Miller Industries - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 revenue was $221.9M, down 25.1% year over year on lower chassis shipments; diluted EPS was $0.91 vs $1.45 in Q4 2023, while gross margin improved to 15.1% on favorable mix.
• Management issued FY 2025 guidance of $950M–$1.0B revenue and diluted EPS of $2.90–$3.20, with expectations for a softer 1H and normalization in 2H as chassis deliveries stabilize; margins are expected to be roughly equal to last year.
• Distributor inventory reduction and CARB/ACT regulatory limits are near‑term headwinds; management delayed some chassis shipments to support dealer health and working capital conversion, and sees improved free cash flow in 2025.
• Military demand is a multiyear tailwind; Miller was selected as a supplier to Rheinmetall Canada for 85 recovery vehicles as part of a ~$230M program, with deliveries beginning in 2027 (timing limits near‑term financial impact).
• Dividend increased to $0.20 per share (57th consecutive quarter); 2024 share repurchases totaled 49,500 shares (~$2.9M) under a $25M authorization, reinforcing capital return priorities alongside debt reduction.

What Went Well and What Went Wrong

What Went Well

• Gross margin expanded to 15.1% vs 13.0% last year, driven by product mix (higher percentage of manufactured bodies vs chassis).
• Working capital improvement underway: accounts receivable fell by >$60M QoQ and accounts payable dropped by ~$90M in Q4; management expects stronger free cash flow and is focused on deleveraging in 2025.
• Strategic tailwinds: military RFQs are accelerating; Miller was chosen to supply Canadian military recovery vehicles, and management sees normalized chassis deliveries and backlog health in 2H 2025 and beyond.

Notable quotes:

• “2024 was another record year… Looking to 2025… we are scheduled to launch multiple new products… [and] anticipate… exciting developments in our military end‑markets.” — CEO William G. Miller II.
• “Our blended margin was correlated directly to product mix… chassis deliveries have become much more sporadic… [We] expect this volatility to subside… in the second half of 2025.” — CFO Deborah L. Whitmire.

What Went Wrong

• Revenue and earnings contracted YoY on lower chassis shipments: net sales down 25.1% to $221.9M; diluted EPS down to $0.91 (−37.0% YoY).
• Distributor inventory buildup and CARB/ACT regulatory limits constrained near‑term sales; management deliberately slowed chassis shipments to support dealer network health.
• SG&A rose YoY in Q4 to $19.7M (8.9% of sales) due to executive compensation, workforce investment, product launches, and military contract-related costs.

Transcript

Operator (participant)

Good day, ladies and gentlemen, and welcome to the Miller Industries Fourth Quarter and Full Year 2024 Results Conference Call. Please note this event is being recorded. At this time, I would like to turn the call over to Mike Gaudreau at FTI Consulting. Please go ahead.

Mike Gaudreau (Senior Consultant)

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 2024 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; Will Miller, President and CEO; Debbie Whitmire, Executive Vice President 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 session. 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 filed on Form 10-K and other filings with the Securities and Exchange Commission. At this time, I'd like to turn the call over to Will. Please go ahead, Will.

Will Miller (President and CEO)

Hello, and good morning. Thank you all for joining us today. Before we begin, as a reminder, and for anyone new to our story, Miller Industries is the world's largest manufacturer of towing and recovery equipment. Our products range from light, medium, and heavy-duty recovery to car carriers, specialty transport, rotators, and military recovery vehicles. We have 10 manufacturing facilities located in the United States, France, and the United Kingdom. We firmly believe our success is rooted in having the best people, product, and distribution network in the towing and recovery industry. Moving on to our results, we are extremely proud of our 2024 performance, which was another record year for Miller Industries. Our record revenue, gross profit, net income, and EPS for fiscal year 2024 are a testament to the efforts of our employees, suppliers, customers, and shareholders.

