Matt Steinberg - Jeffrey I. Badgley - Co-Chief Executive Officer J. Vincent Mish - Chief Financial Officer, Principal Accounting Officer, Executive Vice President, Treasurer and President of Financial Services Group

Walter S. Lang - Avondale Partners, LLC Richard G. D'Auteuil - Columbia Funds Series Trust I - Columbia Small Cap Core Fund

Hello. This is the Chorus Call operator. Welcome to the Miller Industries Second Quarter 2014 Results Conference Call. [Operator Instructions] Please note, this event is being recorded. At this time, I would like to turn the conference over to Matt Steinberg. Mr. Steinberg, please go ahead.

Thank you, and good morning, everyone. I would like to welcome you to the Miller Industries conference call. We are here to discuss the company's 2014 second quarter results, which were released after the close of the market yesterday. With us from management today are Bill Miller, Chairman of the Board; Jeff Badgley, Co-CEO; Will Miller, Co-CEO and President; Vince Mish, CFO; Frank Madonia, Executive Vice President, Secretary and General Counsel; Vince Tiano, Vice President; Debbie Whitmire, Vice President and Corporate Controller; and Allison Houghton, Director of Finance. Today's call will begin with formal remarks from management, followed by a question-and-answer period. Please note that 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, which are more fully described in the company's annual report filed on Form 10-K and other filings with the Securities and Exchange Commission. With these formalities out of the way, I'd like to turn the call over to Jeff Badgley. Jeff, please go ahead. Jeffrey I. Badgley: Thank you, and good morning. Our performance for the 2014 second quarter reflected strong year-over-year and sequential revenue and profitability growth. An improving economic environment combined with positive customer sentiment has further strengthened our order flow. As a result, we continue to demonstrate our operational flexibility by ramping up production capabilities to meet customers' needs. We reported 2014 second quarter sales of $122.4 million, compared to sales of $105.8 million in the prior-year period. An increase of nearly 16%, second quarter net income of $3.4 million or $0.30 per share represents a 16.8% increase, compared to net income of $2.9 million or $0.26 per share in the 2013 second quarter. We continued to capitalize on opportunities both domestically and internationally as demand for our industry-leading products continued to rise. We've remained focused on our efficient operations and have kept costs lower, which ultimately drove solid earnings growth. In addition to our strong performance, our backlog grew sequentially and annually, which is indicative of the improving conditions we are seeing across our markets. Furthermore, we are pleased with our current financial position, and we will continue to put our capital to use in order to grow our business while returning value to our shareholders. Now I'll turn the call over to Vince, who will review the quarter's financial results. After that, I'll be back with comments on the market environment and some closing remarks. Vince? J. Vincent Mish: Thanks, Jeff, and good morning everyone. As Jeff mentioned, net sales for the second quarter 2014, were $122.4 million versus $105.8 million for the 2013 second quarter. Sales were up 15.7% year-over-year, reflecting a strong order flow from improving domestic and international commercial markets, as well as government related activity. To stay ahead of the increased order flow, we've ramped up production levels, which allowed us to keep up with increasing demand and contributed to our revenue growth. Cost of operations increased 16.8% to $109.9 million in the 2014 second quarter, compared to $94.1 million last year, driven primarily by the higher sales volumes and costs related to increasing production levels. Gross profit was $12.5 million or 10.2% of net sales in the second quarter of 2014, compared to $11.7 million or 11.1% of net sales in the second quarter of 2013. Gross margin percentage was lower from the year-ago period due to product mix. SG&A expenses were $7.0 million in the second quarter of 2014, compared to $7.2 million in the second quarter of 2013. As a percentage of sales, SG&A decreased to 5.7% from 6.8% over the prior year period, which primarily reflected our focus on costs. Other income expense net for the second quarter of 2014 was a loss of $55,000 due to foreign currency transaction losses. This compares to a net loss related to foreign currency transactions of $18,000 in the second quarter of 2013. Interest expense in the 2014 second quarter was $126,000, compared to $84,000 in the second quarter of 2013. Net income attributable to Miller Industries in the 2014 second quarter was $3.4 million or $0.30 per diluted share. This represents a 16.8% increase from income in the second quarter of 2013, up $2.9 million or $0.26 per diluted share. This excludes a net loss attributable to noncontrolling interest of $112,000 related to the Delavan joint venture in 2013. Now let me briefly review our results for the 6 months ended June 30, 2014. Net sales for the first 6 months of 2014 were $226.6 million, compared to $190.8 million in the prior year period, an increase of 18.8%. Gross profit for the 6 months ended June 30, 2014 was $23.4 million or 10.3% of sales, compared to $20.4 million or 10.7% of sales for the 6 months of 2013. Income in the first 6 months of 2014, included a net loss attributable to noncontrolling interests of $66,000 related to the Delavan joint venture. Excluding that loss, net income attributable to Miller Industries in the first 6 months of 2014 was $5.8 million or $0.51 per diluted share, which is a 36.0% increase from net income in the first 6 months of 2013 of $4.2 million or $0.38 per diluted share. Turning now to our balance sheet. Cash and cash equivalents as of June 30, 2014, were $39.1 million compared to $40.5 million at March 31, 2014, and $42.9 million at December 31, 2013. Accounts receivable at June 30, 2014, totaled $96.1 million compared to $82.0 million at March 31, 2014, and $80.8 million at December 31, 2013. The increase in accounts receivable reflected the higher sales volumes and the timing of collections. Inventories were $55.2 million as of June 30, 2014, compared to $56.7 million at March 31, 2014, and $54.2 million at December 31, 2013. Accounts payable at June 30, 2014 were $56.8 million compared to $47.7 million at March 31, 2014. And $47.4 million at December 31, 2013. The increase in payables over a year ago amounts reflects our higher production levels. We continue to operate with no borrowings under our $25 million unsecured revolving credit facility. The company also announced that its Board of Directors has declared a quarterly cash dividend of $0.15 per share payable September 22, 2014, to shareholders on record at the close of business on September 15, 2014. Now I'll turn the call back to Jeff for further remarks. Jeffrey I. Badgley: Thank you, Vince. The first 6 months of 2014 reflected healthy levels of business activity, as economic conditions while still challenging are trending more positively. These positive trends are demonstrated in our growing order flow, increasing backlog and greater level of quoting activity for our products. As I noted earlier, we are ramping up our operations to execute on the increased order levels, which not only illustrates our operational flexibility, but also validates our strategy to remain active in targeting other opportunities in our global marketplace. We continue to see heavy levels -- healthy levels of interest for our products domestically. And are also seeing interest levels grow internationally, as a result of our geographic expansion initiatives. We are pleased with the pickup in quoting activity across Europe, and we continued to make inroads in the Asia Pacific, Middle Eastern, Latin American and other regions across the globe. Our French military order remains on track, which demonstrates our ability to deliver on a large size order on budget and on time, and further underscores our geographic diversity. In addition to driving growth through geographic expansion initiatives, we are also growing through innovation. We are investing in developing new products to broaden our capabilities and target new customers and opportunities. In April, we demonstrated our industry-leading product line at the annual Florida Tow Show. Our products generated a lot of excitement, and were well received by the show's participants. We're excited about these new product introductions that will add incremental value to our product offering and to our customers. We are well-positioned to continue investing in our strategic initiatives, as we continue to operate from a position of financial strength. We are well capitalized, have a solid balance sheet and continue to operate efficiently. As we continue to deliver against our growth goals, we remain committed to building value for our shareholders through our strong cash flow, solid balance sheet and quarterly dividend of $0.15 per share per quarter in 2014. Overall, I am pleased, as is everyone in management at Miller Industries with our first half performance and look forward for continued operational success going forward. In closing, I'd like to thank our employees, our shareholders, our suppliers and our customers for their ongoing support of Miller Industries. With that, we're ready to take your questions.

