# Miller Industries Inc: Form 10-Q for the period ended Mar 31, 2023

- Company: [Miller Industries Inc](/companies/mlr.md) (CIK 924822)
- Form: 10-Q
- Filed: 2023-05-03
- Accepted by EDGAR: May 3, 2023, 16:59 ET
- Period: 2023-03-31
- Accession: 0001558370-23-007874
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/924822/000155837023007874/mlr-20230331x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/924822/000155837023007874/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-01-01 to 2023-03-31 | $282.3m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Cost of revenue | 3 months, 2023-01-01 to 2023-03-31 | $251.9m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2023-01-01 to 2023-03-31 | $30.4m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2023-01-01 to 2023-03-31 | $17.9m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Interest expense | 3 months, 2023-01-01 to 2023-03-31 | $1.0m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-01-01 to 2023-03-31 | $2.6m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-01-01 to 2023-03-31 | $9.2m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-01-01 to 2023-03-31 | $0.81 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-01-01 to 2023-03-31 | $0.81 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-01-01 to 2023-03-31 | 11,431,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2023-01-01 to 2023-03-31 | −$6.8m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2023-01-01 to 2023-03-31 | $1.7m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 3 months, 2023-01-01 to 2023-03-31 | $2.1m | us-gaap:PaymentsOfDividendsCommonStock |
| Current assets | at 2023-03-31 | $434.0m | us-gaap:AssetsCurrent |
| Total assets | at 2023-03-31 | $558.2m | us-gaap:Assets |
| Current liabilities | at 2023-03-31 | $204.8m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-03-31 | $256.5m | us-gaap:Liabilities |
| Long-term debt | at 2023-03-31 | $45.0m | us-gaap:LongTermDebtNoncurrent |
| Shareholders' equity | at 2023-03-31 | $301.7m | us-gaap:StockholdersEquityIncludingPortionAttributableToNoncontrollingInterest |

## Management's discussion and analysis

As filed, 15,823 characters.

The following discussion of our results of operations and financial condition should be read in conjunction with the condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and with our audited financial statements and other information presented in our Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2022. Unless the context indicates otherwise, all dollar amounts in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are in thousands.

### Company Background

Miller Industries, Inc. is The World’s Largest Manufacturer of Towing and Recovery Equipment®, with domestic manufacturing subsidiaries in Tennessee and Pennsylvania, and foreign manufacturing subsidiaries in France and the United Kingdom. We offer a broad range of equipment to meet our customers’ design, capacity and cost requirements under our Century®, Vulcan®, Challenger®, Holmes®, Champion®, Chevron™, Eagle®, Titan®, Jige™ and Boniface™ brand names. In this Item 2 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the words “Miller Industries,” “the Company,” “we,” “our,” “ours” and “us” refer to Miller Industries, Inc. and its subsidiaries or any of them.

Our management focuses on a variety of key indicators to monitor our overall operating and financial performance. These indicators include measurements of revenue, operating income, gross margin, net income, earnings per share, capital expenditures and cash flow.

We derive revenues primarily from product sales made to our network of domestic and foreign independent distributors. Our revenues are sensitive to a variety of factors including general economic conditions as well as demand for, and price of, our products, our technological competitiveness, our reputation for providing quality products and reliable service, competition within our industry, and the cost and availability of purchased component parts, truck chassis and raw materials (including aluminum, steel and petroleum-related products).

Our history of innovation in the towing and recovery industry has been an important factor behind our growth over the last decade and we believe that our continued emphasis on research and development will be a key factor in our future growth. We opened a free-standing R&D facility in Chattanooga in 2019, where we pursue various innovations in our products and manufacturing processes, some of which are intended to enhance the safety of our employees and reduce our environmental impact. In addition, our recent domestic plant expansion and modernization projects have installed sophisticated robotics and implemented other advanced technologies to increase our production capacity and optimize our manufacturing processes. These projects were completed during the period from 2017 to 2021 at a cost of over $82,000. We completed phase one of the implementation of an enterprise software solution during 2021, and we continued to implement additional functionality available in the solution in 2022 and 2023. We expect this software to substantially improve our administrative efficiency and customer service levels. As we retain our focus toward modernization, we expect to continue to invest in robotics and automated material handling equipment across all of our domestic manufacturing facilities.

