Hello everyone, and welcome to the Myers Industries 2021 Fourth Quarter Earnings Call. My name is Victoria, and I’ll be coordinate your call today [Operator Instructions] I will now pass over to our host, Monica Vinay to begin. Please go ahead.

Thank you. Good morning, and thank you for joining us. 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 Sonal Robinson, Executive Vice President and Chief Financial Officer. Earlier this morning, we issued a news release outlining the financial results for the fourth quarter and full year of 2021. If you’ve not yet received a copy of the release, you can access it on our website at www.myersindustries.com 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 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.

Thank you, Monica. Good morning, everyone. Welcome to our fourth quarter and full year 2021 earnings call. 2021 was an important year for Myers. We made meaningful progress against our Horizon 1 goals, and we continue to build the foundation to ensure we execute against our long-term three horizon strategy. Specifically this past year, we revitalized our sales, marketing and operational capabilities by adding a significant amount of new talent. We implemented new processes and systems across the boards that are helping the company become great. We announced another acquisition in our Material Handling business, Trilogy Plastics, which has already had a positive impact to both our top and bottom lines. I couldn’t be prouder to lead this revitalized company in rejuvenated organization. I want to thank the entire Myers team for their great work in 2021. Please reference Slide 3 and 4, as I share with you details of our performance in 2021. I’m excited to report that we had a record setting year for top line growth with revenue coming in at $761 million, representing a $251 million or 49% increase over 2020. This growth is the testament to the team we’ve assembled at Myers and the demand for our high quality products across all of our in markets. Excluding our are two recent acquisitions, Elkhart and Trilogy, our organic net sales increased 25%, compared to 2020. In addition to the top line performance, our bottom line improved as well. Adjusted EBITDA increased $6 million or 9% versus the prior year. We generated $45 million of cash flow from continuing operation or $27 million of free cash flow for the year. We continue to have the financial capacity and flexibility to invest in and grow the company both organically and through M&A. We continue to execute – we…

Thank you, Mike, and good morning, everyone. Beginning with a recap of our fourth quarter results on Slide 5, sales were up significantly, an increase of $62 million or 45%. Excluding the impact of the Elkhart and Trilogy acquisitions, organic net sales increased 28% driven by price, which contributed 19%. Higher volume mix contributed 9%. Sales increased in all key end markets in both the Material Handling and Distribution Segments. Adjusted gross profit increased 31% or $12.4 million driven by higher price, higher volume mix and the Elkhart and Trilogy acquisitions. As expected, our price to cost relationship on a raw materials flipped to a favorable position in the fourth quarter and contributed to the gross profit increase. However, inflationary pressures from increases in labor and manufacturing costs continue to unfavorably impact our results and partially offset gross profit growth. Note that while we continue to experience gross margin compression in the quarter, the magnitude of the compression significantly improved on a sequential basis. As gross margin was down 300 basis points year-over-year in Q4, compared to 840 basis points year-over-year in Q3. Adjusted operating income was $12.5 million an increase of $6.1 million driven by higher gross profit partially offset by higher SG&A expenses. SG&A expenses increased due to the addition of Elkhart and Trilogy higher incentive compensation costs and professional fees, yet adjusted SG&A as a percentage of sales decreased to 20.2% in the fourth quarter, compared to 24.7% in the prior year benefiting from our larger scale. Adjusted EBITDA was $17.6 million an increase of $6.3 million or 55% compared to the prior year. Adjusted EBITDA margin was 8.8% for the fourth quarter, compared to 8.2% in the prior year. Lastly, adjusted EPS was $0.23 an increase of $0.12 more than doubling last year’s fourth quarter EPS.…