[Operator Instructions] We have a question from Mike [ph] Hughes from SGS Capital.

A couple of questions for you. First, can you differentiate if there is a difference between the demand you're seeing from kind of the large professional tow operations and the mom and pops, domestically? And then maybe speak to municipal demand also? Jeffrey I. Badgley: While it -- I mean, I can speak in a manner that, I guess, I don't have numbers in front of me to give you exact figures, Rick -- Mike. But I would say domestically, our customer's demand obviously, which is shown through order entry levels and backlogs rising, is up. And I don't -- we have never segregated that municipal section of distributor, small wreckers or carriers from just thinking that as consumer and customer demand. I would..

Sure. Just qualitatively is there part of the market that hasn't come back yet domestically? Jeffrey I. Badgley: I think, domestically, our customer base, which is strongly driven by professional towers, and I think it's been a while since we have talked but professional towers are defined as those that a majority of their revenue is driven through transportation of vehicles. I don't think there is any segment that has not come back. So just everyday towing business, their opportunities are increasing, and our demand levels are increasing.

Okay. And you indicated a further strengthening in the backlog, so is it reasonable to expect that the September quarter revenue level would be kind of consistent with what you just reported around the $120 million level? Jeffrey I. Badgley: Historically, we have not given revenue projections out. But I would say that from my presentation, we are constantly attempting to increase production levels. So I would hope that the mix remains relatively the same. And we should see relatively the same kind of revenue numbers.

Okay. And then on a year-over-year basis, the international revenue had really good growth, but it was dipped down a little bit sequentially. Was there a pullback in the number of military orders that will pick up again in the third quarter, just can maybe, can you speak to the international environment? Jeffrey I. Badgley: The international environment, I think, our biggest, it was in French military, I think we had a pullback in revenue in our U.K. operation, which we expect to correct itself in the third quarter. Part of that pullback was just us, as we were increasing production levels, making sure we were feeding them with the right products and we dropped the ball a little bit, but I would expect that to come back in the third quarter.

