MILLER INDUSTRIES INC /TN/ [MLR] Filings

10-Q 1 mlr-20230630x10q.htm 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended	June 30, 2023


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________________________________________ to ________________________________________


Commission file number	001-14124

MILLER INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

Tennessee		62-1566286
(State or other jurisdiction of incorporation or		(I.R.S. Employer Identification No.)
organization)

8503 Hilltop Drive
Ooltewah, Tennessee		37363
(Address of principal executive offices)		(Zip Code)

(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)

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


Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Common Stock, par value $0.01 per share	MLR	New York Stock Exchange

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 (§232.405 of this chapter) 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:

	Large accelerated filer ☐	Accelerated filer ☒

	Non-accelerated filer ☐	Smaller reporting company ☒

	Emerging growth company ☐

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 July 31, 2023 was 11,445,640.

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Index


			Page Number
PART I	FINANCIAL INFORMATION

	Item 1.	Financial Statements.

		Condensed Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022	3

		Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2023 and 2022	4

		Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2023 and 2022	5

		Condensed Consolidated Statements of Shareholders’ Equity for the Three and Six Months Ended June 30, 2023 and 2022	6

		Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2023 and 2022	7

		Notes to Condensed Consolidated Financial Statements	8

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	16

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	19

	Item 4.	Controls and Procedures.	20

PART II		OTHER INFORMATION

	Item 1.	Legal Proceedings.	21

	Item 1A.	Risk Factors.	21

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	21

	Item 3.	Defaults Upon Senior Securities.	21

	Item 4.	Mine Safety Disclosures.	21

	Item 5.	Other Information.	21

	Item 6.	Exhibits.	23

SIGNATURES			25

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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 are forward-looking statements. 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:

●

changes in price, delivery delays and decreased availability of component parts, chassis and raw materials, including aluminum, steel, and petroleum-related products, resulting from changes in demand and market conditions, the general inflationary environment, the war in Ukraine, and the lingering effects of the COVID-19 pandemic on supply chains;

●

economic and market conditions, including the negative impacts on the Company’s customers, suppliers and employees from inflationary pressures, higher interest rates, and economic and geopolitical uncertainties (including the war in Ukraine);

●

our dependence upon outside suppliers for purchased component parts, chassis and raw materials, including aluminum, steel, and petroleum-related products;

●

future impacts resulting from the war in Ukraine, which include or could include (among other effects) disruption in global commodity and other markets, increased prices for energy, supply shortages and supplier financial risk;

●

increased labor costs and the ability to attract and retain skilled labor to manufacture our products;

●

the potential negative impacts of higher interest rates and other actions taken by the federal government in response to economic volatility and inflationary pressures, including the impact on our customers’ and end users’ access to capital and credit to fund purchases;

●

our ability to raise capital, including to grow our business, pursue strategic investments, and take advantage of financing or other opportunities that we believe to be in the best interests of the Company and our shareholders due to the significant additional indebtedness we incurred during 2022 and 2023;

●

the cyclical nature of our industry and changes in consumer confidence;

●

special risks from our sales to U.S. and other governmental entities through prime contractors;

●

changes in fuel and other transportation costs, insurance costs and weather conditions;

●

changes in government regulations, including environmental and health and safety regulations;

●

failure to comply with domestic and foreign anti-corruption laws;

●

competition in our industry and our ability to attract or retain customers;

●

our ability to develop or acquire proprietary products and technology;

●

assertions against us relating to intellectual property rights;

●

changes in foreign currency exchange rates and interest rates;

●

changes in the tax regimes and related government policies and regulations in the countries in which we operate;

●

the effects of regulations relating to conflict minerals;

●

the catastrophic loss of one of our manufacturing facilities;

●

environmental and health and safety liabilities and requirements;

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●

loss of the services of our key executives;

●

product warranty or product liability claims in excess of our insurance coverage;

●

potential recalls of components or parts manufactured for us by suppliers or potential recalls of defective products;

●

an inability to acquire insurance at commercially reasonable rates;

●

a disruption in, or breach in security of, our information technology systems or any violation of data protection laws; and

●

those other risks discussed in our other filings with the Securities and Exchange Commission, including those risks discussed under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022, which discussion is incorporated herein by this reference.

