Ben Herskowitz - FTI Consulting Bill Miller - Chairman of Board Jeff Badgley - Co-CEO Will Miller - President and Co-CEO Debbie Whitmire - EVP & CFO Frank Madonia - EVP, Secretary & General Counsel

James Lee - Potrero Capital

Good day, ladies and gentlemen, and welcome to the Miller Industries Fourth Quarter 2017 Results Conference. Please note this event is being recorded. And now at this time, I would like to turn the call over to Ben Herskowitz at FTI Consulting. Please go ahead, sir.

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 2017 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, Chairman of the Board; Jeff Badgley, Co-CEO; Will Miller, President and Co-CEO; Debbie Whitmire, Executive VP 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 period. 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, which are more fully described in the Company's Annual Report 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. Please go ahead, Jeff.

Thank you, Ben, and good morning. We're pleased to discuss with you our fourth quarter and full-year 2017 performance. 2017 was the solid year in which we grew our top line revenue by 2.3%, capped off by 7.5% revenue growth in the fourth quarter. Our results were driven by positive order trends across our customer base and our ability to successfully capitalize on this increased activity. Our planned expansion projects were substantially completed during the quarter and we expect to benefit from higher production levels as well as improved operating leverage as these facilities become utilized. Our bottom line results also benefitted from the recent change in tax legislation, which Debbie will cover in detail shortly. We reported 2017 fourth quarter sales of $159.7 million, an increase of 7.5% compared to $148.6 million in the prior year period. Net income was $9.3 million or $0.81 per diluted share compared to net income of $4.5 million or $0.38 per diluted share in the 2016 fourth quarter. Our profitability improved with operating margins slightly higher in the fourth quarter as a result of continued operational efficiency gains. Fourth quarter earnings per share were also up over 100% primarily related to income tax benefits. Overall, we are encouraged by our strong performance this quarter. We continue to deliver both solid, top and bottom line growth, as we met growing demand for our products and improved our operating margins to an increase in operating leverage. Now, I'll turn the call over to Debbie, who'll review the fourth quarter and 2017 full-year results. After that, I'll be back with comments on the market environment and some closing remarks. Debbie?

Thanks, Jeff, and good morning everyone. Net sales for the 2017 fourth quarter were $159.7 million versus $148.6 million for the 2016 fourth quarter, a 7.5% year-over-year increase. Cost of operations increased 5.9% to $141.3 million for the 2017 fourth quarter compared to $133.4 million for the 2016 fourth quarter. Gross profit was $18.5 million or 11.6% of net sales for the 2017 fourth quarter compared to $15.2 million or 10.2% of net sales for the 2016 fourth quarter. SG&A expenses were $8.9 million for the 2017 fourth quarter compared to $7.5 million for the 2016 fourth quarter. As a percentage of sales, SG&A increased to 5.6% from 5.0% in the prior year period. Interest expense for the 2017 fourth quarter was $426,000 compared to $345,000 for the fourth quarter of 2016. Other income expense net for the 2017 fourth quarter was a net loss of $203,000 compared to a net loss of $174,000 for the 2016 fourth quarter. As Jeff mentioned earlier, lower taxes related to the recent change in tax legislation provided a benefit of $343,000 in the fourth quarter, which I will address in more detail in a moment. Net income for the 2017 fourth quarter was $9.3 million or $0.81 per diluted share. Net income for the 2016 fourth quarter was $4.5 million or $0.38 per diluted share. Now let me briefly review our results for the full-year ended December 31, 2017. Net sales for the 2017 full-year were $615.1 million compared to $601.1 million to the 2016 full-year an increase of 2.3%. Gross profit for 2017 was $67.1 million or 10.9% of sales compared to $64.3 million or 10.7% of sales in 2016. Net income for the 2017 full-year was $23.0 million or $2.02 per diluted share, which is an increase of 15.5% over the net income for the 2016 full-year of $19.9 million or $1.75 per diluted share. The year-over-year and fourth quarter increases in net income is primarily due to tax benefit related to the re-measurement of differed taxes under the Tax Cut and Jobs Act 2017 and a release of unrecognized tax benefit, both of which are reflected in the fourth quarter of 2017. The resulting impact of this tax benefits was an effective tax rate of 24.1% for the full-year of 2017 as compared to a 35.8% effect of tax rate for the full-year of 2016, and a tax benefit of $343,000 in the fourth quarter of 2017. Turning now to our balance sheet, cash and cash equivalents as of December 31, 2017, were $21.9 million compared to $33.5 million as of September 30, 2017. The decrease during the quarter was a result of paying down $10 million on our revolving credit facility. Cash and cash equivalents as of December 31, 2016 were $31.1 million. Accounts receivable at December 31, 2017, totaled $132.7 million compared to $135.4 million as of September 30, 2017, and $125.4 million at December 31, 2016. Inventories were $68.6 million as of December 31, 2017, compared to $64.6 million as of September 30, 2017, and $64.1 million at December 31, 2016. Accounts payable at December 31, 2017, were $79.3 million compared to the same $79.3 million as of September 30, 2017, and $85.1 million at December 31, 2016. As of December 31, 2017, our outstanding balance under our $50 million unsecured revolving credit facility was $10 million reviewed from $20 million as of September 30, 2017. The Company also announced that its Board of Directors approved our quarterly cash dividend of $0.18 per share payable March 26, 2018, to shareholders of record at the close of business on March 19, 2018. Now, I'll turn the call back over to Jeff for further remarks.

