Ladies and gentlemen, thank you for standing by, and welcome to the Myers Industries 2020 Fourth Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today’s conference is being recorded. [Operator Instructions]. I would now like to hand the conference over to Ms. Monica Vinay. Please go ahead.

Thank you. Good morning and welcome to Myers Industries fourth quarter 2020 earnings call. I'm Monica, Vinay, Vice President of Investor Relations and Treasurer at Myers Industries. Joining me today are Mike McGaugh, President and Chief Executive Officer; Sonal Robinson, Executive Vice President of Finance; and Dan Hoehn, Interim Chief Financial Officer. Earlier this morning, we issued a news release outlining the financial results for the fourth quarter and full year 2020. If you've not yet received a copy of the release, you can access it on our Web site at www.myersindustries.com under the Investor Relations tab. This call is also being webcast on our Web site and will be archived along with the transcript of the call shortly after this event. Before I turn the call over to Mike, I would like to remind you that we may make some forward-looking statements during the course of this call. These comments are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on management's current expectations and involve risks, uncertainties and other factors, which may cause results to differ materially from those expressed or implied in these statements. Further information concerning these risks, uncertainties and other factors is set forth in the company's periodic SEC filings and may be found in the company's 10-K and 10-Q filings. I’m now pleased to turn the call over to Mike McGaugh.

Good morning. Thank you for joining us. I’d like to start the call by expressing my sincere appreciation to our entire Myers team for all their efforts in 2020. I’m especially proud of how well they faced the challenges that were presented throughout the year due to the COVID-19 pandemic. As a result of their resilience and hard work, we’re able to continue to produce and deliver essential products to our customers. We delivered strong bottom line results for the year, increasing adjusted earnings per share 9% from $0.70 to $0.85. Thank you Myers teammates for a job well done over the course of a challenging year. Before we begin with our business update, I want to welcome Sonal Robinson, who joined us as Executive Vice President of Finance in February and will assume the CFO role next week. Sonal brings a proven track record of providing strong leadership in transformational environments, along with considerable experience in capital markets, mergers and acquisitions and Investor Relations. I look forward to partnering with her as we continue to drive and execute our One Myers strategy. I also want to thank Dan Hoehn for his leadership as interim CFO during the past six months. He did a great job helping us lay a strong foundation and we will continue to benefit from Dan's contributions, as he returns to his role as Vice President and Corporate Controller. Please turn to Slide 3. Before I discuss our performance, I'd like to review with you our long-term vision, the strategic pillars that we have in place to drive its execution and the progress we've made against those pillars. I introduced the strategy and vision in our October 2020 earnings call and we are successfully executing against it. To review, we're currently in Horizon 1, which consists…

Thank you, Mike, and good morning, everyone. Let me begin by saying I'm delighted to be joining Myers at this inflection point in the company's history, and I look forward to working with the team to drive and execute our long-term strategy. Turning to fourth quarter results on Slide 7. Net sales were up $21 million, an increase of 18%. On an organic basis, net sales increased 8%, excluding the impact of the Elkhart acquisition. Increased sales in both Material Handling and Distribution segments contributed to growth. Adjusted gross profit was up $1.2 million, while gross margin decreased from 33.6% in the prior year to 29.4% in the quarter. Margin was negatively impacted by an unfavorable price to cost relationship, repairs and maintenance, employee benefit costs and an unfavorable product mix. The addition of Elkhart benefited profit, but impacted gross margin unfavorably due to product mix sold. As a reminder, we are targeting $4 million to $6 million in annual cost synergies over the course of the upcoming two years. Adjusted operating income decreased $700,000. The increase in gross profit was more than offset by higher SG&A expenses, mostly due to the addition of Elkhart. Adjusted EBITDA was $11.3 million, a decline of $1.6 million compared to the prior year. Adjusted EBITDA margin was 8.2%. Lastly, adjusted EPS was $0.11 versus $0.12 in the prior year. Turning now to Slide 8 for an overview of segment performance in the quarter. Beginning with Material Handling, net sales increased 26% or 10% on an organic basis. Excluding Elkhart, sales in the food and beverage and vehicle markets were up double digits driven by increased sales in seed boxes and in the RV, marine and automotive end markets. Organic sales in the consumer market were up high-single digit due to fuel container sales,…

Thank you. [Operator Instructions]. First question comes from Steve Barger with KeyBanc Capital Markets.

