Ladies and gentlemen, thank you for standing by. And welcome to the Myers Industries 2020 Third 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] I would like to now hand the conference over to your speaker today, Monica Vinay. Please go ahead.

Thank you. Good morning and welcome to Myers Industries third 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 and Dan Hoehn, Interim Chief Financial Officer. Earlier this morning, we issued a news release outlining the financial results for the third quarter of 2020. If you've not yet received a copy of the release, you can access it on our website at www.myersindustries.com. It's under the Investor Relations tab. This call is also being webcast on our website 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 am 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 their continued efforts during the pandemic. Our customers count us to deliver value-added high quality products in the safe and timely manner in your efforts remain critical to ensuring that happens. Thanks to your dedication and hard work, especially from the team at our Scepter business, we were able to deliver sales and operating results during the third quarter. There were an improvement over the last year and better than we had originally anticipated. Thank you, Myers teammates for job well done. Now if you'll turn to slide three of the presentation, we'll share an overview of third quarter of 2020. In short, we had a great quarter. I am pleased with our results, our direction and our progress. We still have a lot of work to do, but I'm excited about Myers performance in third quarter. Sales in our consumer end market increased significantly year-over-year as a result of higher demand for our fuel containers which is due primarily to heightened storm activity. We're also encouraged by the continued increase in demand that took place in our auto aftermarket business. In addition, demand for RV Products in our vehicle end market also continued to stay strong. Our businesses delivered gross margin expansion again this quarter. Gross profit margin increased 400 basis points, 35.6% for the third quarter of this year. This was due to solid execution in favorable price cost margin. As a result of the gross margin expansion, our adjusted operating margin increased 500 basis points to 11.8%. And our adjusted EBITDA margin increased 370 basis points to 14.8%. We generated solid free cash flow of $16.2 million during the third quarter and as a result we had $84 million of cash on hand as of September 30th. We also had $194 million available under our credit facility and our debt to EBITDA ratio was only 1.1 times. As a result, I feel very comfortable that we have more than enough liquidity and flexibility to execute on our new strategy that I will discuss later in the call. Before I turn the call over to Dan. I'd like to thank him for stepping in as Interim CFO. He is doing a great job and I appreciate all of his efforts and hard work. And with that, I'll turn it over to you, Dan.

Thanks, Mike, and good morning everyone. Please note that all numbers in the presentation reflect continuing operations. Please turn to slide four. Net sales for the third quarter were $132 million, an increase of 5% compared with the third quarter of 2019. The increase in sales was due primarily to significantly higher fuel container sales in our consumer end market driven by hurricane activity. We also increased our auto aftermarket sales both from stronger and market demand in our legacy business and from incremental sales due to the Tuffy acquisition. Gross profit margin increased 400 basis points to 35.6%. This was primarily due to higher sales volume and favorable price cost margin. Also gross profit in 2019 included a $3.5 million charge for estimated product replacement costs. Our adjusted operating income increased 83%, the $15.6 million for the quarter. This was the result of higher gross profit margin coupled with lower depreciation and amortization. Adjusted EBITDA increased 40% to $19.6 million and adjusted EBITDA margin was 14.8%. Adjusted diluted EPS was $0.30 compared with $0.15 for the third quarter of 2019. Now let's turn to slide five for an overview of our performance by business segment in the third quarter. In the Material Handling segment, net sales increased 3%. Sales of fuel containers in our consumer end market were up nearly 40% primarily as a result of increased storm activity. However, food and beverage market sales were down high single digits due to lower seed box volume year-over-year. Sales to our industrial end market decreased mid single digits due to lower sales to industrial distributors, partially offset by higher e-commerce sales. Sales in our vehicle end market were down double-digits as higher sales to RV customers were more than offset by lower sales to automotive OEMs. Material Handlings adjusted operating…

