Hello, and welcome to the Myers Industries First Quarter 2021 Earnings Call. My name is Elliot, and I'll be coordinating your call today. [Operator Instructions]. I would now like to hand over to Meghan Beringer, the floor is yours. Please go ahead.

Thank you, Elliot. Good morning, everyone, for our first quarter results. I'm Meghan Beringer, Senior Director of Investor Relations at Myers Industries. 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 first quarter of 2024. We have 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 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 risks, 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 EPS may be discussed on this call. Further information concerning these risks, uncertainties and other factors are set forth in the company's periodic SEC filings and may be found in the company's 10-Q filings. With that, I'm now pleased to turn the call over to Mike McGaugh.

Thank you, Meghan. Good morning, everyone, and welcome to our first quarter 2024 earnings call. Before I begin, I'd like to thank everyone who joined us either in person or virtually for our Investor Day event in New York City on March 19. At this event, we rolled out our plans and strategy for the next 5 years, and we're able to have a great discussion with several current and prospective investors. If you have not already, I'd encourage you to view the webcast in the materials from this event as it provides great context and clarity on where we're headed. In today's call, I'll spend a few minutes discussing our progress over the first quarter, and then I'll pass the call to Grant for his detailed review of our first quarter financials and our outlook. Please turn to Slide 3. Pre-Horizon strategy has served as an effective road map for the company over the last 4 years. At our Investor Day, we described how we've used Horizon 1 to strengthen our fundamentals to learn and grow and improve the quality of our company. In Horizon 1, we built a strong foundation of operational and commercial excellence. We gained experience and scale through small bolt-on acquisitions. And as a result, we are well positioned to announce our acquisition of Signature Systems largely accomplishing our Horizon 1 goals by our 2023 target date. We're now shifting into Horizon 2 of our strategy and accelerating our transformation into a new Myers Industries. While our road map remains the same, the targets for Horizons 2 and 3 have now shifted from revenue targets to earnings per share targets. We feel that using EPS is more reflective of our focus on improving the quality of the company as we grow it. Turning to Slide…

Thank you, Mike. Please turn to Slide 15 for a complete summary of the first quarter 2024 financial results. Net sales were $207.1 million, which decreased $8.6 million or 4% compared to 2023, with the decline primarily driven by lower volume in the Distribution segment with the Material Handling segment basically flat to a slight decline year-over-year as the inorganic revenue from the Signature Systems acquisition was offset by declines in key end markets for RV and Marine, secular declines in consumer with gas cans as well as the timing of agriculture orders. Adjusted gross profit was $67.6 million and adjusted gross profit margin was 32.7% compared to $71.2 million and 33% in 2023. On a dollar basis, the gross margin decrease was a result of lower volume and mix and increased pricing pressures in the Material Handling segment, partially offset by lower material costs and the contributions from the signature acquisition. SG&A expenses were $53.5 million, which increased $1.4 million or 2.6% compared to 2023, primarily due to the addition of Signature, which included $3.2 million in higher acquisition and integration costs year-over-year and $1.7 million of intangible asset amortization. SG&A as a percentage of sales increased to 25.8% compared to 24.1%. First quarter adjusted operating income decreased to $16.6 million compared to $20.3 million in 2023. First quarter adjusted EBITDA was $25.1 million, which decreased 3% compared to the prior year quarter. Adjusted EBITDA margin increased 10 basis points to 12.1% from 12.6% in the first quarter of last year. Lastly, adjusted earnings per share was $0.21 compared to $0.38 in 2023. The variance compared to the first quarter of last year was driven by lower sales and operating margins as well as increased interest expenses related to our new term loan A, which was used to finance…

