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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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MILLER INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

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(423) 238-4171

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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Securities registered pursuant to Section 12(b) of the Act:

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Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒        No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒        No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐        No ☒

The number of shares outstanding of the registrant’s common stock, par value $.01 per share, as of April 29, 2022 was 11,416,716.

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FORWARD-LOOKING STATEMENTS

Certain statements in this Quarterly Report on Form 10-Q, including but not limited to statements made in Part I, Item 2–“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” statements made with respect to future operating results, expectations of future customer orders and the availability of resources necessary for our business may be deemed to be forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by the use of words such as “may,” “will,” “should,” “could,” “continue,” “future,” “potential,” “believe,” “project,” “plan,” “intend,” “seek,” “estimate,” “predict,” “expect,” “anticipate” and similar expressions, or the negative of such terms, or other comparable terminology. Forward-looking statements also include the assumptions underlying or relating to any of the foregoing statements. Such forward-looking statements are made based on our management’s beliefs as well as assumptions made by, and information currently available to, our management. Our actual results may differ materially from the results anticipated in these forward-looking statements due to, among other things:

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Such factors are not exclusive. We do not undertake to update any forward-looking statement that may be made from time to time by, or on behalf of, the Company.

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PART I. FINANCIAL INFORMATION

ITEM 1.          FINANCIAL STATEMENTS

MILLER INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

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The accompanying notes are an integral part of these financial statements.

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MILLER INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

(Unaudited)

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The accompanying notes are an integral part of these financial statements.

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MILLER INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

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The accompanying notes are an integral part of these financial statements.

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MILLER INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In thousands, except share data)

(Unaudited)

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The accompanying notes are an integral part of these financial statements.

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MILLER INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

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The accompanying notes are an integral part of these financial statements.

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MILLER INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(in thousands, except share data and except as otherwise noted)

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ITEM 2.       MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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.  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.

Executive Overview

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 7 – “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 through 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. Our domestic plant expansion and modernization projects have installed sophisticated robotics and implemented other advanced technologies to optimize our manufacturing processes.  We completed phase one of the implementation of an enterprise software solution during 2021, which we expect to substantially improve our administrative efficiency and customer service levels. As we retain our focus toward modernization, we continue to invest in robotics and automated material handling equipment across all of our domestic manufacturing facilities.

We opened our 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.  All of our domestic facilities have undergone substantial expansion and modernization projects during the period 2017 to 2021, as we have invested over $82,000 on property, plant and equipment over this five-year period, including our most recent fabrication equipment upgrades at our Greeneville, Tennessee facilities.  These projects not only increased our production capacity, but also included installing sophisticated robotics and implementing other advanced technologies to optimize our manufacturing process.

Our industry is cyclical in nature. Until the onset of the COVID-19 pandemic, the overall demand for our products and resulting revenues in recent years have been positively affected by favorable economic conditions, such as lower fuel prices, and positive consumer sentiment in our industry. However, historically, the overall demand for our products and our resulting revenues has at times been negatively affected by:

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.

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In addition, we have been and will continue to be affected by changes in the prices that we pay for raw materials, particularly aluminum, steel, petroleum-related products and other raw materials, which represent a substantial part of our total cost of operations. Historically, we have implemented price increases on our products to offset price increases in the raw materials that we use. We also developed alternatives to some of the components used in our production process that incorporate these raw materials, and our suppliers have implemented these alternatives in the production of our component parts. We continue to monitor raw material prices and availability in order to more favorably position the Company in this dynamic market.

Recent Developments

As the economy improved over the course of 2021 from the initial phases of the COVID-19 pandemic, we experienced increasingly significant supply chain challenges such as shortages and delivery delays in component parts and raw materials which impacted our ability to obtain on a timely basis various raw materials and purchased component parts that are necessary to our production processes, as well as substantial price increases for many of these materials and component parts. We also continued to experience increases in employee turnover rates and difficulties in hiring new workers for our skilled workforce, which caused increased recruiting, training and retention costs during this period. These supply chain difficulties were generally lessening as 2022 began but the impact of the war in Ukraine, lingering effects of COVID-19 in the U.S. and abroad and general economic conditions have slowed this improvement.