Given these uncertainties, you should not place undue reliance on these forward-looking statements. You should read this Quarterly Report and the documents that we reference in this report and have filed as exhibits to the report completely and with the understanding that our actual future results may be materially different from what we expect. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this report. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

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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)


	June 30,
	2023		December 31,
	(Unaudited)		2022
ASSETS
CURRENT ASSETS:
Cash and temporary investments	$	30,502	$	40,153
Accounts receivable, net of allowance for credit losses of $1,412 and $1,319 at June 30, 2023 and December 31, 2022, respectively		264,542		177,663
Inventories, net		167,458		153,656
Prepaid expenses		6,393		4,576
Total current assets		468,895		376,048
NONCURRENT ASSETS:
Property, plant and equipment, net		116,055		112,145
Right-of-use assets - operating leases		770		909
Goodwill		20,594		11,619
Other assets		681		708
TOTAL ASSETS	$	606,995	$	501,429

LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	188,869	$	125,500
Accrued liabilities		34,537		27,904
Income taxes payable		882		2,430
Current portion of operating lease obligation		311		311
Total current liabilities		224,599		156,145
NONCURRENT LIABILITIES:
Long-term obligations		60,000		45,000
Noncurrent portion of operating lease obligation		496		597
Deferred income tax liabilities		6,182		6,230
Total liabilities		291,277		207,972

COMMITMENTS AND CONTINGENCIES (Note 8)

SHAREHOLDERS’ EQUITY:
Preferred stock, $0.01 par value; 5,000,000 shares authorized, none issued or outstanding		—		—
Common stock, $0.01 par value; 100,000,000 shares authorized, 11,445,640 and 11,416,716 outstanding at June 30, 2023 and December 31, 2022, respectively		114		114
Additional paid-in capital		152,746		152,392
Accumulated surplus		170,141		150,124
Accumulated other comprehensive loss		(7,283)		(9,173)
Total shareholders’ equity		315,718		293,457
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	606,995	$	501,429

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)


	Three Months Ended				Six Months Ended
	June 30				June 30
	2023		2022		2023		2022

NET SALES	$	300,264	$	201,500	$	582,539	$	417,045
COSTS OF OPERATIONS		260,335		183,126		512,194		383,331
GROSS PROFIT		39,929		18,374		70,345		33,714

OPERATING EXPENSES:
Selling, general and administrative expenses		19,480		12,651		37,403		25,037

NON-OPERATING (INCOME) EXPENSES:
Interest expense, net		1,700		628		2,713		1,046
Other (income) expense, net		(229)		275		(548)		327
Total expense, net		20,951		13,554		39,568		26,410

INCOME BEFORE INCOME TAXES		18,978		4,820		30,777		7,304
INCOME TAX PROVISION		4,063		1,063		6,642		1,482
NET INCOME	$	14,915	$	3,757	$	24,135	$	5,822

BASIC INCOME PER COMMON SHARE	$	1.30	$	0.33	$	2.11	$	0.51
DILUTED INCOME PER COMMON SHARE	$	1.29	$	0.33	$	2.10	$	0.51

CASH DIVIDENDS DECLARED PER COMMON SHARE	$	0.18	$	0.18	$	0.36	$	0.36

WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic		11,466		11,417		11,425		11,417
Diluted		11,526		11,417		11,477		11,421

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)


	Three Months Ended				Six Months Ended
	June 30				June 30
	2023		2022		2023		2022
NET INCOME	$	14,915	$	3,757	$	24,135	$	5,822

OTHER COMPREHENSIVE INCOME (LOSS):
Foreign currency translation adjustment		911		(2,305)		1,890		(2,280)
Total other comprehensive income (loss)		911		(2,305)		1,890		(2,280)

COMPREHENSIVE INCOME	$	15,826	$	1,452	$	26,025	$	3,542

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 and per share data)

(Unaudited)


