Myers Industries, Inc.

Hello and welcome to the Myers Industries first quarter 2024 earnings call. My name is Elliot and I'll be coordinating your call today. If you would like to register a question during today's event, please press star followed by one on your telephone keypad. I'd now like to hand over to Megan Behringer. The floor is yours. Please go ahead.

Thank you, Elliot. Good morning, everyone, and thank you for joining Myers conference call to review 2024 first quarter results. I'm Megan Berenger, Senior Director of Investor Relations at Meyers 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 two 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. 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 am now pleased to turn the call over to Mike McGaugh.

Thank you, Megan. 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 19th. At this event, we rolled out our plans and strategy for the next five years, and we were 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 and 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 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 three. The Three Horizon Strategy has served as an effective roadmap for the company over the last four years. At our investor day, we described how we've used Horizon One to strengthen our fundamentals to learn and grow and improve the quality of our company. Through Horizon One, 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 were well positioned to announce our acquisition of Signature Systems, largely accomplishing our Horizon One 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 roadmap 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 four, as we enter horizon two of our strategy, we're also shifting how we think about our company. Keeping it simple, we have two operating models. In the grow model, our focus is to invest and expand our portfolio of branded, differentiated products, both organically and through acquisitions. In the maximize value model, our focus is on driving efficiency and reducing cost while we maximize the value of these businesses. Aligned with these two operating models, we have a strategic lens through which we see three portfolios, storage, handling, and protection, engineered solutions, and automotive aftermarket. We continue to report our financial results as material handling and distribution. However, as we transition to Horizon 2 and accelerate the transformation of Meyers Industries, we believe the simple framework provides a clear roadmap with regard to how we will treat these different parts of the company. Turning to slide five, I'll walk through this framework in a bit more detail, just as I did at Investor Day. The portfolio that focuses on storage, handling, and protection contains branded, differentiated, high-performance products that move, store, and protect. This is an area where we will seek to grow the company. We believe we have a lot of runway to build and grow the company in this direction. This portfolio includes what we are calling our four power brands, Buckhorn, Acro Meals, Scepter, and our recently acquired Signature Systems. As I highlighted at Investor Day, the current markets for storage, handling, and protection include agriculture and food, consumer, industrial, infrastructure, and military. Moving to the right, we also have a portfolio of engineered solutions in which products are designed and tailored to meet our customers' unique needs. As we have discussed, this portfolio consists of some branded products, But mostly, it's a contract manufacturing business, and as a result, the focus is to be lean and low cost, hence its placement in the maximized value operating model. This portfolio has exposure to RV and marine, as well as outdoor and leisure in markets, most of which are experiencing softer demand at this time. What we currently refer to as our distribution business, strategically, we now think of as our automotive aftermarket portfolio. This portfolio includes high-quality repair and replacement parts for passenger cars, for commercial vehicles, and for heavy equipment. Similar to engineered solutions, this business must also be operated for efficiency and low cost. As of the past few quarters, this business has faced some growing pains related to a recent acquisition and is also facing some demand headwinds. I'll talk later about the actions we're taking to improve the performance of the businesses in the maximized value operating model. Before we turn to a review of our first quarter highlights, slide six illustrates an additional key message that I want to share from our investor day. The four power brands I mentioned above in the storage, handling, and protection portfolio represent approximately 80% of our pro forma profits. Within this portfolio and across these power brands, we see a number of attractive platforms for future growth. In particular, the signature acquisition represents an important pivot point in our growth story and will help accelerate our transformation into a faster-growing, higher-margin company. Now, please turn to slide seven for a summary of our first quarter highlights. Our acquisition of signature systems closed on February 8th and has delivered strong results. We had roughly nine weeks of Signature's contributions in our reported results for the quarter, which equated to $19.3 million in revenue. We were pleased to see Signature's business drive strong gross margin and EBITDA margin expansion during the first quarter due to tailwinds in the infrastructure and market. The high-quality results from Signature helped offset first quarter sales declines in other parts of our material handling segments. At Investor Day, we discussed anticipated near-term challenges in key end markets. We discussed that we are seeing trough levels of demand in some of our end markets, particularly in RV, marine, and in consumer discretionary. And as I said, where the consumer can defer the purchase of a product or a discretionary item, they are indeed deferring that purchase. As quarter one wound to a close, we are also seeing some slowing in the automotive aftermarket as well. Weakened demand in these end markets resulted in sales declines in both material handling and distribution. In total, our first quarter performance was below our expectations, and we are taking immediate actions with additional self-help initiatives to further reduce costs and improve performance. Although we started the year slow, we