Thank you, Sonal. I appreciate it. Let’s turn to Slide 9. As I previewed in my earlier remarks, our long-term vision, the One Myers strategy has proven to be the right path for our organization. We made significant progress towards our Horizon 1 goal of being at a run rate of $1 billion in revenue with 15% EBITDA by the end of 2023. We will maintain consistency and continue to stick with our long-term strategy. It’s clear and straightforward, our people can understand it and execute it, and it will create significant shareholder value. We continue to drive execution of the strategy through three elements, self-help, which provides the funds to invest in the next two elements, organic growth and bolt-on M&A. In the area of self-help, I’m especially pleased with our operational improvements in 2021. We’ve improved our capabilities in sales and operations planning, S&OP, which is allowed us to get more volume out of our plants and better fulfill our customer orders. We’ve made asset management and product management, cornerstones of our business practice. These changes are driving results. In the area of organic growth, over the course of 2021, we revitalized our sales force. Our teams are now focused on growing on cross selling and on price realization. We have provided robust training and new tools to help our sales professionals better identify and meet customer needs. We are seeing the results of our sales revitalization. In addition, our new turbocharged approach to e-commerce is showing promise, growing sales and bringing efficiencies and capabilities to fulfill more e-commerce sales orders at higher margins. Remember, we look at e-commerce as a flywheel to help us maximize margins and balance our plants. In 2021, we actually passed on some demand, because it didn’t help us achieve one or both…

Thank you. We will now start our Q&A session. [Operator Instructions] And our first question comes from Lance Vitanza from Cowen and Company. Please go ahead. Your line is open.

Hi, guys. Thanks for taking the questions. Congratulations on the quarter. I actually have a couple, if that’s okay. And maybe Mike, I wanted to start with you on the Elkhart and Trilogy acquisitions. I think you mentioned in the release that those – both of those acquisitions had been going basically better than expectations. And I was wondering if you could elaborate on what exactly that means and what sort of are the metrics? Are they kind of qualitative or quantitative, but in what way are those sort of performing better than you guys had hoped? And then I’ll just jump back into the couple of more granular questions.

Yeah, sure. For sure. So on the qualitative, the cultures are meshing really well. We’re a Midwestern focused company and we’ve acquired companies that have similar values. And that’s really what we seek when we go to acquire companies is do they match us on terms of our beliefs and values and because that really frees up and allows everything else to go more smoothly. Because that box is checked well with Elkhart, as well as the Trilogy, the synergies have rolled through particularly in Elkhart, the synergies have exceeded what we anticipated on the growth side, as well as the cost side. We do have scale on the resin purchasing piece, which allows us to get some synergies on cost side, but also just optimizing the grid, the plants, taking the technologies, the capabilities that a lot of these roto molders have and then rolling that across our base business has proven to be quite successful. So the degree of difficulty has been very manageable and the results and output has been greater than we expected qualitative and quantitative with both of those.

Thanks, Mike. And then maybe, Sonal, a couple questions for you if I could. The first, both of these are on the outlook for 2022. On the revenue side, it looks like if I adjust for Trilogy, you are expecting mid to high single digit organic sales growth in 2022. Is that right? And in any case, could you talk a little bit about how much of the sales growth that you are guiding to. How much of that do you expect will be volume driven? Or is it mostly just a reflection of the inflation based price increases that presumably you’re trying to pass on as best as you can?

Yes, yes. Good morning, Lance. Great question. So as you think about that top line guidance that we provided to your point high single digit to low double digit, approximate a quarter of that is driven by Trilogy. So the remaining part of that essentially the way I think about it is that overall guidance more than half is inflationary driven by price and then the balance of that would be the volume mix piece of it.

Okay. Thanks. And then lastly for me on the margin front, so – and Sonal, I think you said 200 basis points of margin expansion in 2022. Was that on the adjusted gross margin line or was that on the adjusted operating profit line?

Yes, the adjusted gross margin line.

Great. And then so to what extent is that – I mean, that’s a relatively optimistic outlook, at least from my standpoint. And I’m wondering, is it based to some extent on a presumption that just inflationary pressure supply chain issues? Do these just begin to just generally ease? Is that kind of why you see this or I guess, I’m just trying to understand the sensitivity to potentially being wrong on that because we wind up with supply chain pressures and inflationary pressures persisting throughout the course of the year.