Thank you, Grant. I'd like to close with the summary slide that I used at our Investor Day a few weeks ago. Please turn to Slide 19. Without a doubt, our first quarter results were disappointing. We continue to face trough and trough light conditions in a few of our end markets. As I said at Investor Day, I expect that these conditions will persist in the near term and that we're not out of the woods yet. That being said, we are taking more aggressive action on cost reduction. We can tap into the efficiency gains we've made over the past years. I've spoken to the concept of unearthing a hidden factory and we can take cost out without impacting capacity or service level. We're going to do that. I don't want to speak to the specifics or the specific sites at this point. We will communicate that later. We are addressing in the short term, and that's why we are maintaining our guidance, though guiding to the lower end of the range based upon our first quarter results. I'd ask you to keep focus on the next years while we manage through the next quarters. The company has built a strong foundation over the past 4 years during Horizon 1. We have the capability now and the levers of self-help to block the impact when a few of our cyclical end markets turn against us. With our foundation in place, we are accelerating into Horizon 2, driving the transformation of Myers Industries. We believe and are seeing early proof points that Signature Systems will be a meaningful catalyst for our company. We also believe that the storage handling and protection portfolio represents an important part of the future direction of Myers and will be a cornerstone of our company. We are also confident in the engineered solutions in the automotive aftermarket portfolios. Both of these have sustainable competitive advantages, excellent products and services and excellent people. I continue to be enthusiastic and positive about the opportunities for our company to create value for our customers, our employees, our communities and our shareholders. And with that, I'd like to turn the call over to the operator for questions. Operator?

[Operator Instructions] Our first question comes from Christian Zyla with KeyBanc.

Were you guys seeing the slowdown at the time of -- Were you seeing a slowdown at the time of your Analyst Day? Or was that more pronounced? I know you price the low end of the range, but given 1Q's results. What gives you confidence to maintain the current range? And what are you seeing so far in 2Q?

Yes. One of the bigger impacts, Christian, was that we had an -- a meaningful ag order that was pushed to later in the year and out of first quarter. And that occurred after the Investor Day or about, I think, largely after. On the distribution side, we saw the slowdown as the results come through. And again, that was more of a post-Investor Day. What gives us confidence is you have more of a shift in some of our high-profit businesses, namely ag, we also continue to see some upticks in the consumer business, the gas can business as well as military. That's why we're sticking to the range. But we also have to recognize the first quarter miss, and that's why we're guiding to the lower end. Grant, do you want to add to?

Yes. I mean I do think -- Mike answered the question about the Investor Day. The back half of the year is really where we start to see some of the ramp with the military orders that we've talked about. We are now in production with those orders, so that is starting to ramp up, and we should start to see that grow throughout the next 3 quarters. And then we continue to get a lot of inbounds on just other opportunities for that business. So we really think that, that could be, as Mike mentioned, a longer-term growth catalyst as we start to ramp up our production. The other thing is, just in general, we continue to see some strong e-commerce demand. We did have a little bit of a stumbling point in our first quarter where we had some of the demand was taken offline with Amazon due to some pricing issues that we had that has since been resolved, and we now see that continuing to pick up throughout the year as well. And then we don't have a significant storm activity in our current guidance range for hurricanes. As we've talked before, that can drive anywhere from $0.05 to $0.06 per share with a meaningful storm. So we do see that would typically be in the latter half of the year. Then lastly, as Mike said, this agriculture move from the first quarter into the latter part of the year was pretty significant for us and that -- we don't see any issue with that being something that would be delayed into 2025 as we do have firm orders. It's just more of a timing of when the customer wants to have delivered those problems.

Christian, if I can add, it's really was a big push on the ag seed boxes for GMOC. That was delayed to later in the year. Some of those larger GMOC companies are also trying to control their CapEx. And so there was a deferred there. The other piece is on the military, we did have a significant project that is scaling up. And as a part of that scale up, the orders were pushed into second quarter and third quarter and out of first quarter. So those are really the 2 big chunks.

And just, I guess, a follow-up. Since you maintained the guide, do you have more visibility or just confidence in the double-digit revenue growth or in the EPS range?

I would say the -- it's very equal to confidence. I think the revenue obviously helps drive the EPS range for us. But we do have -- we do see -- quite frankly, we see an opportunity at the high end of the range of everything falls in play. But just given the first quarter, we wanted to be a little bit more conservative on guiding towards the lower end of the range. But I do think that we have opportunities here. Obviously, we talked a lot -- Mike talked a lot about the distribution business. That's one that we're really very focused on just improving the overall performance. But it has been helpful that we do see overall that, that automotive aftermarket does seem to be taking a little bit of a pause on the trends that we're seeing, although over the long term, we see the automotive market continue to have good tailwinds. So...

I guess what do you expect for organic growth in both material handling and distribution for the year? Is flat to down mid-single digits reasonable.

Yes, I mean, I think we have, in general, the distribution business, we are pushing the team to get back to growth in our material handling kind of our core business outside of Signature, we've been looking at probably low single-digit potential growth opportunities there. Signature, we continue to maintain will be a 10% to 15% growth on an annualized basis, and that really lines up with the guidance that we've provided. So...