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We implemented several price increases and surcharges for our products during 2021. In an effort to address the accelerating price increases for materials and component parts that we experienced in the first quarter of 2022 (particularly after the commencement of the war in Ukraine), we recently increased our previously announced April 1, 2022 surcharge from 3% to 11% and our previously announced 5% price increase effective June 1, 2022 remains unchanged.  However, these additional increases are being implemented during the second quarter of 2022, while the higher costs for raw materials and purchased component parts that we use is felt much sooner. These factors had a substantial adverse impact on our net income during the second half of 2021 and first quarter of 2022, and they likely will continue to have such adverse impact if prices for our materials and component parts continue to increase over the course of 2022.

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Supply chain disruptions and workforce retention challenges continued to significantly reduce our ability to complete finished goods without timing delays during the first quarter 2022 and to increase our costs of operations. In addition, general inflationary pressures have substantially increased in the first quarter of 2022. We continue to monitor these supply chain disruptions and inflationary pressures (including the impact of the Russia conflict with Ukraine) and attempt to mitigate the risk associated with them, including by implementing the price increases (including those described above), by pursuing additional production capabilities through capital deployment, such as our first quarter purchase of an additional small facility in Ooltewah, TN to be used for the production of small carrier units, and by relying more heavily on our in-house fabrication capabilities, which were significantly expanded in 2020.

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Based on our strong backlog, announced surcharge and price increases and the current status of our process improvements, we believe we are well positioned to improve our operating results over the course of 2022, but our performance will be heavily influenced by whether supply chain constraints and inflationary pressures worsen due to the war in Ukraine or other geopolitical factors, the lingering effects of COVID-19, general economic factors or any other reason.  The impact of these factors remains largely out of our control, and we currently anticipate that they will continue to have a material adverse impact on our production and net income over the course of 2022.

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At December 31, 2021, the Company owed $0 under its primary credit facility.  During the first three months of 2022, the Company drew $10,000 for working capital needs. The Company also drew an additional $10,000 from the credit facility for working capital needs subsequent to March 31, 2022 and retains a balance on its credit facility of $20,000 at May 4, 2022.

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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 2022.

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, 2021.

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Results of Operations – Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021

Net sales for the three months ended March 31, 2022 increased 26.9% to $215,545 from $169,912 for the comparable period in 2021. The increase in revenue reflects continued economic recovery and some supply chain improvement in certain of our product classes. Net domestic sales increased during the three-month period ended March 31, 2022 to $194,351 from $146,687 for the comparable period in 2021, while net foreign sales decreased to $21,194 from $23,225 during the same three-month period.

Costs of operations for the three months ended March 31, 2022 increased 29.9% to $200,205 from $154,081 for the comparable period in 2021. Costs of operations increased as a percentage of sales to 92.9%, compared to 90.7% for the comparable period in 2021, primarily due to higher prices for components, part scarcity resulting from supply chain challenges, and wage inflation.

Selling, general and administrative expenses for the three months ended March 31, 2022 increased to $12,386 from $11,051 for the comparable period in 2021 due to increased software licensing and personnel related costs. As a percentage of sales, selling, general and administrative expenses for the three months ended March 31, 2022 decreased to 5.7% from 6.5% in the comparable period in 2021, as a result of the increase in revenue.

Interest expense, net increased to $418 from $275 for the three months ended March 31, 2022 as compared to the prior year period. Increases in interest expense, net were primarily due to increases in floor plan interest payments.

When the Company has transactions that are denominated in a currency other than its functional currency, the Company is exposed to foreign currency transaction risk and must record gains and losses through other (income) expense when the related balance sheet items are remeasured in the functional currency of the Company. Other (income) expense, net is composed primarily of these foreign currency exchange gains and losses, with the remainder being composed of gains and losses on disposals of equipment. For the three months ended March 31, 2022 the Company experienced a net foreign currency exchange loss of $52, compared to a net loss of $271 for the three months ended March 31, 2021.

The provision for income taxes for the three months ended March 31, 2022 and 2021 reflects a combined effective U.S. federal, state and foreign tax rate of 16.9% and 24.9%, respectively. 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. Favorable tax adjustments in foreign jurisdictions drove the decrease in the effective tax rate for the three months ended March 31, 2022.

Liquidity and Capital Resources

Cash used in operating activities was $28,936 for the three months ended March 31, 2022, compared to cash provided by operating activities of $2,847 in the comparable period in 2021. 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, 2022, in comparison to the three months ended March 31, 2021, is primarily due to recent increases in inventory purchases associated with increased production levels and necessary to mitigate supply chain constraints, coupled with increases in receivables related to recent upticks in sales.