I'd like to thank our incredible team for their dedication and hard work. Their commitment has been instrumental in making this another outstanding year. Now, I'd like to turn the call over to Debbie, who will review our fourth quarter and full year financial results in more detail. Following her remarks, I'll come back with some key thoughts on our markets in 2025, a discussion on opportunities that lie ahead, and finish by addressing our capital allocation strategy and guidance.

Debbie Whitmire (EVP and CFO)

Thanks, Will, and good morning, everyone. I'll start by walking through our results for the full year and move on to our quarterly financials. Net sales for the full year were $1.26 billion compared to $1.15 billion in the prior year period, an increase of 9% driven by continued strong demand for all of our products. Gross profit for the full year was $170.8 million, or 13.6% of sales, compared to $151.9 million, or 13.2% of sales in 2023. The year-over-year improvement in gross margin was driven by an improvement in our overall product mix, which I will touch on in a few slides, and to a lesser extent, improvements in our supply chain.

Lastly, net income for the full year 2024 was $63.5 million, or $5.47 per diluted share, compared to net income for 2023 of $58.3 million, or $5.07 per diluted share, with increases of 8.9% and 7.9%, respectively. We are also incredibly proud of the fact that in 2024, we returned $11.6 million to shareholders through our industry-leading dividend and share repurchases. Returning capital to our shareholders has always been a core part of our identity and will continue to be a key area of focus as we move forward. For the fourth quarter of 2024, we generated $221.9 million in sales compared to $296.2 million in the fourth quarter of 2023, a decrease of 25.1%. The year-over-year decrease was primarily driven by a decline in chassis shipments.

For additional context, chassis shipments in the fourth quarter of 2023 were significantly elevated due to the inconsistent delivery schedule from the OEMs as they recovered from the previous supply chain disruptions. Gross profit for the fourth quarter was $33.5 million, or 15.1% of sales, compared to $38.6 million, or 13% of sales, for the same period in 2023. The margin improvement was driven largely by product mix and a relatively higher percentage of manufactured bodies compared to chassis. As we say each quarter, our gross margins vary due to product mix, particularly this quarter. I will get into further detail on those dynamics in the next slide. Net income for the fourth quarter of 2024 was $10.5 million, or $0.91 per diluted share, compared to net income of $16.7 million, or $1.45 per diluted share in the fourth quarter of 2023.

Shifting to the balance sheet, we had a cash balance of $24.3 million as of December 31, 2024, compared to $40.6 million as of September 30, 2024. A significant portion of the cash used this quarter was related to the reduction in our accounts payable, which dropped by nearly $90 million. Accounts receivable as of December 31, 2024, was $313.4 million, compared to $374 million as of September 30, 2024, a reduction of over $60 million. We expect our receivables to continue to decrease over the balance of the year as inventory levels for both Miller Industries and our distributors normalize. Inventories were $186.2 million as of December 31, 2024, compared to $190.3 million as of September 30, 2024. Slowly but surely, our inventory balance has begun decreasing as a result of our strategic investments in inventory throughout 2024 to meet the increased demand levels we were seeing.

As we move into 2025 with more of a normalized market, we anticipate an increase in our free cash flow generation. Our debt balance was $65 million at the end of the year. We feel comfortable about our current leverage position. However, we'd like to remind you that we are a debt-averse company, and reducing debt levels will be one of our focuses as cash conversion improves in 2025. We are also continuing our history of returning cash to shareholders, with the Board recently approving a quarterly cash dividend of $0.20 per share payable March 24, 2025, to shareholders of record at the close of business on March 17, 2025, the 57th consecutive quarter that the company has paid the dividend. Moving to a discussion on margins, as previously stated, our blended margin was correlated directly to our product mix.

On slide eight, you'll see that we've illustrated this dynamic visually to provide a clearer explanation. Before COVID, the spread between peaks and valleys of margins and chassis deliveries was much narrower than what we've seen post-COVID. A more narrow spread made it much easier to predict our revenues and margins quarter to quarter. Because of the increased volatility in the chassis supply chain, you can see that chassis deliveries have become much more sporadic, creating significant fluctuation in our quarterly revenues and margins since 2022. As we look ahead to the second half of 2025, we expect this volatility to subside, bringing fluctuations closer to pre-COVID levels with fewer quarter-to-quarter spikes and dips in chassis revenue. Based on everything we've seen to date, chassis OEMs now are operating on a much more predictable schedule, with reduced lead times helping to stabilize the market.

