Miller Industries Inc: Form 10-Q for the period ended Mar 31, 2025

RESULTS OF OPERATIONS

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide a summary from the perspective of management on our consolidated operating results, financial condition, liquidity, and cash flows of our Company as of and for the periods presented.

The MD&A should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 31, 2024 and the unaudited condensed consolidated financial statements and the accompanying notes thereto included herein.

To facilitate timely reporting, the condensed consolidated financial statements include accounts of certain subsidiaries whose closing dates differ from the applicable period end (December 31st or March 31st) by 31 days (or less).

References to “the Company”, “we”, “us”, and “our” are intended to mean the business and operations of Miller Industries, Inc., and its consolidated subsidiaries unless the context requires otherwise.

ABOUT MILLER INDUSTRIES, INC.

Miller Industries, Inc. is The World’s Largest Manufacturer of Towing and Recovery Equipment®, with domestic manufacturing operations in Tennessee and Pennsylvania, and foreign manufacturing operations in France and the United Kingdom.

We develop and manufacture innovative high-quality towing and recovery equipment worldwide. We design and manufacture bodies of car carriers and wreckers, which are installed on chassis manufactured by third parties and then sold to our customers under our Century®, Vulcan®, Chevron™, Holmes®, Challenger®, Champion®, Jige™, Boniface™, Titan®, and Eagle® brand names.

Our products are primarily marketed and sold through a network of distributors that serve all 50 states, Canada, Mexico and other foreign markets, and through prime contractors to governmental entities. Furthermore, we have substantial distribution capabilities in Europe as a result of our ownership of Jige International S.A. and Boniface Engineering, Ltd. While most of our distributor agreements do not generally contain exclusivity provisions, management believes our independent distributors do not offer products of any other towing and recovery equipment manufacturer. We believe this is a testament of their loyalty to our brands.

In addition to selling our products, our independent distributors provide end-users with parts and service. We also utilize sales representatives to inform prospective end-users about our current product lines in an effort to drive sales to independent distributors. Management believes the strength of our distribution network and the breadth and quality of our product offerings are two key advantages over our competitors.

We focus 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.

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 research and development 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. Our investments in strategic and planned projects have contributed to our increased production capacity and optimized our manufacturing processes, including investing in component re-design capabilities that allow for more flexibility in our manufacturing and sourcing. In addition, our strategic investment in Southern Hydraulic Cylinder, Inc. in May 2023, allowed us to strengthen our efforts to enhance the stability of our supply chain. Our recent domestic plant expansion and modernization projects have installed sophisticated robotics systems and other advanced technologies to complement our talented workforce. The projects completed during the period from 2017 to 2021 were at a cost of over $82 million. As we continue to focus on modernization and operational excellence, we expect to continue to invest in robotics and automated material handling equipment across all our domestic manufacturing facilities.

TRENDS AND OTHER FACTORS AFFECTING OUR BUSINESS

Based on the productivity enhancements that we have implemented and improved supply chain conditions, our gross profit as a percentage of sales improved for the three months ended March 31, 2025, despite net sales and earnings being lower for the period. During the quarter, our results continued to be affected by the high levels of chassis inventory in our distribution channel, as our distributors worked through the inventory buildup stemming primarily from inconsistent supplier delivery schedules throughout 2024. We believe that chassis and body inventory levels are moving closer to optimal levels and that the flow of manufactured equipment and chassis deliveries will become more synchronized during the second half of 2025. We will continue to monitor our backlog and order entry levels, and believe we are well-positioned to seize opportunities during the remainder of 2025.

Our performance will be heavily influenced by, among other things, timing of supply chain deliveries and global supply chain pressures, the continuing impact of geopolitical factors, general economic factors and the potential impact of tariffs, the rising cost of equipment ownership, and regulations regarding emissions standards.

