Hello and welcome to the Myers Industries Fourth Quarter and Full Year 2023 Results. My name is Harry and I will be coordinating your call. [Operator Instructions]. I will now hand over to our host, Meghan Beringer, Myers Industries Senior Director of Investor Relations to begin. Please go ahead.

Thank you, Harry and good morning everyone. Thank you for joining Myers conference call to review 2023 fourth quarter and full year results. Joining me today is Mike McGaugh, our President and Chief Executive Officer and Grant Fitz, Executive Vice President and Chief Financial Officer. Earlier this morning, we issued a press release outlining our financial results for the fourth quarter and full year 2023. We've also posted a presentation to accompany today's prepared remarks which is available under the Investor Relations tab at www.myersindustries.com. This call is also being webcasted on our website and will be archived along with the transcript of the call shortly after this event. After the prepared remarks we will host a question-and-answer session. Please turn to Slide 2 of the presentation for our Safe Harbor Disclosures. I would like to remind you that we may make some forward-looking statements during 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 risk, uncertainties, and other factors, which may cause results to differ materially from those expressed or implied in these statements. Also please be advised that certain non-GAAP financial measures such as adjusted gross profit, adjusted operating income, adjusted EBITDA, and adjusted earnings per share or EPS may be discussed on this call. 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. Now please turn to Slide 3 of our presentation, I'm pleased to turn the call over to Mike McGaugh.

Thank you Meghan. Good morning everyone, and welcome to our fourth quarter and full year 2023 earnings call. I'll begin with a review of our full year 2023 highlights but first, I'd like to thank all of our team members whose hard work, dedication, and day to day efforts continue to improve the strength of our company. Our team has made incredible progress transforming Meyer's industries over the past few years. That progress is evident in our 2023 results, as we delivered improvements in operating performance and free cash flow generation, despite cyclical weaknesses in several of our end markets. We first outlined our 3 Horizon strategy shortly after I joined Myers Industries in 2020, and since then much of our team's work has been focused on building a strong foundation for the company. I'm pleased with the progress we've made so far, and I look forward to sharing even more details of our journey at our upcoming Investor Day event on March 19th in New York City. At this event, we will outline our growth strategy for Horizon 2 and the updated long term outlook for our company. We hope many of you will join us in person for this event. Now onto our full year 2023 highlights. On many measures I'm pleased with our results for the year. That said, I am less than satisfied that we did not build on the very strong results we achieved in the prior year. Starting with the positive, calendar year 2023 was one of the top years in the history of our company for earnings per share, adjusted EBITDA, and revenue. We grew adjusted gross margin, expanding at 40 basis points year-over-year to 32%. We improved cash flow, producing $86 million in cash flow from operations and $63 million in free…

Thank you. Mike. Please turn to Slide 4 for a complete summary of full year 2023 financial results. Net sales were $813.1 million, which decreased 86.5 million, or 9.6% compared to 2022, with the decline primarily driven by lower sales in the material handling segment, partially offset by increased sales in distribution segment, primarily due to the Mohawk Rubber acquisition. Adjusted gross profit was $259.9 million, and adjusted gross margin was 32%, compared to 284.1 million and 31.6% in 2022. On a dollar basis, the gross margin decrease was due to cost containment initiatives and price increases not being significant enough to offset lower volumes. Now turn to Slide 5. Our fourth quarter net sales were down $21.8 million or 10.2% compared to the fourth quarter of 2022, with lower sales across both segments. Material handlings vehicle end market driven by RV and Marine, food and beverage, specifically agriculture, and consumer end markets continue to face meaningful headwinds in addition to the distribution segment experiencing lower volumes. Adjusted gross profit decreased $7.7 million or 11.8% as price increases in the distribution segment and cost containment efforts were not enough to offset volume decreases in both segments due to the challenging macroeconomic and inflationary environment. Adjusted gross margin for the quarter decreased 50 basis points to 30.1% compared with 30.6% in the fourth quarter of 2022. SG&A expenses decreased $8.7 million quarter-over-quarter and SG&A as a percentage of sales decreased to 20.3% compared with 22.3% in the same period last year. The decrease is a result of lower professional services and incentive compensation. Fourth quarter adjusted operating income decreased $0.6 million or 3.6% compared to the prior year as a result of lower gross profit. Adjusted EBITDA was $21.8 million in the fourth quarter, a decrease of 0.3 million or 1.5%…