are maintaining guidance for the full year of $1.30 to $1.45 adjusted earnings per share, though we are guiding to the lower end of the range. With three quarters remaining in the year, we plan to take additional actions in the near term to improve EBITDA while executing our five-year roadmap as outlined at Investor Day. I'll now speak to our action plans and progress using the lens of our two operating models. the maximized value model, and the grow model. Turning to slide eight, I'll start with the portfolios under the maximized value model, where our focus is on efficiency improvement and cost reduction. In our automotive aftermarket portfolio, we continue to integrate the Mohawk acquisition into Meyers Tire Supply. I've communicated that this integration has been tougher than anticipated. In our fourth quarter call, as well as at our investor day, I described these challenges and I shared the actions we are taking to improve, such as merging the ERP systems into a single system to provide better data and visibility. I've also talked about the work we are doing with key personnel and with customers to regain ourselves momentum that declined during the transition. We are making progress, but this work is still underway. As you recall, a key part of our Horizon One strategy was a deliberate effort to make small bolt-on acquisitions so that while we build scale and create value, we also learn and build our capabilities before advancing to larger, more impactful acquisitions. The Mohawk acquisition was one of those small bolt-ons. When we acquired Mohawk, the business had approximately $60 million in revenue and $3 million in EBITDA. We bought the business for approximately $25 million. It was a small tuck-in acquisition designed to give our distribution business scale. Over the past two years, we've experienced many of the challenges that often occur when acquiring a lower performing business and rapidly attempting to convert it into a higher performing one. We're still confident that the acquisition will bear fruit. It's just taking longer and requiring more work than we had expected. We have an experienced team deployed into the business, and they are making the right improvements as we speak. This journey will continue throughout the year, and we expect continued improvement in EBITDA margins. Unfortunately, compounded the challenges of bringing together Mohawk into Meyers Tire Supply, we are also now seeing a slowdown in spending in the automotive aftermarket. Please see slide nine. With inflation, the consumer has less disposable income. Purchases across the board that can be deferred are indeed being deferred. This is also true for tires and tire supply products, both at the retail level as well as at the commercial level. I expect this lower pace of consumption to continue through the year. Please turn to slide 10. We are taking action. At Meyers, we say managers must manage. We operate our businesses with efficiency We're improving year over year and quarter over quarter. These gains in efficiency allow us to reduce cost while we maintain our service level. We believe we can achieve an additional $7 to $9 million of annualized cost reduction as a result of our efficiency improvements. In the coming months, I'll have more to say about the specific actions we're currently evaluating. This targeted $7 to $9 million in cost reduction is in addition to the $8 million of cost synergies we expect to deliver with the integration of signature systems. In total, we expect $15 to $17 million in annual cost reduction and margin improvement from these combined initiatives. Now, turning to slide 11, moving on to the storage handling and protection portfolio that aligns with our GROW operating model. In this model, we also focus on efficiency and cost improvements, however, The overarching focus here is to grow through new product development and through acquisition. I have several recent and significant examples that I'd like to highlight. First, on slide 12, on February 8th, we closed on the acquisition of Signature Systems, a leading manufacturer of ground protection and turf protection solutions. This business has performed well. The integration into Meyers has progressed smoothly. and we continue to be impressed with the quality and caliber of the people in the leadership team. Indeed, the learnings we made on our Horizon One bolt-ons enabled us to successfully transition to more impactful deals, like the acquisition of Signature Systems, where we acquired strong companies with great growth potential, strong brands, differentiated technology, and excellent leadership, all at an attractive price. We continue to believe that signature will be a pivot point in an accelerator in Meijer's transformation. And while we will continue to pursue growth through acquisition, we also have a number of promising new product development innovations in our existing businesses. Today, I want to highlight two innovations under our Scepter business. Please advance to slide 13. One example I've spoken of before is our anticipated growth in military containers for ammunition and propellant. The SEPTA team continues to gain traction with the U.S. military and with militaries around the world. We believe that global rearmament will be a growth driver for the SEPTA military cases. The SEPTA cases are lighter and easier to use, and we believe that over the next 5 to 10 years, they will continue to gain traction as they replace wood and metal containers in militaries around the world. Please now turn to slide 14. As you know, Scepter is a leading provider of portable fuel containers. Last month, we launched a product that we believe will be a success in the market. The Flow & Go Power Fuel Station is a 14-gallon container that gives the contractor or consumer the convenience of a gas pump on a job site, a construction site, or at home. The Flow & Go Power Fuel Station is ideal for construction sites, landscape work, or power sports. Based on our consumer and market research, we believe the product is a winner and will complement our current Duramax offering. I have many other examples of new product development across the company. Several of these were reviewed at our Investor Day in March. We will continue to grow organically as well as through acquisition with a focus on branded, differentiated products. Now I'll turn the call over to Grant for a detailed review of our first quarter financial results as well as our outlook.