Good day, ladies and gentlemen, and welcome to the Miller Industries Second Quarter 2020 Results Conference Call. Please note this event is being recorded. And now at this time, I would like to turn the call over to Brendan Dunlap 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 2020 second quarter results, which were released after the close of the market yesterday. With us from the management team today are Bill Miller, Chairman of the Board; Will Miller, President and Co-CEO; Jeff Badgley, Co-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 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 formally 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. Please go ahead, Jeff.

Thank you, and good morning, everyone. Over the last few months, we have experienced an unprecedented health and economic crisis due to the COVID-19 pandemic. Despite the uncertainty caused by this crisis, Miller Industries has remained committed to providing best-in-class products to keep roadways clear around the globe. Moving on to our financial results. Our performance during the quarter was significantly impacted by COVID-related shutdowns at our facilities as well as shutdowns in our supply chain, which resulted in a decline in top-line sales. Revenue during the second quarter decreased 42.2% to $128.5 million versus $222.3 million a year ago, as the economy was impacted by COVID-19 and shutdowns in our supply chain reduced our production levels. That said, we were able to quickly adjust our operations to reduce costs and minimize overall inefficiencies while continuing to meet the needs of our customers. Quarterly gross profits decreased by 29.7% year-over-year to $17.7 million. However, our gross margin expanded approximately 250 basis points year-over-year to 13.8% due to favorable product mix and operational adjustments made during the quarter. Net income was $5.8 million or $0.51 per share compared to net income of $10.7 million or $0.94 per share in the second quarter of 2019. Although market conditions remain unpredictable, we are confident in our ability to continue meeting the needs of our customers while maintaining stringent social distancing, sanitary protocols, and other governmental guidelines to protect the health and safety of our employees. As we move into the second half of the year, we are working closely with our distribution network as they adjust their inventory to meet customer demand. Further, we continue to invest in technological improvements in our production facilities to increase overall production efficiency and enhance the safety of our employees. I am pleased to announce that the rollout of these improvements is progressing as planned. Despite the ongoing uncertainty in the broader market, these improvements will position us well to capitalize on future growth when the COVID-19 crisis subsides. Now I'll turn the call over to Debbie, who will review the second-quarter financial results. After that, I'll be back with comments about the market environment and some closing remarks.

Thanks, Jeff, and good morning, everyone. Net sales for the second quarter 2020 were $128.5 million versus $222.3 million for the second quarter of 2019, a 42.2% year-over-year decrease, driven by ongoing impacts from the COVID-19 pandemic. Cost of operations decreased 43.8% to $110.8 million for the second quarter of 2020 compared to $197.1 million in the second quarter of 2019 due to the decline in our top-line sales. Cost of operations as a percentage of net sales declined approximately 250 basis points to 86.2% from the prior year period. Gross profit was $17.7 million or 13.8% of net sales for the second quarter of 2020 compared to $25.2 million or 11.3% of net sales for the second quarter of 2019, reflecting favorable product mix and by minimizing operational inefficiencies as a result of adjusting production schedules and eliminating overtime. SG&A expenses were $10.1 million for the second quarter 2020 compared to $11 million for the second quarter 2019. As a percentage of sales, SG&A increased approximately 290 basis points to 7.8% from 4.9% in the prior year period. Interest expense net for the second quarter 2020 was $429,000 compared to $721,000 for the second quarter 2019, as we paid down our credit facility and saw decreases in floor plan interest payments. Other income expense for the second quarter 2020 was a net income of $275,000 compared to a net expense of $57,000 for the second quarter 2019 due to currency exchange rate fluctuations. Net income for the second quarter 2020 was $5.8 million or $0.51 per share. Net income for the second quarter of 2019 was $10.7 million or $0.94 per share. Now let me briefly review our results for the six months ended June 30, 2020. Net sales for the first six months of 2020 were $304.6 million compared to $419.6 million in the prior year period, a decrease of 27.4%. Gross profit for the six months ended June 30, 2020, was $36.3 million or 11.9% of sales compared to $47.8 million or 11.4% of sales for the first six months of 2019. Net income for the first six months of 2020 was $11.3 million or $0.99 per share, a decrease of 41.8% compared to net income for the first six months of 2019 of $19.3 million or $1.70 per share. Now turning to our balance sheet. Cash and cash equivalents as of June 30, 2020, were $37.1 million compared to $43.1 million as of March 31, 2020, and $26.1 million as of December 31, 2019. Accounts receivable at June 30, 2020, totaled $123.2 million compared to $168.9 million as of March 31, 2020, and $168.6 million as of December 31, 2019. Inventories were $90.9 million as of June 30, 2020, compared to $92.6 million as of March 31, 2020, and $88 million as of December 31, 2019. Accounts payable at June 30, 2020, was $59.5 million compared to $96.8 million as of March 31, 2020, and $95.8 million as of December 31, 2019. As you recall, in our first quarter earnings call, we preemptively drew down $25 million from our existing credit facility to ensure that we had sufficient liquidity to weather the COVID-19 crisis. During the second quarter, we repaid the $25 million we borrowed during the first quarter, reducing our current credit facility balance to $5 million, as we are now confident that we have adequate liquidity to weather foreseeable impacts of the pandemic. Overall, our balance sheet remains strong, and we believe we have sufficient capital resources to handle the challenging environment. Lastly, the company also announced that its board of directors approved our quarterly cash dividend of $0.18 per share, payable September 14, 2020, to shareholders of record at the close of business on September 7, 2020. Now I'll turn the call back to Jeff for further remarks.