Thanks, Dan for your review. Now I'd like to talk to our new long-term strategy in the strategic pillars we have in place to drive its execution. Please turn to slide nine. We've developed a long-term strategy that's broken down into three discrete horizons. Each of these horizons builds on the preceding one. The first phase, which we call Horizon one consists of three approaches, self-help, organic growth and bolt-on M&A. Self-help will focus on purchasing, on pricing and on SG&A optimization. In purchasing, as an example, we are centralizing procurement. In the past, each of our business units purchased their own products. So we had multiple units buying their own versions of a similar raw material. We didn't consolidate our buy and leverage. We're changing that approach. We're now consolidating purchasing into a single function, and we'll leverage procurement company wide. As a result, we've greater leverage with our suppliers and expect to lower our cost. A key objective of self-help is to improve our margins by driving a greater wedge between our raw material costs and our product sales prices, centralized purchasing will address our raw material costs. On the pricing side, we will be using pricing and data analytics to determine where and how we can improve our pricing. I believe an enhanced focus on pricing will help identify areas of opportunity for Myers to better capture the value, our products deliver to our customers. Next is SG&A optimization. Over the coming months, we will continue to move forward with the one Myers approach, combining key elements of the company together so that were stronger, more efficient and more effective. Over time, we will reorient some of our SG&A resources, prioritizing sales, product and market management and innovation. As an example, we will reduce our overhead costs,…

Thanks, Mike. Duane, we're now ready to take questions.

[Operators Instruction]. Your first question comes from the line of Tim Wojs from Baird. Your line is now open.

Nice job, and thanks for all the details.

Hey, Tim. Thank you.

Maybe just starting with the long-term vision here. I guess I'll start off with a three-part question. You've laid out $1 billion revenue target by 2023, which I think, on the surface, looks pretty ambitious. So I guess first, how would you kind of think of the mix there between organic and M&A, and just how committed are you to actually getting to that number over that timeframe? And then lastly, will you need to - it sounds like you'll be able to kind of self-fund the investments, but I just wanted to kind of to run through that a little bit?

Yeah, Tim. So just to clarify, what I said was $1 billion run rate at the end of 2023. And I agree with you, it's an ambitious club. But I would look at it, run rate at the end of 2003. The split, I would say, give or take three quarters will be M&A, one quarter will be organic ballpark. And what was the other question?

Just in terms of the investments on the organic side to kind of get there, and maybe some of the M&A investments you'll have to make. I mean, it sounds like that'll be self funded through kind of SG&A overhead reductions, but I just wanted to verify that.

That's correct, that's correct. On self-help side, there's some room to run there. And also, like I said, is not only driving that wedge on the price side in the procurement side, but also reallocation - reallocating some of that SG&A, trimming our overhead and redeploying that into salespeoples, the example I gave.

Okay. Is there a way to quantify or frame what centralizing procurement might be able to generate for you guys? Just to try to frame it for us.

Well, look, let me - I'll look to Dan to see if he wants to give any specific advice. What I can tell you is when oftentimes, we had four or five businesses buying very similar raw materials, and it was on subscale. I think it was a great deal for our suppliers, but it probably wasn't the best deal for Myers. And so bringing that together, consolidating and negotiating it aggressively should finally unlock a lot of value. But let me ask Dan for any specifics.

I think it's a little early to give savings targets as we work through it. But we do see a lot of opportunities as we look across the different businesses and acting as a single company.

Okay. And then on the M&A side, it does sound like the pipeline's pretty actual at this point. Likely we could actually see something here by year-end. You think kind of early on in this vision, it'll be kind of more bolt-on versus larger deals? And how would you kind of describe valuation in the M&A market right now?

Well - let me see back and unpack it a bit. Yeah, so now that we're focused on plastics and building up the plastics. Not to day, on the auto aftermarket side as the deal came through and it was the right deal and the price was attractive. Of course, we look at that, but really our focus is more on the polymer side and building out - building some scale into these technologies. Our pipeline is good. The valuations - we won't do any deal that is not accretive, and most of the deals that we're looking at have a strong component of cost and growth synergies. So I feel very confident that there'll be value-creating for our shareholders. What was the - any additional question?

Yeah, just valuation. But I mean, you kind of answered it with the...

Yeah. So, Tim, on the bolt-on side, look, Tuffy went well. It has exceeded our expectations. We're real pleased with how Tuffy went. What I'd like to do is step that up in size, get some larger deals on the manufacturing side. And ideally, I'd see two to four deals there over the next year to 18 months. And I think we will really fine-tune ourselves with regard to integration excellence. I want to bring some of those skill sets from my past companies into Myers, we're doing that. And then I think we could look to even larger deals, but that'll be more of a Horizon two exercise.

Okay. Okay, great. I'll hop back in queue. Thanks for the color today guys, I appreciate it.

Thanks, Tim. Appreciate it.

Your next question comes from the line of Lance Vitanza from Cowen and Company. Your line is now open.