Thank you, Grant. On Slides 9 and 10, we have our legacy slides which provide an overarching view of the 3 Horizons strategy in addition to the strategic pillars of this long-term roadmap. Before we conclude today's call, I'd like to spend a few minutes recapping the success we've achieved on our Horizon 1 initiatives, which will serve as a good primer for investors and analysts ahead of our Investor Day later this month. Our strategy is based on four strategic pillars; organic growth, strategic M&A, operational excellence, and having a high performing culture. Focusing on these pillars over the past several years has created a strong foundation for Myers and positioned us for improved profitability as we begin to execute on Horizon 2. Today I'll speak to just two of the pillars, operational excellence and people and culture. I'll speak to all four of the pillars at our upcoming Investor Day. I'd like to go straight to the operational excellence pillar. One thing I learned during my time at Dow Chemical is that to successfully manage through cyclical end markets, self-help and operational excellence are critical and always bear fruit. Operational excellence is a self-help mechanism that is typically effective in improving a firm's earnings capability, helping raise the earnings floor and trough and near trough conditions and expanding that earnings ceiling when times rebound. Please turn to Slide 11. Operational excellence continues to translate to improved margins through improved purchasing, improved supply chain management, and improved asset management. These functions drove improvements through our company during fourth quarter and in 2023. As an example, our procurement group delivered raw material savings of over $20 million in 2023. As demonstrated through our margin improvements and greater cash flow generation, we've institutionalized these best practices which will serve to establish…

Thank you. [Operator Instructions]. And our first question today is from the line of Christian Zyla of KeyCorp. Christian, your line is now open. Please go ahead.

Thank you. Good morning, Mike, Grant, and Meghan.

Good morning.

My first question, if I look at the sales guidance of 15% to 20%, can you just talk through what is embedded in your guidance, what are you expecting for organic growth versus the addition of Signature, and what is the cadence of that, 1Q looks to have the toughest comps, so are you thinking 1Q will be the low and then an acceleration from there?

Yeah, Christian, I would say overall that we've got -- we're trying to build a model that we would start to have some single digit organic growth, low to single digit organic growth with our current base businesses. And then we also have the Signature acquisition, which we would see anywhere from a 10% to 15% growth over the next year. And so within that, we do see that, that we would start to see that accelerating throughout the year, particularly on the organic growth side with the base businesses, with the cyclical markets that we're dealing with. But overall, that's really what translates to the guidance that we have right now.

Great. And then can you just give us a sense of how much of the quarterly sales were volume versus price, was price meaningfully higher in distribution or should we think about the two segments differently?

Yeah, price was -- it was meaningfully higher in distribution. What we have essentially is that in our distribution business, we've made some changes as we continue to transform that business. And we have a new leader in that business that is implementing some of the disciplines that we've had with our material handling business. In particular with price, we do see some favorable price that we've been getting, something that we see of a meaningful nature for this quarter. And we would expect to see that to continue in the distribution business. In our business, particularly with our material handling, we do have some headwinds with some of the agricultural business that we have for our large seed boxes. We continue to see some pricing pressures there. And so those two have been somewhat to some degree offsetting each other as we look at the performance from our distribution business. And then just some of the headwinds that we have with our material handling business. With that being said, I will say just from what I've seen with my almost a year now here at Myers, that the team is very disciplined on value-based pricing. And they really leverage this quite effectively over across the business. And I would say in particular, we're bringing that into the distribution business now on a more expanded scale.