Yes, that's right. We -- it is early in the year and what we've learned with this business because we have so much exposure to so many different end markets. It is challenging to get our arms around it. Now as Grant mentioned, we could very well be at the high end of the range. But again, we wanted to be more conservative and guide to the lower end. But Christian, we've got a number of bright spots on volume. We've got a number of new product innovations that are delivering. We've talked about -- it looks like it's going to be a robust hurricane season. That's good for our Scepter business. The military continues to get qualified and get traction. That's a good thing. However, we're still dealing with RV sales. Marine sales have now followed RV and are off meaningfully. We make water tanks and fuel tanks for boats. And then also the consumer discretionary, as I've mentioned before, we make high-ticket discretionary items. I talked about mailbox sheets, flower pots, hardscape items. And what we're seeing is the consumer is slowing down their discretionary purchases where they can. That's a trend that we saw in '23 that just continued into '24. So it's a bit of a mixed bag. The numbers that Grant had given on overall revenue are good numbers and accurate numbers. We see a number of bright spots in green shoots. We also have some end market exposure that for the next 6 to 9 months, I think we're going to really have to focus on taking cost out, and that's why we spoke to that. Again, I don't want to talk about specific plans at this point. But we've got a lot of efficiency. We can get more units of output out of our plants. And it gives us the opportunity to reduce our footprint and reduce our fixed costs, and that's what we're going to do.

And just with that, Christian, that is a mitigating factor as well, too, on some of these end markets, we continue to have the headwinds that we're experiencing. We have not yet incorporated any of these additional cost initiatives into our -- into the guidance range that we have to a large extent yet. So we're still identifying those initiatives and getting ready to work on the timing of that. So...

And then it looks like Signature had about $16 million in free cash flow last year. I know you don't guide to free cash flow, but based on core Myers and the addition of Signature, is $80 million reasonable? Or is there something we should think about for free cash flow?

Let me just take a quick look here at a chart, Christian, just to make sure... I think that's probably reasonable. Let me take a look at this as if you have some other questions, just to kind of calibrate to make sure I'm comfortable with that number. So...

Yes. I mean, Christian, just on that point, as Grant looks up the specific number. We are seeing really solid results from Signature. There's a lot of growth tailwind there. The infrastructure investment that's being put in place through the various government spending plans over the next decade, Signatures is -- will benefit, is benefiting and we'll continue to benefit from those programs. We just -- we continue to be very pleased with that acquisition. And as I said, look, our objective was to learn with some small ones get our processes in place. We know we're not going to about 1,000. The Mohawk acquisition, as I said, it has been a bit of a challenge culturally. We're working through that. We're bringing those businesses together. But a lot of the key learnings from the 3 or 4 prior acquisitions we did that were small and in the magnitude of $30 million, $25 million. They really allowed us to have excellent processes and to really improve our capability when we move into the intermediate size acquisitions like a Signature, where we spent $350 million. I think we've got a great company with a lot of growth, great margins. And quite frankly, I think we bought it at a very reasonable price.

We now turn to Anna Jolly with Gabelli.

This is Carolina from Gabelli. So hopefully, this doesn't repeat the prior question too much, but can you just talk a little bit about what surprised you in the material handling side of the business outside of the ag order more this quarter than expected and some of that in the discretionary items? And then also secondly, can you talk about what your -- what you kind of learned from Mohawk and Trilogy Plastics that you're applying to Signature?

Yes, Carolina, good question. A large part of it was the shift of the agricultural seed box order -- and another piece of it was in March, some of the gas can sales that we expected were more shifted to Q2. But the lion's share of it was the ag seed order, and that's why we stand by the guidance that's just shifted to later in the year. On distribution, the sales came through weaker in March than we anticipated. And the key learnings there is the need to integrate swiftly and effectively and the need to integrate the cultures fast. The other thing -- the other learning is, quite frankly, is what we said when -- in the Q&A session at Investor Day, buying some fixer uppers or some lower performing businesses and trying to convert them to a higher performing run rate and doing it in a very short period of time, it is a lot of work. And doing that with some smaller acquisitions, in particular, several of them concurrently, you have your hands full. I do believe we will bring the performance of Mohawk up to the level of Myers Tire Supply. Mohawk was running at about 1/2 the EBITDA margin percent as Myers Tire Supply. And our belief was we could bring it up to the level of Myers Tire and in fact, just the complexity and bringing in the distribution centers, the IT systems that work with that as well as the company cultures. We -- we ultimately bought a complicated small business. And we knew we would learn what to do and what not to do and what the capabilities are of Myers. And that's where our focus now is I'd much rather buy a quality company that has branded and differentiated products. We are being much more careful about low barriers to entry businesses. And we bought some low barrier to entry businesses to give scale to our rotational molding as well as the distribution. Those are the right things to do. Those businesses need scale. But as we said at Investor Day, we now have a larger business in contract manufacturing and a larger business in industrial distribution. They're fine businesses, but they're not going to have the EBITDA profile that we seek -- and that ultimately is more of the Buckhorn, Acro-- Akro-Mil, Scepter and Signature model where your EBITDAs are 30% plus. And that's why I say that's the cornerstone of the company, and that's where we're taking the company. So hopefully, that addresses the question. Grant, anything to add...