At March 31, 2023, the Company owed $45,000 under its primary credit facility. During 2022, the Company drew the full $45,000 for working capital needs, and has since reduced the balance on its credit facility to $40,000 as of April 28, 2023.

### Key Factors Affecting Operating Results

Our industry is, and will continue to be, cyclical in nature, and the overall demand for our products and our resulting revenues are influenced by a variety of factors, including:

- levels of consumer confidence;
- domestic and international capital and credit markets and the availability and affordability of financing, including floor plan financing, for our customers and towing operators;
- fuel and insurance costs, and macro-economic conditions such as broad-based inflation, and their effect on the ability of our customers to purchase towing and related equipment; and
- the overall effects of global, political, economic and health conditions.

We remain concerned about the continuing effects of these factors on the towing and recovery industry, and we continue to monitor our overall cost structure to see that it remains in line with business conditions.

We have been and will continue to be affected by the availability of, and changes in the prices that we pay for component parts and raw materials, particularly aluminum, steel and petroleum-related products, which represent a substantial part of our total cost of operations.

### Recent Trends and Outlook

The first half of 2022 was marked by continued challenges recovering from the global COVID-19 pandemic in the form of inflationary cost pressures in both raw materials and labor, as well as persistent supply chain disruptions that collectively had a materially adverse impact on our financial performance. We took pricing actions to offset these inflationary cost pressures, while continuing to execute against our strategic initiatives such as our ERP implementation, enterprise software upgrades, and other operational and productivity improvement initiatives aimed at reducing our expenses as a percentage of net sales. We also continued to invest in our inventory in the form of critical parts and in goods near completion, in order to fulfil orders of finished goods as soon as the necessary parts became available.

In the latter part of 2022, our strong backlog allowed revenues to increase as parts became more available due to supply chain improvement and actions that we took over the course of 2022 to diversify and increase the flexibility of our supply chain. Gross margin also steadily improved due to our pricing actions, productivity improvements and the easing of raw material costs. These trends accelerated in the first quarter of 2023, resulting in substantially increased revenues and net income for the period.

Based on our strong backlog, the price increases and productivity improvements we have implemented, lessening supply chain disruptions and easing inflationary pressures, we believe we are well positioned to continue enhancing our operating results. However, our performance will be heavily influenced by, among other things, whether supply chain constraints and inflationary pressures continue to lessen or worsen, the continuing impact of the war in Ukraine or other geopolitical factors, and the threat of recession and general economic factors. The impact of these factors remains largely out of our control, and we currently anticipate that these factors will continue to have an adverse impact on our production capabilities, financial results and cash flow over the remainder of 2023.

### Critical Accounting Policies

Our condensed consolidated financial statements are prepared in accordance with GAAP, which require us to make estimates. Certain accounting policies are deemed “critical,” as they require management’s highest degree of judgment, estimations and assumptions. The accounting policies deemed to be most critical to our financial position and results of operations are those related to accounts receivable, inventory, long-lived assets, warranty reserves, revenues, and income taxes. There have been no significant changes in our critical accounting policies during the first three months of 2023.

For additional information, refer to our summary of significant accounting policies in Note 2 of the "Notes to Consolidated Financial Statements" in Part IV, Item 15 and "Critical Accounting Policies" in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022.

### Results of Operations – Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022

Net sales for the three months ended March 31, 2023 increased 31.0% to $282,275 from $215,545 for the comparable period in 2022. The increase in revenue is the result of the realization of price increases and increases in production volume across all our product categories due to supply chain improvements and continued strong customer demand. Net domestic sales increased during the three months ended March 31, 2023 to $258,167 from $194,351 for the comparable period in 2022, while net foreign sales increased to $24,108 from $21,194 during the same three-month period.