I'd like to emphasize that this graph is intended to clearly illustrate the supply chain fluctuation and is not indicative of business cyclicality. The issue hasn't been the lack of demand for chassis, but rather the cadence and quantity of chassis delivered in one given period. As I said earlier, we're confident that in the second half of 2025, that timing of chassis deliveries will normalize. Now, I'll turn the call back to Will to discuss our markets and our outlook for 2025 and beyond.

Will Miller (President and CEO)

As we head into 2025, we wanted to detail the key considerations that will likely affect our results. First, Debbie just mentioned all the dynamics at play with chassis shipments. Those sporadic deliveries cause inventory to build up in our distribution channel. It is a complicated relationship that I will get into on the next slide. Overall, inventory reduction is a double-edged sword for us. In the short term, it decreases sales. However, in the long term, it helps to ensure the health of our distribution network, stabilize the flow of product, and give us greater ability to manage our working capital and cash flow generation. Second, the rising cost of equipment ownership is a significant challenge for end-market towers. Insurance premiums on their trucks have increased, interest rates for new trucks have risen, and the value of used trucks has fluctuated, affecting trade-in values and new equipment purchases.

These rising costs continue to pressure our customers. Third, tariffs are a significant discussion for nearly every industrial company across the globe today. We recognize that there is ongoing significant uncertainty. That said, over the past few years, we have made extensive efforts to insource many parts of our supply chain, diversify our suppliers, and keep as much of our supply chain in the United States as possible. Over the past few years, we have minimized our direct exposure to China as we continue to source components from around the globe. We believe our diversity and strength of our supply chain leaves us well-positioned to navigate these uncertainties. Lastly, what perhaps is the most uncertain is the Advanced Clean Trucks regulation, which limits our ability to supply our products to customers in six large states, which I will touch on some more specifics in a few slides.

I'd like to spend some time going over the inventory picture in our distribution channel, how it has evolved over time, and what it means for us. I talked a bit about the impacts at a high level, but the chart on slide 10 really illustrates what has happened in the market. As you can see, and as Debbie alluded to, we, and in turn our distribution partners, were inundated with chassis deliveries earlier than anticipated last year, leading to a significant build-up in the distribution channel inventory. As we saw this happening through the second quarter, we made the decision to delay some deliveries in the second half of the year to allow our distributors to work through what was currently in the channel. We anticipated this would impact the third and fourth quarter equally.

However, due to the nature of chassis deliveries being out of our control, this slowdown did not take place until Q4. Our decision to delay chassis shipments was not due to a lack of demand, but because maintaining a strong dealer network is essential to our success. The levels of inventory that they were dealing with through the majority of last year were unsustainable from both an operational and a financial perspective. While this will decrease our sales in the near term, you can see that both chassis and body inventory are reducing and moving closer to optimal levels. This should not only put our distributors in a healthy financial position, but also reduce the inventory on our books and allow us to convert receivables into cash at a faster rate.

We expect to return to a synchronized flow of manufactured equipment and chassis deliveries during the second half of 2025. Moving on to CARB and the Advanced Clean Truck initiative, as of January 1 of this year, new regulations with near-zero emission standards have been adopted by certain states, which limit the amount of diesel-powered commercial vehicles that can be registered. As a result, it limits the number of vehicles we can sell in these states. We have spent significant hours in lobbying dollars working to repeal these standards, which we feel unnecessarily impact our customers downstream, who have significant demand for our products but are unable to meet these needs due to the lack of availability of products that meet the requirements of the new regulations.