Good morning, everybody.

Good morning.

Good morning.

I'll start with the sales growth. Sonal, as you mentioned, $100 million run rate. So if that translates into a high $80 million in 2021, it seems like organic growth will be high single digit. Can you talk about that across the segments? Do you expect higher organic in Material Handling given the easier comps and the price increase?

Yes, absolutely. So you're going to see organic growth across both of the segments. To your point -- let me just maybe parse out the top line growth. So as we think about the high 20% growth, approximately 18% or so, if you annualize the Elkhart sales would be due to the acquisition, leaves you with a high single digit growth on the organic side. Of that, approximately half of that would be organic volume and pricing related, a little bit higher skewed toward volume on the higher end of the range. And so that would translate to both Material Handling and growth in Distribution non-pricing related.

But you would expect higher organic in Material Handling. Is that correct?

Right.

Okay, got it. And just based on the guide, the incremental margin for the year seems to be single digit despite what's obviously a nice revenue increase. First off, is that primarily because of price cost, or why won't you get better pull through? And then just second part of that question, what do you think this model should generate for an incremental margin over time?

So, Steve, I'll take the first part and have Sonal take the second part of that. It is price cost. The demand is there for the product. We can see the economy recovering, which is a good sign. Across the board, we're in a number of markets that are experiencing good demand. The curveball is, as the economy started to heal, a lot of the resin producers either delayed turnarounds during the pandemic and they had to catch up on that, or with the kind of yield you saw snap back in your resin pricing in fourth quarter, and that's continued in the first quarter, which we could have weathered it quite well, the exception being is when the freeze hit and you had many of those producers went on force majeure and allocation, it just exacerbated it. So for sure the drop-through or the lack of drop-through is not where we would want it to be steady state. But it's all price costs, it's all price costs and it's a short-term Street issue down the Texas Gulf Coast.

And the longer-term incremental that you expect?

Sonal, what does your model have?

So longer term -- at this point in time, clearly, we're focused on recovering those costs. We'll continue to see volume contribute to margins, but we haven't guided to a long-term margin at this point.

Yes, I understand that. But you have a pretty aggressive goal out there to get to a $1 billion in revenue by 2023. And a lot of that, of course, will come from acquisitions and that can skew the incrementals around. But can you just give us a general idea of as you enter into this longer-term organic versus M&A growth paradigm, just how do you think this model should flex?

Steve, the overall target on EBITDA is 15% on that $1 billion base. What I'll also do is look to see if Dan wants to add any color on. Dan's in the room as well.

Yes. Certainly, short-term there is going to be some uncertainty around the resin pricing and how we get to that $1 billion is just the timing of when we achieve that 15%, because that's the long-term goal.

Okay. For the 8% price increase, is that strictly based on the input costs or is there some value pricing component in there? And I just asked because I know that improving your pricing strategy has been a big focus of the early pillars.

Yes, Steve, good question. I would say our expectation is to cover the increase. And if the opportunity presents itself to expand margins, obviously we will capitalize on that. My belief is that we need to watch how this resin market unfolds. Polypropylene has gone from $0.40 to $1.35. We need to watch how the market unfolds and figure out do we need to go back and move price subsequent times. That's what I referenced in my comments. We're watching it day by day to determine what additional pricing actions we need to take. And as we identify those, Steve, we will move very swiftly.

Understood. Thanks.

Thank you.

[Operator Instructions]. Next question comes from Tim Wojs with Baird.

Hi, everybody. Good morning and welcome, Sonal.