							Accumulated
			Additional				Other
	Common		Paid-In		Accumulated		Comprehensive
	Stock		Capital		Surplus		Loss		Total
BALANCE, December 31, 2021 (Revised)	$	114	$	151,449	$	137,998	$	(4,945)	$	284,616
Components of comprehensive income:
Net income		—		—		2,065		—		2,065
Foreign currency translation adjustment		—		—		—		25		25
Total comprehensive income		—		—		2,065		25		2,090
Issuance of common stock to non-employee directors (5,988)		—		200		—		—		200
Stock-based compensation on nonvested restricted stock units		—		75		—		—		75
Dividends paid, $0.18 per share		—		—		(2,055)		—		(2,055)
BALANCE, March 31, 2022 (Revised)	$	114	$	151,724	$	138,008	$	(4,920)	$	284,926
Components of comprehensive income:
Net income		—		—		3,757		—		3,757
Foreign currency translation adjustment		—		—		—		(2,305)		(2,305)
Total comprehensive income		—		—		3,757		(2,305)		1,452
Stock-based compensation on nonvested restricted stock units		—		222		—		—		222
Dividends paid, $0.18 per share		—		—		(2,054)		—		(2,054)
BALANCE, June 30, 2022 (Revised)		114		151,946		139,711		(7,225)		284,546

BALANCE, December 31, 2022	$	114	$	152,392	$	150,124	$	(9,173)	$	293,457
Components of comprehensive income:
Net income		—		—		9,220		—		9,220
Foreign currency translation adjustment		—		—		—		979		979
Total comprehensive income		—		—		9,220		979		10,199
Provision for restricted stock units to non-employee directors (2,302)		—		61		—		—		61
Stock-based compensation on nonvested restricted stock units		—		223		—		—		223
Vesting of executive restricted stock units		—		(214)		—		—		(214)
Dividends paid, $0.18 per share		—		—		(2,059)		—		(2,059)
BALANCE, March 31, 2023	$	114	$	152,462	$	157,285	$	(8,194)	$	301,667
Components of comprehensive income:
Net income		—		—		14,915		—		14,915
Foreign currency translation adjustment		—		—		—		911		911
Total comprehensive income		—		—		14,915		911		15,826
Stock-based compensation on nonvested restricted stock units		—		223		—		—		223
Issuance of restricted stock units to non-employee directors (4,604)				61		—				61
Dividends paid, $0.18 per share		—		—		(2,059)		—		(2,059)
BALANCE, June 30, 2023	$	114	$	152,746	$	170,141	$	(7,283)	$	315,718

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)


	Six Months Ended
	June 30
	2023		2022
OPERATING ACTIVITIES:
Net income	$	24,135	$	5,822
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and amortization		6,361		5,623
(Gain) Loss on disposal of property, plant and equipment		1		(36)
Provision for credit losses		90		81
Issuance of non-employee director shares		123		200
Stock-based compensation on nonvested restricted stock units		231		297
Deferred tax provision		(44)		56
Changes in operating assets and liabilities:
Accounts receivable		(84,227)		(37,708)
Inventories		(9,407)		(27,482)
Prepaid expenses		(1,714)		(1,716)
Other assets		198		34
Accounts payable		62,508		19,194
Accrued liabilities		4,655		808
Net cash flows from operating activities		2,910		(34,827)
INVESTING ACTIVITIES:
Purchases of property, plant and equipment		(6,610)		(22,840)
Proceeds from sale of property, plant and equipment		239		8
Acquisition of business		(17,802)		—
Net cash flows from investing activities		(24,173)		(22,832)
FINANCING ACTIVITIES:
Net borrowings under credit facility		15,000		40,000
Payments of cash dividends		(4,119)		(4,109)
Finance lease obligation payments		—		(11)
Net cash flows from financing activities		10,881		35,880
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND TEMPORARY INVESTMENTS		731		(1,424)
NET CHANGE IN CASH AND TEMPORARY INVESTMENTS		(9,651)		(23,203)
CASH AND TEMPORARY INVESTMENTS, beginning of period		40,153		54,332
CASH AND TEMPORARY INVESTMENTS, end of period	$	30,502	$	31,129
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash payments for interest	$	3,473	$	1,022
Cash payments for income taxes, net of refunds	$	8,268	$	1,496

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 as otherwise noted)

1. BASIS OF PRESENTATION

The condensed consolidated financial statements of Miller Industries, Inc. and subsidiaries (the “Company”) included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. Nevertheless, the Company believes that the disclosures are adequate to make the financial information presented not misleading. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, which are of a normal recurring nature, to present fairly the Company’s financial position, results of operations and cash flows at the dates and for the periods presented. Interim results of operations are not necessarily indicative of results to be expected for the fiscal year.

These condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. The condensed consolidated financial statements include accounts of certain subsidiaries whose fiscal closing dates differ from December 31^st by 31 days (or less) to facilitate timely reporting.

2. RECENT ACCOUNTING PRONOUNCEMENTS

Recently Adopted Standards

During the first quarter of 2023, the Company adopted ASU 2021-08, Business Combinations (Topic 805) which requires the Company to measure and recognize contract assets and contract liabilities when purchased as part of a business combination. According to the guidance, the acquirer must follow ASC Topic 606 in accounting for the contract asset or contract liability being purchased. The amendments in the update were effective for financial statements beginning after December 15, 2022, including interim periods within those fiscal years. The Company has applied the amendments prospectively. The adoption of this update did not have a material impact on the Company’s condensed consolidated financial statements and related disclosures.

Also during the first quarter of 2023, the Company adopted ASU 2022-02, Financial Instruments – Credit Losses (Topic 326). The update requires entities with financing receivables to disclose gross write-offs by year of origination of the receivable. The amendments in the update were effective for financial statements beginning after December 15, 2022, including interim periods within those fiscal years, and has been applied prospectively. The adoption of this update did not have a material impact on the condensed Company’s consolidated financial statements and related disclosures.

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3. BUSINESS COMBINATIONS

On May 31, 2023, the Company acquired substantially all of the assets and assumed certain liabilities of Southern Hydraulic Cylinder, Inc., (“SHC”), a Tennessee corporation. SHC manufactures, sells and services hydraulic cylinders and related components. The operations of SHC align with those of the Company, which management believes will bolster its efforts to enhance the stability of the Company’s supply chain.

The purchase price totaling approximately $17.8 million was comprised of cash on hand and by drawing on the existing revolving credit facility.

The preliminary allocation of the consideration for the net assets acquired from the acquisition of SHC were as follows:


Sources of financing
Cash	$	17,802
Fair value of consideration transferred		17,802

Fair value of assets and liabilities
Accounts receivable		2,244
Fixed assets		3,735
Inventory		3,385
Prepaid insurance		93
Total identifiable assets acquired		9,457

Assumed liabilities		630
Goodwill	$	8,975

The acquired business contributed revenues of $919 and earnings of $33 to the Company for the period from June 1, 2023 to June 30, 2023. Earnings for the period include adjustments made for the elimination of intercompany sales and profits, as well as sales of finished goods recorded at market value as part of the acquisition. The following unaudited pro forma summary presents consolidated information of the Company as if the business combination had occurred on January 1, 2022.


	Pro forma for six months ended (unaudited) June 30,
	2023		2022
Revenue	$	588,469	$	423,251
Earnings	$	25,742	$	6,272

The Company did not have any material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings.

The goodwill is attributable to the workforce of the acquired business and the significant synergies expected to arise after the Company’s acquisition of Southern Hydraulic Cylinder, Inc.

The goodwill is not deductible for tax purposes.

The fair value of the assets acquired includes trade receivables of $2,244 that are not purchased financial assets with credit deterioration. The Company does not anticipate any markdowns of trade receivables or corresponding credit losses.

The initial accounting is incomplete due to the timing of the closing in relation to this quarterly filing. The Company is still evaluating the value of certain assets acquired and will be obtaining a third-party valuation. Any adjustments to the value of assets, such as intangible assets, fixed assets or inventory, will be disclosed in future filings.

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Transaction costs incurred in the acquisition were not material and were primarily related to legal, accounting and consulting services and were expensed as incurred through June 30, 2023 and are included in Selling, General and Administrative expenses in the condensed consolidated statements of operations.

The allocations of the fair value of the acquired business were based on preliminary valuations of the estimated net fair value of the assets acquired and liabilities assumed. The fair value estimates are subject to adjustment during the measurement period (up to one year from the acquisition date). The fair values of the net assets acquired are based on management’s estimates and assumptions, as well as other information compiled by management. During the measurement period, we will adjust preliminary valuations assigned to assets and liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date, if any, that, if known, would have resulted in revised values for these items as of that date. The net working capital adjustment related to the acquisitions are estimated as of the closing date and will be adjusted based on that estimate. Net working capital adjustments, if any, will be recorded in other assets on the condensed consolidated balance sheet. The impact of all changes, if any, that do not qualify as measurement period adjustments are included in current period earnings.