Thank you very much, Debbie. Our progress in 2017 is a good reflection of our employees’ dedication to growing the Company and serving our customers as well as our commitment to our shareholders to continuing to grow revenue and earnings. During the year, we substantially completed several expansions including our Pennsylvania manufacturing plant consolidation and various others in Ooltewah and Greenville, Tennessee. These expansions will be instrumental in serving our customers during 2018 and beyond. As we enter 2018, our backlog remained strong and our underlying activity continues to be positive. Offsetting some of these positive fundamentals are cost structures related to raw materials and employee benefit cost, which we will continue to monitor and attempt to actively mitigate. We will also monitor current discussions related to tariffs on steel and aluminum in order to determine the impact they may have on our raw material cost in the future. While we are concerned about the potential impact of any tariffs, it is too early to make any meaningful assessment. In closing, I’d like to thank our employees, our shareholders, our suppliers, our customers for ongoing support of Miller Industries. With that, we're ready to take your questions.

[Operator Instructions] And our first question will come from James Lee with Potrero Capital. Please go ahead.

Could you comment on domestic versus international sales outlook for 2018 because it looks like in 2017, international was up but domestic was down. Would you expect domestic to grow in 2018?

I think the overall market domestically quite honestly, probably, if I look at backlog I would say that domestic continues to be strong in terms of the place of the placeholders of the orders we have internationally versus domestically and how they fall out quarter-to-quarter or year-over-year because the backlog is strong. Jim, I haven't look back to see what proportion or scheduled early for domestic in water schedule of international. But I really think in the domestic market the market itself is strong, our backlog is strong, so I would not expect any trailing off on the domestic side of our business.

Could you remind us why domestic was down as demand in 2017 if demand was strong?

Well, obviously, Jim, we went through several plants realignments in construction projects so I mean if you are to compare our backlogs from the end of 2016 to the end of 2017, you would say that although we didn’t deliver our sales effort and backlog is stronger.

And now that you guys have --

So I would point you to fourth quarter where we started Jim to see the ability with these construction projects and planned modernizations here sales levels did go up. So we're starting to see the impact I believe of our passed efforts.

And now that you've planned expansion is pretty much complete, let's say if it's operating at full utilization. This could it handle what kind of sales increase that it handle and I'm not got or saying that you will do that sales increase by today could you double your sales base on current capacity?

Well, I don’t in terms of what capacity has been increased, and right at the moment, we have capacity. We're struggling as we move forward, not with the ability to produce more of our own products, but the ability for our suppliers to keep up with our accounts to increase our production way. So I don’t want to try to answer that.

Now, you only -- I cut you off.

No, I don't want to try to answer a question about capacity without looking at the total environment because I believe that would be misleading to you and others on the call. We do have capacity. We are building more products of the mitigating factor today as we attempt to raise production more and more is getting components to raise out production because suppliers are at capacity. And the only way we can do that is to expand our supplier base, which takes some time and some effort.

You had mentioned in the 10-K about the delay in supplier truck chassis. Could you talk about how that deposits impact your sales efforts in 2018 whether that it’s really impacted or not using to deal with it the study?

Jim, I didn’t understand the first part of your question. Is that something about the 10-K.

Yes and you've referenced just now, I think I read in the K as well that there is I don't -- you mentioned the delay in supplier truck chassis starting in late 2017?

Well, there is truck chassis themselves have their lead times have little doubt. But in my previous comments, I’m not really talking about just chassis. The metal components, cylinders, valves, all are suppliers are at capacity and as reattempt to or close to capacity and as reattempt to raise production rates, we will fighting homes constraint.

And our cost pressure, how do you think you mitigate these originative raised prices? How do you communicate potential price increase to your customers?

We have in fact institute price increase. We did either late January or early February to help mitigate cost pressure. Now, I would caution you as you look forward, remember our backlog is so prior to that price increase. So you have to work through the price increase to get to the end result of -- you have to work through the backlog to get to the result of an increased price on your product.

And early in your prepared remarks, you talked about your BMC operating leverage. Would you -- do you think you'll be able to increase your operating margin in '18 in spite of the cost pressure that you guys talked about?

Well, it’s hard to talk about margin was working at the total scope of those things and impact margin. I believe that our investments that we have made through 16’ and 17’ obviously impact our labor expense increase our ability to build more product, but a big component of our margin is cost of goods. So, I’m not going to forecast what our margins may or may not be in 2018 at this point.

Your CapEx, capital expenditure, was elevated in last years as you expand and improve your manufacture facility. Should that -- should we see a step down of that in '18? And what's your outlook for that for CapEx?

Our CapEx will step down in '18.

Would it be more similar to where it was before 2016? So, I can have to that low below $10 million per year.

Jim, I have a good memory but I don’t remember what our CapEx was in '15 and '16 nor did I go back and look, but it will drop a substantially.

How should we think what your cash tax rate going forward?

I think Debbie reviewed the fact that we have paid down on our debts, so we would expect to continue to pay down that debts. We do believe, if we are successful in growing the business, if our suppliers and components and we can raise production, I think we have always said in our calls that as we grow we eat cash, and the business turns down we garnish cash.

What I meant with your tax rate?

Oh, I am sorry, I thought you said cash.

No, your cash tax rate, but I was hopeful as well as to your comment earlier.

I am sorry I did not hear the word tax in the word cash. So Debbie, do you?

Well, obviously we have a blended rate because we have our European operations as well as the U.S. that obviously it will step down with the new tax impact, and we do get the benefit of our domestic and manufacturing tax credits. So I think you will see a more normalized level around that corporate tax rate, but there were obviously some major adjustments with the new legislation this year, but it should be normalized somewhere around the corporate tax rate going forward.

And what you did out of the corporate tax rate?

Well, obviously the U.S. rate is now 21, anyway with our manufacturing credits and the European rates that we have, obviously, the UK is similar the French tax rate it's a bit higher. So I am estimating somewhere in the 23.4 range.

There are no further questions at this time. And with that, ladies and gentlemen, this does conclude today's conference. We like to thank you again for your participation. You may now disconnect.