Yes. You may have mentioned, I apologize if you did. But I think the ERP piece is also just a technical piece of just making sure that we can get good visibility across our businesses with ERP consolidation. That's going to continue to be something that provides an infrastructure for growth for us as well, too. And so it's not just the Mohawk integration issue. It's also within the business. It will help us clearly be an enabler to be more efficient and to run the business more effectively.

Yes. That's -- Carolina, the low barrier-to-entry businesses as you would expect, have your lower margin profiles. And while they are easier for us to integrate and we can buy them for a lower price point, we've learned focusing on the differentiated branded businesses with a competitive moat is the right approach. And as a matter of fact, we were able to get all that with Signature still at an 8x multiple, which we feel really good about.

[Operator Instructions] We now turn to William Dezellem with Tieton Capital Management.

I'd like to jump to the $7 million to $9 million of cost savings that you referenced here. Are those cost savings currently identified? Or is that a target? And do you have some general idea how you're going to get there?

Bill, we do have a general idea because ultimately, it's going to be on some footprint reduction activities. And at this point, I want to be a little cautious because we've not yet locked those down and confirm those 2 employees. But we believe we can actually decrease our footprint, decrease fixed cost without impacting our service level because of all these things I've spoken over the last 3 years, the improved scheduling, the improved operating efficiency. We have more capability now per fixed assets. And it's the right thing to do is to streamline those assets. It makes our business and our company more simple. And then it also allows us to reduce some costs. So we think the efficiency gains, it's time to act on those, particularly in some of these areas where we have less differentiation, more on the maximized value side of the house, and we think there's some opportunities there. Grant, anything from your side?

Yes. I would just maybe provide my general philosophy on this, Bill, is that I think it's important when we're going for a number that we've provided that we have more initiatives than what essentially would be the information we've provided. So I typically have tried to make sure that we've got a pipeline of 125 percent of the numbers we might be discussing just because some will take longer, some will fall off of this. And so we truly are just identifying those and working on those. And so we -- I would say that just given the track record that we will be coming back with some further information on it, but I feel very comfortable that these are numbers that we are going to be able to achieve. We just don't have not fully identified yet. So...

Yes, that's right. Bill, just -- this is Mike. We've not confirmed actions, lockdown actions. Once we do, clearly, we will be disclosing those and we'll disclose them soon.

And then relative to Signature, continuing on the cost front, you're all referencing the $8 million of cost savings -- and is that new? Because I was thinking that Signature, there were not going to be a lot of cost savings just because there weren't any synergies, and that would be essentially a stand-alone business. Did I just not remember correctly? Or did something change there?

No, Bill, nothing's changed. So we've said we believe we will have $8 million largely in cost synergies. And if you recall back to Investor Day, I think Carolina asked a question on clarifying those synergies, and there's really -- they're really only 3 or 4 buckets. We do have our arms around them. If you recall from that session as well, Jeff Condino who runs that business, affirmed his confidence in getting those synergies and having that as a run rate in 2025. So no, you've got $8 million there and then $7 million to $9 million outside of Signature, and we feel confident about that at $15 million to $17 million.

This concludes our Q&A. And I'll hand back to Meghan Beringer for closing remarks.

Thank you, Elliot and thank you for everyone for attending our first quarter 2024 earnings call. We invite you to follow up with additional questions or meeting requests. To schedule time, please contact me using the information found on Slide 29. Thanks again, and have a great day.

Ladies and gentlemen, today's call has now concluded. We'd like to thank you for your participation. You may now disconnect your lines.