We have already seen some positive momentum in our favor as states like Connecticut, Colorado, and Pennsylvania have moved away from CARB and the ACT standards. Recently, the Trump administration and the EPA have taken actions to repeal this regulation. At this point, the situation remains dynamic, making it difficult for us to forecast if and when we may be able to resume normal operations and satisfy the continued build-up of demand we have from customers in these states. That said, we are preparing for nothing to change and to work within the limits that these new standards create. Our chassis suppliers are working diligently with Cummins Engine Company to design new trucks that meet these requirements. We expect that one of our largest suppliers will begin production of a CARB-compliant chassis by the second half of the year.

The majority of Class 6 chassis suppliers plan to have CARB-compliant chassis by January of 2026. As a result, the majority of our suppliers' products should have CARB-compliant powertrains by the start of 2026. This gives us confidence that as our suppliers roll out CARB-compliant chassis, we will be well-positioned to meet customer demand in the second half of 2025, 2026, and beyond, even with no change in the current regulatory landscape. Despite the challenges impacting our business at the start of 2025, we see positive trends that support our outlook for a solid second half and beyond. A normalized backlog will allow us to more easily manage working capital, add flexibility to our distribution network, and reduce lead times, resulting in a normalized flow of products to the end customer. This will improve our balance sheet and cash flow generation, as I alluded to earlier.

A normalized supply chain environment allows us to accelerate our inventory reduction, reduce working capital, and convert accounts receivables to cash. Lastly, we plan to launch multiple new products across all product categories, which will enhance our offerings, providing better solutions to our customers, and position us for continued innovation and growth in the years ahead. Despite any anticipated near-term dip in our results, all market fundamentals give us significant confidence for the second half of 2025 and the years to come. As we have mentioned, our distribution network is strong and in a healthy position as we start 2025. They are foundational to our success, and we will continue to work strategically with them to enhance their position in the market. We also expect some macro factors such as miles driven, average age of vehicles on the road, and others to be favorable to us.

There is still strong demand for our towing and recovery products across end markets. Not only have retail delivery numbers been consistently strong, but there are also several states that will have an increased demand for our products due in part to the impacts of the ACT regulations mentioned earlier. Additionally, as we stated previously, stabilized chassis deliveries will improve our supply chain, our distribution channel, and the predictability of our quarter-to-quarter revenues and gross margins. Lastly, we are seeing a significant pickup in requests for quotes, or RFQs, for our military products globally. We were recently chosen as the supplier to Rheinmetall Canada to supply the Canadian military with 85 recovery vehicles.

While the total $230 million contract value is not solely ascribable to Miller Industries, when you combine this contract with more that may be on the horizon, military recovery vehicles could be a substantial tailwind for us in the future years. Shifting gears, I want to mention a bit about our capital allocation strategy. We mentioned earlier that there were a number of factors giving us confidence that cash flow conversion will improve this year. We would like to touch on what our priorities with that cash will be. We have always been acutely focused on returning capital to our shareholders, either through our dividend, which the Board has just increased to $0.20 per share, or our recently enacted share repurchase program. Additionally, we will continue to prioritize reducing our debt balance and interest expense, maintaining our focus on being debt-averse.

have also mentioned in the past that capacity expansion both domestically and in Europe is something we are currently monitoring closely. Our Board has recently authorized us to move forward with an EUR 8 million expansion at one of our facilities in France. Even despite a near-term slowdown, our outlook for 2026 and beyond is very strong. We will continue to evaluate our capacity needs to ensure we are well-positioned to meet future demand. Of course, innovation, automation, and investing in our people is key to what we do at Miller Industries. It is what keeps us the number one producer of towing and recovery equipment in the world. While we enter 2025 facing some challenges, we remain highly confident in the business and our outlook.

We are on track to achieve $950 million-$1 billion in revenue this year, marking our third highest performance on record and expected an EPS range from $2.90-$3.20 per diluted share. It is important to note that our guidance anticipates no change in current regulations or unknown effects of the rapidly changing tariff situation. As we have mentioned, we expect a strong balance sheet as a result of reductions in our accounts receivable and inventory, along with an anticipated increase in free cash flow. Overall, we are extremely confident in our prospects for 2026 and beyond due to the strength of demand for our products, growth opportunities with product innovation in new markets, and the increase in military activity.