Yeah. And Christian, this is Mike. If I can build on it, it's a very good question. We had Myers Tire Supply which was a sector leader in its space. And we made the decision mid-year 2022 to acquire Mohawk, which was the next largest competitor. That was the right strategic move. As we've worked over the last 12 to 18 months to integrate those businesses, we've had to reconfigure the sales model. We really wanted to focus on larger national accounts because that's where the customer base is headed. We wanted to have the right sales organization for the future. Then additionally, synchronizing multiple ERP systems can often be a bit of a challenge in the near-term and we face that. As I mentioned, we've consolidated those ERP systems at the beginning of this year. As well, we have now consolidated a realigned sales organization that's focused on the national accounts. What that does is the footprint of Mohawk included into Myers Tire Supply, we have the highest service level and the best footprint to almost all areas of the nation. That additional service level is going to give us more ability to get price. If we outperform and service, our customer's willingness to pay goes up and that's what we continue to see and we think that will be a continued trend. At the same time, the size and scope of Myers Tire Supply plus Mohawk actually gives us more purchasing leverage with our suppliers. So, if we can get a bit of an increment on price and a bit of an increment on cost, that move will continue to push the EBITDA numbers of the distribution platform into low double digits, as we've said. A little bit of a setback in the back half of this year, particularly in fourth quarter for the reasons I mentioned. Obviously we're disappointed in that, but we're rectifying it. Largely it's been rectified. And so that's still an interesting business for us, given its strong competitive position. And I think, again, that will translate into the margins over the course of 2024, 2025.

Great, thanks for that color. Could you just give us a walkthrough of the end markets and what you're seeing in 1Q, I think we've seen some indicators that RV and PowerSports may have modestly bounced off trough levels and show some sequential improvement, is that reflected in your business this quarter, I guess, how are you thinking about those consumer facing businesses as we progress through the year and does your guidance have any embedded recovery in those businesses?

Yeah, if I can, I'll take a shot at that and I'll look to Grant. We know how to operate cyclical businesses. We know how to operate in cyclical industries. And that's where that operational excellence really shines and allows us, I talk about establishing a floor and keeping that floor of our earnings strong. What we're seeing is there is a little bit of a bounce off on RV and Marine. It depends on really who you listen to. The numbers are still going to be quite low in those end markets for 2024 in my opinion, and based on what we see. On the consumer side, there still is a lot of inflation. And when you have discretionary consumer goods, the products we make, whether as I talk about it as planters, mailboxes or home goods that have a higher price point or gas cans, which again, has experienced inflation, if the consumer can defer those purchases, right now we're seeing them defer those purchases. And again, I still think that’s cyclical. The nice thing that we see is cyclical end markets do rebound and the discipline we're imposing on our operations in our commercial aspects, in the trough side of the cycle, it's going to benefit and we will recover faster as these things come off the trough. Christian, I'm not terribly bullish on RV and Marine for 2024, but I do think again, that's a fine business to be in and have a strong competitive position like we do. Grant, would you like to add any color?

Sure, I think you covered it well with Marine and RV. I would say just on a couple of things, for the consumer piece with our gas can business, this last year we had virtually no storm activity, which typically will drive some significant revenue in the back half of the year. And so, I would anticipate just given historical measures that we would see some storm activity this year for our consumer business that would certainly see an increase organically from the gas can business. Also, as we talked about in our military business, we continue to see that as an end market that we will see probably further growth, particularly with the 155 shell casing that we produce. We're now in a position to be able to produce that ultimately for the U.S. military, and that gives us what we would see as a longer term headway for our military business for the company. So that we see as they replenish those arms globally, that certainly will give us some tailwind as well too. And then the other piece that we don't talk about, specifically by end market, but just our e-commerce business continues to grow quite well. Year-over-year, we had strong growth in our e-commerce business. And that does impact all of our different end markets, but we continue to work on expanding that and we'll see some growth in that area as well. And then in general, I do think that the auto tire repair area, we'll continue to see some tailwinds, although that certainly is more of a little bit of a lumpiness depending on what happens with just some of the general cyclicality with tire sales. But overall, I think we see that as a longer-term tailwind for our business.