Cash used in investing activities was $4,083 for the three months ended March 31, 2022 compared to $2,489 for the comparable period in 2021. The cash used in investing activities for the three months ended March 31, 2022 was for purchases of property, plant and equipment, including the purchase of an additional facility in Ooltewah, TN to be used for the production of small carriers. Cash used in investing activities for the three months ended March 31, 2021 was also for purchases of property, plant and equipment.

Cash provided by financing activities was $7,939 for the three months ended March 31, 2022, compared to cash used in financing activities of $2,059 for the comparable period in 2021. Net cash flows from financing activities for the three months ended March 31, 2022 resulted from advances from the credit facility of $10,000, partially offset by the payment of cash dividends of $2,055 and an immaterial amount of payments on finance lease obligations. Net cash flows from financing activities for the three months ended March 31, 2021 resulted from the payment of cash dividends of $2,054 and an immaterial amount of payments on finance lease obligations.

As of March 31, 2022, we had cash and temporary investments of $29,292, and an additional $40,000 in available borrowings under our existing credit facility ($30,000 as of May 4, 2022). 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, 2022, the Company had commitments of

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approximately $9,590 for the acquisition of property, plant and equipment.  At March 31, 2022, we also had a commitment of approximately $3,751 in software license fees. We expect our primary sources of cash to be cash flows from operations, cash and temporary investments on hand at March 31, 2022 and borrowings under our credit facility as needed. We expect these sources to be sufficient to satisfy our cash needs during the remainder of 2022 and for the next several years. However, our ability to satisfy our cash needs will substantially depend upon several factors, including our future operating performance, taking into account the COVID-19 related economic and other factors discussed above and elsewhere in this Quarterly Report, as well as financial, business and other factors, many of which are beyond our control.

As of March 31, 2022 and December 31, 2021, $26,521 and $24,415, 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 $50,000 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 2021 and during the first three months of 2022, and it is anticipated that the Company will continue to be in compliance during the remainder of 2022.

In the absence of a default, all borrowings under the credit facility bear interest at the LIBOR 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 $10,000 and $0, respectively, in outstanding borrowings under the credit facility at March 31, 2022 and December 31, 2021.  Subsequent to March 31, 2022, the Company drew an additional $10,000 for working capital needs and had $20,000 in outstanding borrowings at May 4, 2022.

Other Long-Term Obligations

Prior to applying a discount rate to our lease liabilities, at March 31, 2022 and December 31, 2021, we had approximately $1,264 and $1,328 in non-cancelable operating lease obligations, and $10 and $15 in non-cancelable finance lease obligations, respectively.

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ITEM 3.          QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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 LIBOR Market Index Rate plus 1.00% or 1.25% per annum, depending on the leverage ratio, for a rate of interest 1.45% at March 31, 2022. 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, 2022.

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.

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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, 2022, we recognized a $25 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, compared to a $760 unrealized gain for the respective prior year period. These amounts were recognized as unrealized gains in accumulated other comprehensive loss on the condensed consolidated balance sheets.

For the three months ended March 31, 2022 and 2021, the impacts of foreign currency exchange rate changes on our results of operations and cash flows were net foreign currency exchange losses of $52 and $271, respectively.

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ITEM 4.          CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We carried out an evaluation, as of the end of the period covered by this 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.

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PART II. OTHER INFORMATION

ITEM 1.          LEGAL PROCEEDINGS

We are, from time to time, a party to litigation arising in the normal course of our business. Litigation is subject to various inherent uncertainties, and it is possible that some of such matters could be resolved unfavorably to us, which could result in substantial damages against us. We establish accruals for matters that are probable and reasonably estimable and maintain product liability and other insurance that management believes to be adequate. Management believes that any liability that may ultimately result from the resolution of any such matters in excess of available insurance coverage and accruals will not have a material adverse effect on our consolidated financial position or results of operations.

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ITEM 1A.          RISK FACTORS

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, 2021.

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ITEM 2.          UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

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ITEM 3.          DEFAULTS UPON SENIOR SECURITIES

None.

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ITEM 4.          MINE SAFETY DISCLOSURES

Not applicable.

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ITEM 5.          OTHER INFORMATION

On May 2, 2022 the Compensation Committee of the Board approved an annual salary increase for Mr. Bill Miller, the Company’s Chairman of the Board, from $319,737 to $662,500, effective as of January 1, 2022. Mr. Miller’s salary had not increased since 2013 and the Compensation Committee determined that an increase was merited to recognize the time and effort that Mr. Miller devoted to the Company’s affairs and the value generated by these efforts.

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ITEM 6.          EXHIBITS