4. BASIC AND DILUTED INCOME PER COMMON SHARE

Basic and diluted income per common share were calculated using the following:


	Three Months Ended				Six Months Ended
	June 30				June 30
	2023		2022		2023		2022

Net Income	$	14,915	$	3,757	$	24,135	$	5,822

Basic and Diluted Common Shares
Weighted Average Shares Outstanding - Basic		11,466		11,417		11,425		11,417
Dilution for Assumed Exercises of Nonvested Restricted Stock Units		60		—		52		4
Weighted Average Common Shares Outstanding - Diluted		11,526		11,417		11,477		11,421

Basic income per common share is computed by dividing net income by the weighted average number of common shares outstanding. Diluted income per common share is calculated by dividing net income by the weighted average number of common and potential dilutive common shares outstanding. The Company uses the treasury stock method to account for the effect of nonvested restricted stock units on the computation of diluted income per share. For the three months ended June 30, 2023, 128 thousand nonvested restricted stock units would have been anti-dilutive. There were 5 thousand restricted stock units that vested in June 2023, with 29 thousand shares being issued and no shares being forfeited. For the six months ended June 30, 2023, 128 thousand of the nonvested restricted stock units would have been anti-dilutive. For the three months ended June 30, 2022, 160 thousand nonvested restricted stock units would have been anti-dilutive. For the six months ended June 30, 2022, none of the nonvested restricted stock units would have been anti-dilutive.

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5. REVENUE

Substantially all of our revenue is generated from sales of towing and recovery equipment. As such, disaggregation of revenue by product line would not provide useful information because all product lines have substantially similar characteristics. However, revenue streams are tracked by the geographic location of customers. This disaggregated information is presented in the table below.


	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Net Sales:
North America	$	272,320	$	185,635	$	530,487	$	379,986
Foreign		27,944		15,865		52,052		37,059
	$	300,264	$	201,500	$	582,539	$	417,045

Revenue is recognized when obligations under the terms of a contract with a customer are satisfied. Except for certain extended service contracts on a small percentage of units sold, the Company’s performance obligations are satisfied, and sales revenue is recognized when products are shipped from the Company’s facilities. From time to time, revenue is recognized under a bill and hold arrangement. Recognition of revenue on bill and hold arrangements occurs when control transfers to the customer. The bill and hold arrangement must be substantive, and the product must be separately identified as belonging to the customer, ready for physical transfer, and unavailable to be used or directed to another customer.

Revenue is measured as the amount of consideration expected to be received in exchange for the transfer of products. Sales and other taxes collected concurrent with revenue-producing activities are excluded from revenue. Warranty related costs are recognized as an expense at the time products are sold and a reserve is established. Depending on the terms of the arrangement, for certain contracts the Company may defer the recognition of a portion of the consideration received because a future obligation has not yet been satisfied, such as an extended service contract. An observable price is used to determine the stand-alone selling price for separate performance obligations or a cost plus margin approach is utilized when one is not available.

Contract assets primarily relate to the Company’s rights to consideration for work completed but not billed at the reporting date. The contract assets are transferred to receivables when the rights become unconditional. Contract liabilities primarily relate to performance obligations to be satisfied in the future. For both June 30, 2023 and December 31, 2022, contract liability balances were $242, and are included in accrued liabilities on the condensed consolidated balance sheets. No revenue related to contract liability balances was recognized during the three and six months ended June 30, 2023, or during the three and six months ended June 30, 2022. The Company did not have any contract assets at June 30, 2023 or December 31, 2022.

The Company extends credit to customers in the normal course of business. Collections from customers are continuously monitored and an allowance for credit losses is maintained based on historical experience adjusted for current conditions and forecasts capturing country and industry-specific economic factors. The Company also considers any specific customer collection issues. Since the Company’s trade receivables are largely similar, the Company evaluates its allowance for credit losses as one portfolio segment. At origination, the Company evaluates credit risk based on a variety of credit quality factors including prior payment experience, customer financial information, credit ratings, probabilities of default, industry trends and other internal metrics. On an ongoing basis, data by each major customer is regularly reviewed based on past-due status to evaluate the adequacy of the allowance for credit losses and actual write-offs are charged against the allowance. Terms on accounts receivable vary and are based on specific terms agreed upon with each customer. Write-offs of accounts receivable were de minimis during the three and six months ended June 30, 2023 and during the three and six months ended June 30, 2022.