Okay. And then last question for you. Just the gross margin. I understand it's heavily influenced by the chassis pass-through in the mix. 10.2%, is there a goal to kind of take it to the, I don't know, 11%, 12% level? Can it expand from the current level, I guess, is the question? Jeffrey I. Badgley: I believe and I think everybody in this room believes that, it can expand somewhat. Obviously, we're a firm than has a desire to continue to grow, especially internationally and we compete on an international level with some very low-cost producers. But from a domestic standpoint, if you were just to look at domestic, I believe we can expand now, as we grow internationally than might have some minor negative impact on margins overall. Does that make any sense to you?

I understand. And I assume the U.K. is small enough that it didn't have an impact. But the kind of the hiccup there, did that have any negative impact on the gross margin in the quarter? Jeffrey I. Badgley: Slight. But it -- the numbers are so slight that I can't sit here and do the math in my head. But I mean, obviously, it had a slight impact.

Our next question is from Walter Lang from Avondale. Walter S. Lang - Avondale Partners, LLC: Just regarding the French military order, and that's booked in foreign revenues, as Mike, the previous questioner, talked about correct? J. Vincent Mish: Yes. Walter S. Lang - Avondale Partners, LLC: And then, so -- is that product manufactured overseas or do you manufacturer it domestically? Jeffrey I. Badgley: The center section of the product, which is the rotating mechanism, the subframes, the outriggers is manufactured in the U.S. in our Chattanooga facility. It is the body that goes along with that center section is manufactured in France. And the installation is done by the prime contractor, which is also located in France. Walter S. Lang - Avondale Partners, LLC: Okay. And that order as it stands currently will be fulfilled in Q4? Jeffrey I. Badgley: Yes, it should be, as it stands currently. Walter S. Lang - Avondale Partners, LLC: And you're still hopeful of some extension of that contract? Jeffrey I. Badgley: Yes, there was additionally the quantity bid was 150, with 3 tranches of 50 each, we got the first tranche. We have not received the second tranche. We do know however, that other variants or the contract in other words, they just didn't buy towing and recovery equipment, have received second tranche orders. So I think it's dependent on the capital available in France. So we'll see what happens. Walter S. Lang - Avondale Partners, LLC: Okay. And then when you talk about, you continue to put capital to use to support your growth. How much of that is more towards foreign growth, as opposed to domestic growth? Jeffrey I. Badgley: Well, I think it's almost impossible to separate, because our strategy, Walter, is to... Obviously, we cannot compete in all parts of the world from a standpoint of price, nor can we compete in all parts of the world by putting local facilities in all parts of the world. So anything we do domestically to improve the product or to increase our efficiency to lower our cost, and has that kind of -- it has, that has reach on both sides right, domestically and internationally. So I would say almost any dollar we spend, we're thinking not only domestically, but we're thinking globally. Walter S. Lang - Avondale Partners, LLC: Okay. And then given the current geopolitical climate worldwide, are you seeing increased bidding activity from different military organizations? Jeffrey I. Badgley: We certainly are working on several tenders globally. Yes. Walter S. Lang - Avondale Partners, LLC: Okay. And then have you seen any benefit as yet from the reallocation of the manufacturing capacity that had been devoted to Delavan previously? Jeffrey I. Badgley: We've seen the ability for our company with that capacity and the increase in orders to shift some of what we've built in Ooltewah or Chattanooga historically, it freed up capacity to move that, some of that product to Greenville to meet customer delivery expectations. Yes.

[Operator Instructions] Our next question is from Rick D'Auteuil from Columbia Management. Richard G. D'Auteuil - Columbia Funds Series Trust I - Columbia Small Cap Core Fund: Just actually most of my questions have been answered, just want to confirm that this will be the last quarter that we refer to Delavan that the losses don't continue. Is that confirmed or? J. Vincent Mish: Yes. In fact, there were no losses in this quarter from Delavan. Richard G. D'Auteuil - Columbia Funds Series Trust I - Columbia Small Cap Core Fund: I thought I heard $122,000, or something. No? J. Vincent Mish: That was first quarter. It was in the 6 month numbers, that was from the first quarter. Richard G. D'Auteuil - Columbia Funds Series Trust I - Columbia Small Cap Core Fund: Okay. I apologize. And that's all I had. I think everything else I had on my list has been asked and answered.

This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks. Jeffrey I. Badgley: Well, we'd like to thank you, again, for your support of Miller Industries. And we look forward to talking to you at our next quarterly conference call. Have a great day. Bye.

This concludes today's event. Thank you for attending today's presentation. You may now disconnect your line.