• During the first quarter of 2025, we experienced, and continue to experience, uncertainty around the implementation of new or increased U.S. tariffs, changes in U.S. trade policies, and the potential escalation of trade tensions and retaliatory measures by foreign governments. While we believe the diversity and strength of our supply chain leaves us well positioned to navigate these uncertainties, the applicability and ultimate impact of these matters, costs of component parts, chassis and raw materials, and foreign currency translation, still remains unknown.
• In addition, the rising cost of equipment ownership can pose a significant challenge for end-market towers. Recent increases in insurance premiums and interest rates have added cost pressures to our end users, and fluctuations in the value of used trucks have affected trade-in values and new equipment purchases.
• As of January 1, 2025, new regulations with near zero emission standards were adopted by certain states, which limit the amount of diesel-powered commercial vehicles that can be registered and, therefore, the number of vehicles we can sell in these states. Despite significant lobbying efforts and signals that steps may be taken at the federal level to repeal these regulations, the situation remains dynamic, and has impacted demand from customers in these states. Further information regarding the California Air Resources Board’s regulations is included under the heading “Government Regulations and Environmental Matters” in Part I, Item 1 – “Business” and in Part I, Item 1A – “Risk Factors” of our Annual Report on Form 10-K for the 2024 fiscal year.

The impact of these factors remains largely out of our control, and we currently anticipate that one or more of these factors could have an adverse impact on our production capabilities, financial results, and cash flows through the remainder of 2025.

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 three months ended March 31, 2025, from the information provided under the heading “Critical Accounting Policies and Sensitive Accounting Estimates” in Part II, Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024.

RESULTS OF OPERATIONS

Three Months Ended March 31, 2025 Compared to Three Months Ended March 31, 2024

(in thousands)

Net Sales

Net sales for the three months ended March 31, 2025 were $225.7 million compared to $349.9 million for the corresponding period in fiscal 2024, a decrease of 35.5%. The decrease in net sales was primarily due to a reduction of chassis deliveries to mitigate inventory buildup in our distribution channel.

Net foreign sales for the three months ended March 31, 2025 were $39.3 million compared to $31.3 million for the corresponding period in fiscal 2024, an increase of 25.5%.

Cost of Operations

Cost of operations includes the direct cost of manufacturing, including direct materials, labor and related factory overhead, physical inventory adjustments, as well as inbound and outbound freight. Cost of operations for the three months ended March 31, 2025 was $191.7 million compared to $305.6 million for the corresponding period in fiscal 2024, a decrease of 37.3%. The decrease in cost of operations was consistent with the anticipated decrease in sales.

Gross Profit

Gross profit is equal to net sales less cost of operations. Gross profit for the three months ended March 31, 2025 was $33.9 million compared to $44.2 million for the corresponding period in fiscal 2024, a decrease of 23.3%. This decrease was primarily due to the anticipated decrease in sales. As a percentage of sales, gross profit was 15.0% for the three months ended March 31, 2025, compared to 12.6% in the corresponding period in fiscal 2024, an increase of 19.0%. The year over year increase was primarily due to a favorable product mix driven by the decrease in chassis deliveries.

Selling, General and Administrative

Selling, general and administrative expenses for the three months ended March 31, 2025 were $23.3 million compared to $21.5 million for the corresponding period in fiscal 2024, an increase of 8.0%. The increase in selling, general and administrative expenses was primarily due to compensation expense and incentives for all employees, including training and more competitive compensation to improve employee retention. As a percentage of net sales, selling, general and administrative expenses increased to 10.3% for the three months ended March 31, 2025, from 6.2% for the comparable period in fiscal 2024.

Interest Expense, Net

Interest expense, net for the three months ended March 31, 2025 was $0.1 million compared to $1.2 million for the corresponding period in fiscal 2024, a decrease of 92.4%. Interest expense as of March 31, 2025 of $2.4 million was consistent with the interest expense of $2.2 million for the comparable period in 2024, offset by increased interest income of $2.3 million for the three months ended March 31, 2025, compared to interest income of $0.9 million for the comparable period in 2024. The increase in interest income is due to increased billings on open accounts receivable balances.

Other (Income) Expense

The Company is exposed to foreign currency transaction risks when the Company has transactions that are denominated in a currency other than its functional currency. When the related balance sheet items are remeasured in the functional currency of the Company, gains and losses are recorded through other (income) expense. Other (income) expense, net is composed primarily of these foreign currency exchange gains and losses. The Company experienced a net foreign currency exchange gain of $0.2 million and loss of $0.2 million for the three months ended March 31, 2025 and 2024, respectively. Other (income) expense for the three months ended March 31, 2025 was de minimus.