Trade accounts receivable are generally diversified due to the number of entities comprising the Company’s customer base and their dispersion across many geographic regions. The Company also frequently monitors the creditworthiness of the customers to whom the credit is granted in the normal course of business. No one customer made up more than 10% of total Company sales during the three and six months ended June 30, 2023. Sales from one customer made up approximately 10.0% of total Company sales during the three and six months ended June 30, 2022. There were no customers with accounts receivable greater than 10% of total accounts receivable at June 30, 2023. Accounts receivable from one customer made up approximately 10% of total Company trade accounts receivable at June 30, 2023 and December 31, 2022.

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6. INVENTORIES

Inventory costs include materials, labor and factory overhead. Inventories are stated at the lower of cost or net realizable value, determined on a moving average unit cost basis. Appropriate consideration is given to obsolescence, valuation and other factors in determining net realizable value. Revisions of these estimates could result in the need for adjustments. Inventories, net of reserves, at June 30, 2023 and December 31, 2022 consisted of the following:


	June 30,		December 31,
	2023		2022
Chassis	$	14,888	$	18,604
Raw materials		84,729		75,934
Work in process		43,129		40,655
Finished goods		24,712		18,463
	$	167,458	$	153,656

7. LONG-TERM OBLIGATIONS

Credit Facility

The Company’s current loan agreement with First Horizon Bank, which governs its existing $100.0 million 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 2022 and during the first six months of 2023, and it is anticipated that the Company will continue to be in compliance for the foreseeable future.

In absence of a default, all borrowings under the credit facility bear interest at the one month Term SOFR 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 retained $60.0 million in outstanding borrowings under its credit facility at June 30, 2023. At June 30, 2023 and December 31, 2022, the Company had cash and temporary investments of $30,502 and $40,153, respectively.

8. COMMITMENTS AND CONTINGENCIES

Leasing Activities

The Company leases certain equipment and facilities under long-term non-cancellable operating and finance lease agreements. The leases expire at various dates through 2027. Certain of the lease agreements contain renewal options. For those leases that have renewal options, the Company included these renewal periods in the lease term if the Company determined it was reasonably certain to exercise the renewal option. Lease payments during such renewal periods were also considered in the calculation of right-of-use assets and lease obligations.

Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease obligations represent the Company’s obligation to make lease payments arising from the lease. Lease obligations are recognized at the commencement date based on the present value of lease payments over the lease term. Right-of-use assets are recognized at the commencement date as the initial measurement of the lease liability, plus payments made prior to lease commencement and any initial direct costs. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Expense is recognized on a straight-line basis over the lease term for operating leases. For finance leases, expense is recognized as the expense from straight-line amortization of the right-of-use asset plus the periodic interest expense from the lease obligation. Short-term leases have a lease term of twelve months or less. The Company recognizes short-term leases on a straight-line basis and does not record a related right-of-use asset or lease obligation for such contracts.

Right-of-use assets related to finance leases are included as a component of property, plant and equipment, net on the condensed consolidated balance sheets.

A maturity analysis of the undiscounted cash flows of operating lease obligations is as follows:

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	Operating Lease Obligation
Remaining lease payments to be paid during the year ended December 31,
2023	$	173
2024		310
2025		256
2026		98
2027		2
Thereafter		—
Total lease payments		839
Less imputed interest		(32)
Lease obligation at June 30, 2023	$	807

The lease cost and certain other information during the three and six months ended June 30, 2023 and 2022 were as follows:


	Three Months Ended				Six Months Ended
	June 30				June 30
	2023		2022		2023		2022
Lease Cost
Finance lease cost:
Amortization of right-of-use assets	$	6	$	5	$	15	$	10
Interest on lease obligation		2		—		3		1
Total finance lease cost		8		5		18		11
Total long-term operating lease cost		92		99		180		205
Total short-term operating lease cost		83		117		169		283
Total lease cost	$	183	$	221	$	367	$	499

Other Information