Thank you, Debbie. Will Miller and I are very proud of the continued dedication of our employees throughout the ongoing pandemic. Our unwavering commitment to operational excellence and best-in-class customer service provides us with the expertise and capability to meet the needs of our customers despite the challenging economic environment while taking precautions to provide a safe work environment for our employees. Additionally, we remain dedicated to returning capital to shareholders, as evidenced by our declared dividend of $0.18 per share. The strength of our balance sheet and our ample liquidity provides us the financial flexibility needed to persevere through these challenging times. As we move into the second half of the year, the COVID-19 situation remains fluid, and we anticipate that the pandemic will continue to have a material adverse impact on our business. Going forward, we will continue to monitor the COVID-19 situation and attempt to actively mitigate any future impacts on the business. Although it is impossible to predict when these circumstances will be resolved, we are confident that our ongoing operational improvements and healthy balance sheet position us favorably to emerge from this crisis as a stronger and more efficient company than ever before. In closing, I'd like to thank our employees, customers, suppliers, and shareholders for their ongoing support of Miller Industries. Thank you again for joining us this morning. And operator, please open the line for questions.

Our first question is from James Lee with Potrero Capital.

Good morning. Could you update us on the status of your supply chain and manufacturing facility issues?

Jim, I'm sorry, would you repeat that question?

Can I get an update on your supply chain issues and the production issues related to COVID? What percentage of your operations have returned to pre-COVID levels?

Currently, Jim, most of our major supply chain issues have been solved or somewhat mitigated. We have taken steps where we did have problems to find alternative supplies. In regard to our own facilities, due to those issues in the second quarter, we had some plant closures. They happened at the end of the second quarter, and some of those closures extended into the beginning of the third quarter, but we are now fully operational.

Got it. So is it fair to say that you can supply whatever demand you're seeing right now, 100%?

We are certainly able to supply to our customer level of demand. Yes.

Can you describe the current demand environment? Are you seeing demand return to pre-COVID levels, and how much of the sales decline in Q2 was due to supply and facility issues compared to demand issues?

Well, as we entered Q2, we had a fairly large backlog. That backlog was driven by a very strong market condition from the end users. That backlog as we entered Q2, and there were closures and also stay-at-home orders. We gave our distributors an opportunity to look at what they had on order from us to make sure they were not in an oversupply position based on current economic conditions. We continue to build but we did give them an opportunity to lower or in fact, cancel certain orders if they felt uncertain about their customers' desire to take the product. Coming out of the stay-at-home orders, and I apologize, let me back up a little bit. Those stay-at-home orders impacted, in particular, a couple of segments of what we build, particularly in the light-duty segments, both the carriers and wreckers. As we entered into and passed opening up or the beginning of the economy opening up, we started to see a tick-up of orders from our distributors. And that tick-up is still progressing today, although I haven't done the math. I don't know where we are from an order entry level, Will, pre-COVID to now, where are you domestically?

I think over the past four weeks to six weeks, we've seen an increase back in orders from domestic distribution in that 70% range after our backlog shrank substantially. I believe that we're building products to meet customers' demand at the appropriate rate at this time.

Right. But Jim, I mean, both Will and I, in particular, are monitoring our distributor inventory levels, along with our VP of Sales, Vince Tiano, to make sure that they are not putting themselves in a position that may weaken them in the future. On the international side, I would say France is ticking back up and probably are somewhere in the neighborhood of, I wouldn't say 70%, but maybe 60% of pre-COVID in terms of order entry. The U.K., however, is probably at 35% to 40% of pre-COVID.

Got it. How do you think about the impact of the stay-at-home situation on some of your products, given that miles driven are likely still below pre-COVID levels? How do you anticipate this will affect demand going forward, considering there may be a reduced need for tow trucks or lighter loads being carried?