Hi, guys. Congratulations on the great quarter. So a couple of questions. Maybe just to sort of follow on regarding Phase one of Horizon, and I appreciate that 75%, 25% split in terms of M&A versus organic to get to that $1 billion run rate by the end of 2023. So that suggests that you're going to buy roughly $375 million worth of revenues. You're trading at around one times sales-type multiple, you said that you won't do a deal that's not accretive. So, if we assume, sort of you're paying a little bit better than a little bit less than one times, that's about 300. And so should we think about $350 million to $400 million as kind of what you are going to deploy toward M&A over the next few years? Is that fair?

That may be a little heavy, but let me ask Dan to comment.

I think that strikes me as slightly heavy, but we're going to look at the deals. And if the right deal is out there, right? We'll see what we can do.

Okay…

Go ahead, sorry.

I just want to say, there are a number of independents and owner-operated plastics technologies companies that the ownership is aging, looking for liquidity, opportunity, and would prefer not to sell the private equity. And so we were actually getting good traction in the market as a strategic buyer at fair prices, so I'm excited about the upside there.

So in the meantime, now you swung to a net cash position in the quarter, and I'm wondering, is there an opportunity to prepay some of your outstanding notes and then just avoiding the negative carry in the near term?

Yeah, I'll let Dan.

So our notes are private placement. So we intend to pay this off in the normal course.

Okay. Okay, any update on the CFO search?

Yeah, Lance, so I can say Dan stepped in, he's doing a real fine job. We've got to retain national firm. We're vetting a number of candidates, our interviews start next week.

Okay. And then is the - given the M&A outlook, is that basically - does that sort of suggest that we should not be thinking about an increase in the dividends any time soon?

For sure I'll tell you that the dividend, as I've said before, is sacrosanct. It's important to us and it's important to me. On increasing the dividend, I don't want to comment at this point.

Okay. And then lastly for me, just in terms of the bolt-on M&A, could you give me an example into the kind of non-commodity products that you don't currently sell that you could potentially add to the portfolio?

Yeah, well, I would say it, you continue to look at blow molded, injection molded, roto molded devices, tanks products. I like the products that are big and bulky, and immune largely from overseas competition. I like the products that are - I call them semi-specialty or value-added, that there is some level of difficulty in the fabrication. And so the barrier to entry is centered around process know-how rather than just the press configuration. And so those are the types of products we seek is, rather not single use blow molded bottles, Lance, but some level of technology know-how in capability so that there is some level of a competitive moat. Those are the products we currently have. We currently do well with them and I want to build on that area.

Okay, thanks guys. I appreciate your time.

Thanks, Lance.

[Operator Instructions] Your next question comes from the line of Carl Schemm from KeyBanc Capital Market. Your line is now open.

Hey, good morning. And congratulations on the quarter, everyone.

Thank you.

Just wanted to dig in on some of these pretty big shifts in the way end markets are kind of trending here. So maybe I'll just start with, obviously, the fuel container sales with the storm activity, just curious - and the timing of that, did any of that carry into the fourth quarter? Is that just purely 3Q impact? What's kind of the dynamic there?

Yeah. So we're looking at that as a Q2 and Q3 activity. It really follows along with the storm activity. So, while we did just have a storm in the Gulf, it's a little early to tell how much impact there was. Typically, in the fourth quarter, the flow-through is a little less.

Okay. Great, that's helpful. And then, I'm putting beverage, pretty big shift there, and what you're kind of looking at for seed box. Can you just maybe give some more color on what maybe changed there? And I think you have mentioned in the past, seed box is sort of mix tailwind, larger - higher margin, gross margin area. Is that - how does this impact kind of how you're thinking about gross margin 4Q and 1Q of '21?

So we don't typically get a lot of visibility into our seed box demand until the end of the third quarter. And so, while we still expect it to be greater than last year, it's less than we were originally forecasting. So you can see our updated guidance there.

Okay. Great. Sure, okay. And then, just last one on me, I kind of wanted to follow up on the M&A discussion here. I'm just curious, I'm sorry if I missed it, but do you have sort of a net debt to EBITDA that you're kind of willing to stretch to in the near term if you're considering some more bolt-on side?

Yeah, Carl, our objective is to stay below three times. If we needed to crank up temporarily, we could do that. But really, that's longer terms, three times.

Okay. Thanks, that's all for me.

Thank you. Thanks, Carl.

There are no further questions at this time, I'll turn the call back over to the presenters.

Thank you. We'd like to thank all of you for your interest in Myers Industries and for your time and participation today. As a reminder, a transcript of this call will be available on our website within approximately 24 hours. A replay will be immediately available via webcast or call. Details can be found on our website under the Investor Relations tab. Thanks, and have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.