enhance our offerings providing better solutions to our customers and position us for continued innovation and growth in the years ahead. Despite any anticipated near term dip, in our results, all market fundamentals give us significant confidence for the second half of twenty twenty five. And the years to come. As we have mentioned, our distribution network is strong in a healthy position as we start 2025. [indiscernible] They're foundational to our success and we will continue to work strategically with them to enhance their position in the market. We also expect some macro factors such as miles driven, average age of vehicles on the road and others to be favorable to us. [indiscernible] There is still strong demand for our towing and recovery products across end markets. Not only have retail delivery numbers been consistently strong, but there are also several states that will have an increased demand for our products due in part to the impacts of the ACT regulations mentioned earlier. Additionally, as we stated previously, stabilized chassis deliveries will improve our supply chain, our distribution channel, and the predictability of our quarter to quarter revenues and gross margins.

Lastly, we are seeing a significant pickup in request for quotes or RFQs our military products globally. [indiscernible] We were recently chosen as the supplier to Rheumatau Canada to supply the Canadian military with 85 recovery vehicles. While the total $230,000,000 Miller When you combine this contract with more that may be on the horizon, military recovery vehicles could be a substantial tailwind for us in the future years. Shifting gears, I want to mention a bit about our capital allocation strategy. We mentioned earlier that there were a number of factors giving us confidence that cash flow conversion will improve this year. So we'd like to touch on what our priorities with that cash will be.

We have always been acutely focused on returning capital to our shareholders. Either through our dividend, which the Board has just increased to $0.2 per share or our recently enacted share repurchase program. Additionally, we will continue to prioritize reducing our debt balance maintaining our focus on being debt adverse. We've also mentioned in the past capacity expansion both domestically and in Europe is something we are currently monitoring closely. Our Board has recently authorized us to move forward with with an €8,000,000 expansion at one of our facilities in France.

Even despite a near term slowdown, our outlook for 2026 and beyond is very strong, so we will continue to evaluate our capacity needs to ensure we are well positioned to meet future demand. And of course, innovation, automation, and investing in our people is key to what we do at Miller Industries. It is what keeps us the number one producer of towing and recovery equipment in the world. While we enter 2025 we remain highly confident in the business and our outlook. We are on track to achieve $950,000,000 to $1,000,000,000 in revenue this year, marking our third highest performance on record. And expected an EPS range from $2.9 to $3.2 per diluted share. It is important to note that our guidance anticipates no change in current regulations or unknown effects of the rapidly changing tariff situation. As we have mentioned, we expect a strong balance sheet as a result of reductions in our accounts receivables and inventory, along with an anticipated increase in free cash flow.

Overall, we are extremely confident in our prospects for 2026 and beyond. Due to the strength of demand for our products, growth opportunities with product innovation in new markets and the increase in military activity. As we move forward, we will continue to focus on the core philosophy has made Miller Industries what it is today. Our people, our products and our distribution. In closing, the entire management team and I would like to thank all of our employees, suppliers, customers and shareholders for their continued support.

At this time, we'd like to open the line for any questions.

Thank you. We will now be conducting a question and answer session. Your first question, comes from Michael Schulitsky with D. A. Davidson. Please go ahead. Good morning. This is Linda Wiehl on for Mike. Thank you for letting us ask questions. So my first question is on the 2020. My first question is on the 2025 outlook that you provided. Does your outlook for 2025 include financial effects on the of the military developments that you anticipate taking place. And could that be a source of upside to guidance? Or will we mainly see announcements in 2025 and the revenue and earnings impact taking place in 2026 or 2027?

Yes. Most of or at least the contract that we have with to date at this moment in time is a production date beginning in late twenty six and the vast majority of production in 'twenty seven and 'twenty eight. For the current contract. And the other ones that are on the horizon have similar dates in 2026, 2027 and 2028.

Got it. And then my next question, can you give us a sense of the first half of 25% compared to the second half this year? Do you think the first and second quarters could be more like what we just saw in 4Q? And then back half of 2025 is more like the run rates we saw through most of 2022 to 2024? Any color there would be helpful.

Yes. I think you're right on track there. I think that Q1 and Q2 will be similar to Q4 that we just finished with chassis shipments of of the year into 2026 and beyond.

And can we expect margin levels to be the same since the mix is going to be quite similar to 4Q?

Yes. Over for the year, we anticipate margins to be relatively equal to last year.

That makes sense. And then last quite good detail on dealer inventories, but I wanted to double click on that. So we saw inventories were relatively flat year over year. With the anticipated decline in sales, do you see Miller liquidating a lot of working capital in 2025? So yes, if you could touch on that and talk us through how you're managing working capital, that would be helpful.

Yes. Our plan has been throughout last year as our inventories peaked is to continue to reduce inventories to historical levels. Obviously, doing that strategically and slowly, so we do not put ourselves into any type of constraint situation inside our factories. But our goal is to continue to reduce working capital to historical levels, Debbie, that ran about 20% of revenue. 20% of revenue pre COVID.

I appreciate that. And get one more. Can you excuse me one more? Yes, sure.

Absolutely.

Yes. So on the dealer inventories, so most of the dealers are exclusive to you guys. Are you doing anything to help them navigate the next next few quarters?

No. At this time, they are all and working through their buildup of chassis inventory they received in the beginning of last year. Making sure that they get chassis and bodies up fitted and sold and retail delivered. As you can see from the chart, starting in about November or December, they've had a rapid reduction in their inventory levels. And we anticipate in the next two to four months we should see those back at optimal levels.

I see. Well, thank you so much for your time today.

Absolutely. Thank you for the questions, Linda.

There are no further questions. I would like to turn the floor over to Will for closing remarks.

Thank you. I'd like to thank you all again for joining us on the call today. And we look forward to speaking with you on our first quarter conference call. If you would like information on how to participate and ask questions on the call, please visit our Investor Relations website at millerind.com/investors or e mail investors. Miller. Dot com. Thank you all and God bless.

Have a wonderful day.