Yeah, and just Christian, if I can add in one final piece is we're three weeks into owning Signature. But that business is, again, doesn't have the cyclical characteristics. It's an infrastructure play. You've got $1 trillion of infrastructure spending that's being deployed by the federal government over the next 10 years. Signature has a very strong competitive position and a very attractive profit margin. And we're seeing that business start off very strong. So we continue to have strong expectations for that business over the next two and three years. And we're seeing those initial trends, again, three, four weeks into owning the company.

Thank you guys so much. Really appreciate all the information there. Last question from me. Can you just quantify the benefit of lower raw materials worth to material handling margins, if I just look at polyethylene prices, for example, those have come down quite a bit in the last year. Any colors to why that hasn't flown through to gross margins, is there something else we should be thinking about there? Thank you so much.

Yeah, and thanks, Christian again for your questions. Overall, as I mentioned, in terms of the revenue prices, we do see benefits with our purchasing team. We've got a really, what I would say, just a very strong purchasing team, one of the best I've seen in my career, certainly. And so we do leverage the lower raw material costs, certainly with resin prices. But I would say that, as I mentioned earlier, we are seeing some pricing pressure, particularly in the agricultural end market that has been offsetting some of that. So that's kind of the hydraulic I would think about as we look at that business. And then also with the other parts of our end markets, though we've talked about agriculture, we do continue to see some pricing in general across the material handling business that is providing some additional pressure on margins that we're offsetting with material and other operational savings.

Thank you, Chris. Oh yeah, I believe we have one more caller. Thank you.

Yes, our next question is from the line of Anna C. Jolly of Gabelli and Company. Anna, your line is now open. Please go ahead.

Hi, guys. Thanks for taking my questions, Carolina. Two questions, one, are you just able to quantify the impact of the lack of the hurricane season?

Yeah, yeah, Carolina. Typically, it's about $3 million of EBITDA for a landed storm. That's about right. If you look at 5 million to 6 million of revenue, your drop through is really high at that point of production utilization. So it's almost a 50% drop through. So it's about, $3 million, about $0.05 to $0.06 a share per landed storm. And so again, we were out, we didn't have any last year. So that's a bit of a headwind. And typically we budget for one that historically is accurate, it's maybe one and a half. But unfortunately, that piece came up short last year.

Okay, great, thank you. And then looking into your guidance, and you've kind of reviewed this, but just looking, if we were to take away the dilution from Signature, when we look at 2024, what do you think of the margin performance and what are kind of some of the puts and takes there?

Yeah, I would say in general, we will continue to use some of our self-help initiatives to offset some of the headwinds that we had talked about -- that I talked about earlier, Carolina, in terms of the pricing. So I don't see that we'll have any significant changes in margins for our guidance. We continue to manage that part of the business, I think quite well. We will likely see some improvements with the distribution on pricing that we've talked about as that carries through in 2024. So I think taking away the Signature piece, I would say historically our margins would be similar to what we would think about for 2024. And then just the issue that we'll continue to face is just how quickly do some of these cyclical markets recover and when do we start to see some of that pick up -- as some of those markets start to come off of their trough.

Great, thank you.

Thank you, Carolina.

Thank you. And we have no further questions on the line for today. So I'd like to hand back to the Myers Industries team for some closing remarks.

Well, thank you everyone for joining our call this morning as we reviewed 2023 full results and fourth quarter results. We look forward to seeing you in the Investor Day. We welcome any meetings following this call to wrap up any of your questions. Thank you.

This concludes today's conference call. Thank you all for joining. You may now disconnect your lines.