Yes, it's Will. I believe that, certainly, in the domestic and the U.S. market, miles driven certainly affects our end users' demand at our distributor level. Although as areas have opened back up, we've seen distribution in those major metropolitan areas start to pick up rapidly as well. I think you're certainly seeing it regionally based. Those regions that are opening back up, and people are back out on the road, you're starting to see distribution recover. Certainly in areas in the Northeast and California, where those closures or the openings are much slower, there's a lot slower level of travel and distribution is slower to recover.

Will, this is Bill. And at the same time, we also realized that the U.S. auto fleet, as we consider it, is at its oldest age. So that does have some impact. I think it's up to 16 years on average or something. So we'll see what happens.

You mentioned earlier that you're monitoring your dealer inventory. Can you discuss the condition of your dealers and the end customers, specifically the tow truck owners? I imagine that in this environment, they are likely facing challenges. Are there potential financial issues, possibly even bankruptcies, affecting the end customers or the dealers?

No. I believe our distribution network is extremely healthy and strong. Certainly, giving them the opportunity to cancel any orders that they felt that they were overstocked helped not put them in a cash position or a negative cash position, talking to end users from around the country. Certainly, a lot of them took advantage of the PPP money that was afforded to them. And for the most part, they seem to be extremely positive. At this time, I've not heard of any major fleets and certainly not any of our distributors in a financially negative position.

What about the tow truck? Have you heard anything on that side?

No. As the operators as well. I mean, they took advantage of PPP money, and they seem to be all relatively positive for the outlook in the future.

You mentioned earlier that you allowed your dealers to cancel orders. What have you observed regarding order cancellations?

We gave them a one-week window to cancel specific orders, things that weren't already in the production window that had not been scheduled. So there was a specific time period of when they could cancel the orders and what orders they could cancel. I can't recall off the top of my head exactly how many, but it was probably less than 10% of total orders in our backlog that got canceled at that time. It was, quite frankly, almost insignificant with the length of our backlog that we had. Our backlog still remains to be extremely healthy.

Yes. The cancellations, as Will said, were probably around 10%. But at the height of the pandemic closures and stay-at-home orders, what was really evident was six to eight weeks of extremely low order entry rates. And we continue to the best of our ability to produce. So although there weren't a lot of cancellations, we did have a dry spell, what I would call, a dry spell in order entry that now, as Will had suggested or told you, we were back to about 70% of pre-COVID levels.

Got it. What percentage of your sales could come from government orders?

I'm sorry, could you repeat the question? Debbie, do you have that number? Are you referring to new order entry or to deliveries?

I would like to understand what percentage of your business comes from government orders and whether those government contracts are more stable compared to private operators.

The government orders delivered in the second quarter were approximately $9 million to $10 million. In terms of order entry, we've seen pushback on a variety of government projects, not canceled, not withdrawn, but pushed back in the timeframe.

Okay. Last question is on CapEx. I noticed that you guys are looking at what seems like an incremental $10 million new CapEx for the Tennessee plant. I recall that two to three years ago, you guys had elevated CapEx for retooling your plants. And so I'm a little surprised that there's more CapEx so shortly after. Is this something that we should expect every two or three years, you're going to have elevated CapEx for pre-plants?

I'm going to turn that question over to Will. Will, do you want to?

No. Going through the pandemic and looking at production rates and the efficiencies that we had seen from our capital expenditures in the past in both our Pennsylvania facilities and our Chattanooga, Ooltewah facility. We had excess capacity from a labor standpoint in our Greenville, Tennessee facility. As we look through the pandemic, we took an opportunity at this time to invest in some state-of-the-art fabrication equipment, and we're taking a portion of our Greenville facility and insourcing some of our outsourced fabrication that we currently purchase to vertically integrate our production process. So it's not something that I would necessarily say would happen every couple of years. However, with our balance sheet and debt level being where it is, we felt that it was an opportunity to vertically integrate.

It also, I think besides vertical integration, the pandemic pointed to the fact that there were some supply chain issues. And some of those issues could be satisfied if, in fact, they were under our own control. So we've made the decision, which is backed by the Board to make those investments in Greenville, not only to enhance our efficiencies, but to protect our market.

Okay. So it sounds like the main benefit you guys are looking for is to help mitigate future supply chain issues by bringing some of the production in-house?

Absolutely.

It would also have a benefit on the gross margin line as well?

Absolutely.

Bill?

Yes.

I didn't hear your answer.

My answer was absolutely. We wouldn't be doing this project if it didn't help on the gross margin line as well as protect us from supply chain issues.

I’m showing no further questions. I’ll turn it back to the presenters for closing remarks.

Thank you, operator, and thank you again for joining us on the call today. And we look forward to speaking with you again on our third quarter results conference call. Thanks.

Ladies and gentlemen, this concludes today's call. We thank you for your participation and ask you to please disconnect your lines.