As we move forward, we will continue to focus on the core philosophy that has made Miller Industries what it is today: our people, our products, and our distribution. In closing, the entire management team and I would like to thank all of our employees, suppliers, customers, and shareholders for their continued support. At this time, we'd like to open the line for any questions.

Operator (participant)

Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press Star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press Star two to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the Star keys. Your first question comes from Michael Salinsky with D.A. Davidson. Please go ahead. Good morning.

Linda Umwali (Equity Analyst)

This is Linda Umwali on for Mike. Thank you for letting us ask questions. My first question is on the 2025 outlook that you provided. Does your outlook for 2025 include financial effects on the military developments that you anticipate taking place? Could that be a source of upside to guidance, or will we mainly see announcements in 2025 and the revenue and earnings impact taking place in 2026 or 2027?

Will Miller (President and CEO)

Yeah. Most of, or at least the contract that we have to date at this moment in time is a production date beginning in late 2026, and the vast majority of production in 2027 and 2028 for the current contract. The other ones that are on the horizon have similar dates in 2026, 2027, and 2028.

Linda Umwali (Equity Analyst)

Got it. My next question, can you give us a sense of the first half of 2025 compared to the second half this year? Do you think the first and second quarters could be more like what we just saw in Q4, and then back half of 2025 is more like the run rates we saw through most of 2022 to 2024? Any calendar will be helpful.

Will Miller (President and CEO)

Yeah. I think you're right on track there. I think that Q1 and Q2 will be similar to Q4 that we just finished, with chassis shipments still being a little lower than normal. What we anticipate is to continue to build an upward momentum through the back half of the year into 2026 and beyond.

Linda Umwali (Equity Analyst)

Can we expect margin levels to be the same since the mix is going to be quite similar to Q4?

Will Miller (President and CEO)

Yeah. For the year, we anticipate margins to be relatively equal to last year.

Linda Umwali (Equity Analyst)

That makes sense. Lastly, I would like to touch on inventory. You gave us quite good detail on dealer inventories, but I wanted to double-click on that. We saw inventories were relatively flat year over year. With the anticipated decline in sales, do you see Miller liquidating a lot of working capital in 2025? If you could touch on that and talk us through how you're managing working capital, that would be helpful.

Will Miller (President and CEO)

Yeah. Our plan has been throughout last year, as our inventories peaked, is to continue to reduce inventories to historical levels. Obviously, doing that strategically and slowly so we do not put ourselves into any type of constraint situation inside our factories. Our goal is to continue to reduce working capital to historical levels. Debbie, that ran about 20% of revenue. 20% of revenue pre-COVID.

Linda Umwali (Equity Analyst)

I appreciate that. Yeah, one more. Can I ask you one more?

Will Miller (President and CEO)

Yeah, sure. Absolutely.

Linda Umwali (Equity Analyst)

Yeah. On the dealer inventories, most of the dealers are exclusive to you guys. Are you doing anything to help them navigate the next few quarters?

Will Miller (President and CEO)

No. At this time, they are all extremely healthy and working through their build-up of chassis inventory they received in the beginning of last year, making sure that they get chassis and bodies upfitted and sold and retail delivered. As you can see from the chart, starting in about November or December, they have had a rapid reduction in their inventory levels. We anticipate in the next two to four months that we should see those back at optimal levels.

Linda Umwali (Equity Analyst)

I see. Thank you so much for your time today.

Will Miller (President and CEO)

Absolutely. Thank you for the questions, Linda.

Operator (participant)

There are no further questions. I would like to turn the floor over to Will for closing remarks.

Will Miller (President and CEO)

Thank you. I'd like to thank you all again for joining us on the call today. We look forward to speaking with you on our first quarter conference call. If you'd like information on how to participate and ask questions on the call, please visit our investor relations website at millerind.com/investors or email [email protected]. Thank you all, and God bless.