Thank you. Good morning, Tim.

Maybe just kind of starting back on the pricing side of things, just the increase that you put out into the marketplace, could you just remind us how we should think of that in terms of just kind of the ultimate realization of the 8% and how that kind of phases into the model for the course of the year?

So in general, we're seeing strong acceptance of the price increase, Tim. We're seeing strong acceptance of the price increase. Our customers are watching what's happening on the resin side. They understand it. They're supportive. So I'm comfortable with the 8%. And then clearly, do you get all of it everywhere? No. But directionally, it's a solid increase. The timing and the phases, it's urgent and we're moving fast on the pricing increases. We took all our prices up effective March 1 unless contracts prevented that. But prices moved up. The key issue with -- what we don't know and why we're cautious and possibly even conservative is the Gulf supply situation is still unfolding. There are still producers who are trying to bring their units back up. What does that do to the supply/demand balance in the short term? We're still trying to sort that out. But I'll turn it over to Sonal -- and by the way, having been here for a little over a month, Sonal has been a very quick study. So I'm very, very pleased and impressed with how dialed in she is to our current situation. So, Sonal, please go ahead.

Thank you, Mike. So, Tim, maybe to add a little more color to that commentary, as I indicated, as you think about our high single digit top line organic growth, about half of that coming from pricing. That kind of gives you a sense for what we would expect as of now in terms of top line growth. In terms of the cadence throughout the year, clearly, we announced at March 1, so there is sometimes a delay as you see that starting to flow through our orders and what we're going to recognize. And so you're going to see, I would say, a larger impact as we go into Q2, Q3 and Q4 related to the pricing actions rather than what you may see coming through Q1 just given obviously timing and flow through.

Okay, that's helpful. And then on the M&A pipeline, Mike, could you just talk a little bit about the opportunities and maybe how that's built over the last six months since you've outlined that strategy and just kind of the internal capacity for incremental M&A at this point?

Yes, absolutely. Tim, it's similar to what we discussed in the past. We want differentiated products not commodity products; ideally products that are reusable, durable, sustainable or we can put a high percent of post-consumer resin in there. I think that aligns out with our direction from a sustainability standpoint. I will say the Elkhart acquisition has been successful. The targets that we've got line of sight into we believe are solidly, but they're going to pan out. Because that's gone well, I think it's also improved a little bit of the buzz in the market. There were a -- we are indeed or will become the acquirer of choice in some of these businesses, particularly founder-owned businesses. And what that means, Tim, is our inbound calls are increasing. Not only are we still doing a lot of outbound, but our inbounds are increasing as well. Pipeline is really solid. There's a lot of founder-owned businesses there are quality businesses out there that are multiple, similar to what we transacted Elkhart at, that are accretive on day one. And we're going to continue to do these bolt-ons for specific technologies and specific markets and really to become a well-oiled machine on how we integrate. And then about that time, we'll be ready to move into similar transformational deals and we'll have the balance sheet and the income statement to support that and the cash flow to support that, but that's 24 to 36 months out.

Okay, that sounds great. And then you just mentioned in your last comment, but this is my last question, how are you kind of thinking about the overall debt structure going forward? I know you have '21 notes that are due this year. And so how are you kind of thinking about addressing those, but then also potentially addressing kind of the longer-term capital structure --?

Tim, what I'll do is I'll ask Sonal to respond to that.

Yes. So, Tim, clearly in terms of supporting our long-term growth strategy, the vision, getting that capital structure right and flexible quite frankly to support that need is one of the key priorities. But specifically, near end in terms of the notes that came due here in January, we did pay those off with the combination of cash on hand and the revolver, and so that is behind us as we think about that. Currently, the team continues to be very focused on what that capital structure looks like as we look at the capacity under our revolver and also future activities.

Okay, sounds good. Thanks for all the color and good luck.

[Operator Instructions]. We do not have any further questions at this time. And this does conclude today’s call. You may now disconnect.