Provision for Income Taxes

The provision for income taxes for the three months ended March 31, 2025 and 2024 reflects a combined federal, state, and foreign tax rate of 25.3% and 20.8%, respectively. The increase was primarily due to non-deductible executive compensation. 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

We currently believe that, based on available capital resources and projected operating cash flows, we have adequate capital resources to fund our operations and expected future cash needs over the next 12 months. However, our ability to satisfy our cash needs will substantially depend upon a number of factors, including our future operating performance, and the economic, regulatory, and other factors discussed elsewhere in this Quarterly Report, many of which are beyond our control.

Cash and Temporary Investments

As of March 31, 2025, we had cash and temporary investments of $27.4 million, and $25.0 million in available borrowings under our credit facility. Our primary cash requirements include working capital, capital expenditures, the funding of any declared cash dividends, purchases pursuant to our stock repurchase program, and principal and interest payments on indebtedness.

The cash and temporary investments balance as of March 31, 2025 included $20.5 million of cash held by subsidiaries outside of the United States.

Cash Flows

The following table summarizes our cash flows for the period:

(in thousands)

Changes in working capital, which impact operating cash flows, can vary significantly depending on factors such as the timing of customer payments, inventory purchases and payments to vendors, and tax payments in the regular course of business.

Cash Flows Provided by (Used in) Operating Activities

During the three months ended March 31, 2025, net cash provided by operating activities was $2.7 million compared to net cash provided by operating activities of $9.0 million in the comparable period in fiscal 2024. Cash provided by 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, payments for materials used in manufacturing, and other payments that are necessary in the ordinary course of our operations, such as those for utilities and taxes. The change in operating activities was primarily driven by decreases in accounts receivable, inventory, and accounts payable, signifying further stabilization of changes in assets and liabilities as a result of continued supply chain recovery.

Cash Flows Provided by (Used in) Investing Activities

During the three months ended March 31, 2025, cash used in investing activities was $5.1 million compared to cash used in investing activities of $4.7 million for the comparable period in fiscal 2024. The cash used in investing activities was primarily for purchases of property, plant and equipment, as well as our continued investment in manufacturing automation and ERP system enhancements.

Cash Flows Provided by (Used in) Financing Activities

During the three months ended March 31, 2025, cash provided by financing activities was $5.6 million compared to cash used in financing activities of $7.2 million for the comparable period in fiscal 2024. The cash provided by financing activities was primarily due to an advance on the credit facility offset by cash payments for dividends and repurchases of common stock.

Contractual Obligations

As of March 31, 2025 and December 31, 2024, we had commitments of approximately $10.0 million and $14.2 million, respectively, for the acquisition of property, plant and equipment, and commitments of approximately $0.5 million in software license fees related to the implementation of our enterprise software solution. This decrease in commitments for acquisition of property, plant and equipment was due to our continued investments in automation and the use of robotics in our production processes to streamline efficiency. There have been no other material changes to our contractual obligations from what was previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024.

Credit Facility

The Company had outstanding borrowings of $75.0 million and $65.0 million under the credit facility as of March 31, 2025 and December 31, 2024, respectively. See the disclosure under the heading “Credit Facility” in Note 4 of the Notes to Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for additional information regarding the Company’s credit facility.

As of May 1, 2025, the outstanding balance on our credit facility was $70.0 million.

Other Long-Term Obligations

Prior to applying a discount rate to our lease liabilities, we had approximately $0.5 million and $0.6 million in non-cancellable operating lease obligations as of March 31, 2025 and December 31, 2024, respectively. We had no non-cancellable finance lease obligations as of March 31, 2025 and December 31, 2024.

Capital Expenditures

Capital expenditures during the three months ended March 31, 2025 and 2024 were $5.1 million and $4.7 million, respectively. We make ongoing capital investments in our property, plant and equipment to increase our production capacity and the efficiencies, as well as the sustainability and safety of our operations. This includes capital investments during the three months ended March 31, 2025 in the use of robotics and automation in our production processes to streamline efficiency.

There have been no material changes to our quantitative and qualitative disclosures about market risk from what was previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2024.

Disclosure Controls and Procedures

We evaluated, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of March 31, 2025. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of March 31, 2025, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms and that such information is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls 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 controls over financial reporting.

There have been no material changes to the risk factors described in Part I, Item 1A – “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024.