Costs of operations for the three months ended March 31, 2023 increased 25.8% to $251,858 from $200,205 for the comparable period in 2022, due to increased deliveries. Costs of operations decreased as a percentage of sales to 89.2%, compared to 92.9% for the comparable period in 2022, primarily due to the recognition of price increases on sales to customers that offset higher input costs.

Selling, general and administrative expenses for the three months ended March 31, 2023 increased to $17,924 from $12,386 for the comparable period in 2022 due to increased expenses associated with increased sales volumes, as well as approximately $1,100 in increased professional and legal fees associated with recent investor activity discussed in the 8-K filed in March 2023, as well as additional executive compensation expense as discussed in the 8-K filed in April 2023. As a percentage of sales, selling, general and administrative expenses for the three months ended March 31, 2023 increased to 6.3% from 5.7% in the comparable period in 2022.

Interest expense, net increased to $1,012 from $418 for the three months ended March 31, 2023 as compared to the prior year period. Increases in interest expense, net were primarily due to increased borrowings on our credit facility, increased interest rates and increases in floor plan interest payments.

For the three months ended March 31, 2023 the Company recognized a net foreign currency exchange gain of $338, compared to a net loss of $52 for the three months ended March 31, 2022, reflecting foreign currency gains and loss on transactions denominated in a currency other than the local entity’s functional currency.

The provision for income taxes for the three months ended March 31, 2023 and 2022 reflects a combined effective U.S. federal, state and foreign tax rate of 21.9% and 16.9%, respectively. The higher year over year rate was due to favorable tax adjustments in foreign tax jurisdictions in the prior year. The principal differences between the federal statutory tax rate and the effective tax rate consist primarily of state taxes, domestic tax credits, and tax differences on foreign earnings.

### Liquidity and Capital Resources

Cash used in operating activities was $6,764 for the three months ended March 31, 2023, compared to cash used in operating activities of $28,936 in the comparable period in 2022. Cash provided by or used in operating activities is generally attributable to the receipt of payments from our customers as settlement of their contractual obligation once we have fulfilled all performance obligations related to our contracts with them. These cash receipts are netted with payments for purchases of inventory, materials used in manufacturing, and other expenses that are necessary in the ordinary course of our operations, such as utilities and taxes. The change in net cash flows from operating activities during the three months ended March 31, 2023, in comparison to the three months ended March 31, 2022, is primarily due to increases in receivables related to increases in sales, coupled with recent increases in inventory purchases associated with increased production levels and necessary to mitigate supply chain constraints.

Cash used in investing activities was $1,749 for the three months ended March 31, 2023 compared to $4,083 for the comparable period in 2022. The cash used in investing activities for the three months ended March 31, 2023 was for purchases of property, plant and equipment.

Cash used in financing activities was $2,059 for the three months ended March 31, 2023, compared to cash provided by financing activities of $7,939 for the comparable period in 2022. Net cash flows used in financing activities for the three months ended March 31, 2023 resulted from payment of cash dividends of $2,059. Net cash flows from financing activities for the three months ended March 31, 2022 resulted from the advances on the credit facility, offset by payment of cash dividends of $2,055 and an immaterial amount of payments on finance lease obligations.

As of March 31, 2023, we had cash and temporary investments of $29,720, and an additional $55,000 in available borrowings under our existing credit facility. Our primary cash requirements include working capital, capital expenditures, the funding of any declared cash dividends and principal and interest payments on indebtedness. At March 31, 2023, the Company had commitments of approximately $9,159 for the acquisition of property, plant and equipment. At March 31, 2023, we also had a commitment of approximately $2,874 in software license fees related to the implementation of our enterprise software solution.

We expect our primary sources of cash to be cash flows from operations, cash and temporary investments on hand at March 31, 2023 and borrowings under our credit facility as needed. We expect these sources to be sufficient to satisfy our cash needs for at least the next year. However, our ability to satisfy our cash needs will substantially depend upon several factors, including our future operating performance, taking into account the supply chain, economic and other factors discussed above and elsewhere in this Quarterly Report on Form 10-Q, as well as financial, business and other factors, many of which are beyond our control.

As of March 31, 2023 and December 31, 2022, $20,715 and $18,254, respectively, of the Company’s cash and temporary investments were held by foreign subsidiaries and their holdings are generally based in the local currency.

### Credit Facilities and Other Obligations

#### Credit Facility

The Company’s current loan agreement with First Horizon Bank, which governs its existing $100.0 million unsecured revolving credit facility with a maturity date of May 31, 2027, contains customary representations and warranties, events of default, and financial, affirmative and negative covenants for loan agreements of this kind. The credit facility restricts the payment of cash dividends if the payment would cause the Company to be in violation of the minimum tangible net worth test or the leverage ratio test in the loan agreement, among various other customary covenants. The Company has been in compliance with these covenants throughout 2022 and during the first three months of 2023, and it is anticipated that the Company will continue to be in compliance for the foreseeable future.

In absence of a default, all borrowings under the credit facility bear interest at the one month Term SOFR Rate plus 1.00% or 1.25% per annum, depending on the leverage ratio. The Company pays a non-usage fee under the current loan agreement at a rate per annum equal to between 0.15% and 0.35% of the unused amount of the credit facility, which fee is paid quarterly.

The Company had $45,000 in outstanding borrowings under the credit facility at March 31, 2023 and December 31, 2022.

#### Other Long-Term Obligations

Prior to applying a discount rate to our lease liabilities, at March 31, 2023 and December 31, 2022, we had approximately $884 and $926 in non-cancelable operating lease obligations, respectively, and $0 and $10 in non-cancelable finance lease obligations, respectively.

## Market risk

As filed, 2,098 characters.

In the normal course of our business, we are exposed to market risk from changes in interest rates and foreign currency exchange rates that could impact our results of operations and financial position.

### Interest Rate Risk

Changes in interest rates affect the interest paid on indebtedness under the credit facility because outstanding amounts of indebtedness under the credit facility are subject to variable interest rates. Under the credit facility, the non-default rate of interest is equal to the one month Term SOFR plus 1.00% or 1.25% per annum, depending on the leverage ratio, for a rate of interest of 5.92% at March 31, 2023. A one percent change in the interest rate on our variable-rate debt would not have materially impacted our financial position, results of operations or cash flows as of and for the three months ended March 31, 2023.

### Foreign Currency Exchange Rate Risk

We are subject to risk arising from changes in foreign currency exchange rates related to our international operations in Europe. We manage our exposure to our foreign currency exchange rate risk through our regular operating and financing activities. Additionally, from time to time, we enter into certain forward foreign currency exchange contracts.

Because we report in U.S. dollars on a consolidated basis, foreign currency exchange fluctuations have a translation impact on our financial position and results of operations. During the three months ended March 31, 2023, we recognized a $979 unrealized gain in our foreign currency translation equity adjustment account because of the fluctuations in valuation of the U.S. dollar against the Euro and British pound. During the three months ended March 31, 2022, we recognized a $25 unrealized gain. These amounts were recognized in accumulated other comprehensive loss on the condensed consolidated balance sheets.

For the three months ended March 31, 2023 and 2022, the impacts of foreign currency exchange rate changes on our results of operations and cash flows were net foreign currency exchange gains of $338 and losses of $52, respectively.

## Controls and procedures

As filed, 1,130 characters.

### Disclosure Controls and Procedures

We carried out an evaluation, as of the end of the period covered by this Quarterly Report on Form 10-Q, under the supervision and with the participation of our management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-14(c) under the Securities Exchange Act of 1934. Based upon this evaluation, our CEO and CFO have concluded that the disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

### Changes in Internal Control over Financial Reporting

There were no significant changes in our internal controls over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 143 characters.

There have been no material changes to the risk factors included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Filed May 3, 2023.
Source: SEC EDGAR, the filing index for accession 0001558370-23-007874. Last ingested by Listed: Oct 24, 2026, 15:00 ET. No prices; not investment advice.