Yes. Lance, so let me start here. So price is a key driver of our expectation around margin expansion. You’ll recall the margin compression that we saw on the material handling side in 2021. So we would expect all that come back on the material handling piece of it. And so as you think about pricing being a key driver, distribution will see some growth, keep in mind, they had a strong 2021. Part of our consideration here is my commentary around our strong start to Q1 as well. We’re seeing a strong start to the quarter. We’ve got a good mix of business with the seed business results and the expectations we have there in the quarter. And so pricing is a key driver of that. I think as you kind of think about the cost component of that, Mike’s commentary around our ability to price the capabilities that we’ve built on pricing, give us comfort that as we continue to see other inflationary factors that we will take proactive actions in order to combat that as we go throughout the year.

Yes. Lance, if I can build on that, I mean, you look at Myers historically, again, I would argue that it was – it’s a good products, good company, good people, but undermanaged. And so we’re arguably starting from a pretty low base. So what we’re talking about doing whether it’s 15% EBITDA or the guidance that Sonal had given on the 200 basis points on gross profit, it’s achievable. We’ve brought in some world class folks on the pricing and pricing excellence side, the procurement and cost management side, we revitalize the sales org. So now they can actually sell the value of product spring rather than going to a cost based formula. I’m optimistic. There is some uncertainty on the back end due to the war, however, what Sonal has given in guidance we stand behind.

Thanks guys. Thanks very much. Appreciate it.

Thank you. Appreciate

Thanks, Lance.

Thank you so much for your question, Lance. Our next question comes from Ken Newman from KeyBanc Capital Markets. Please go ahead. Your line is open.

Hey, good morning everybody.

Good morning.

Good morning. It’s Ken Newman on for Steve Barger. I wanted to follow-up on the margin question just asked. I mean, I’m curious if you could just talk to the guardrails for margins that are implied in the guidance, because at the midpoint, I think it implies incremental margins in the mid-20% range. And I’m curious just how you think about what risks there are that maybe potentially gets push the right given the higher energy and resin prices that we’re seeing in today’s environment.

So I appreciate the question. This is Mike. Just, again, echoing what I just mentioned to Lance as well, there is a lot of upside on either side price or cost management. Yes, there are some uncertainty with the issues we’re seeing roll out in the macro environment. What I’ll do is – let me hand it over to Sonal, so she can elaborate a little bit more. I want to be sure, I don’t repeat versus what we just said with Lance.

Yes, sure. So to Mike’s point, we do have a number of factors obviously that come into play within our guidance. Obviously underlying end market demand would impact the top line piece of it. The price cost relationship as we continue to move throughout the year would impact both top and bottom line. And then once again the strength that we are seeing as we start off fiscal year 2022 gives us comfort as we start the year off on a strong foot here.

Right. And I guess just as a follow-up to that, I mean, can you remind us what is typically the lag if any in terms of catching up on price costs, when you put in a – when you increase pricing actions today.

I would say generally speaking about a quarter with experience.

Okay.

Yes.

Give or take within the portfolio.

That’s right. That’s right. But right now we’re seeing if you look at polyethylene, polypropylene that big ramp that occurred last year, we’re seeing some decline or flattening. Now again, there’s – look there’s uncertainty in the back half of the year due to some macro trends. But that’s why we’re pretty confident in our margin expansion is we were pushing price throughout the year and we just couldn’t catch up. We were able to – we started to see that trend change in fourth quarter and we’re seeing it continue through. And that’s what we’re projecting is that we’ll continue through 2022. And quite frankly, as I talk about 2023 and beyond, our ability to hold and expand that margin is there and that’s the reason I continue to reiterate those Horizon 1 targets.

And maybe just one other thought to that. Keep in mind last year we saw almost no incremental benefit of pricing actions in Q1. So once again, as you think about the lapping impact they’ll be fairly large on the front half of the year.

Right. Okay. Just a few more for me. I’m curious if you could just build out, I mean, you talked a little bit about healthy demands in the first quarter to date, I know you mentioned the seed business some strong orders. Maybe can you help us build that comment out a little bit? How are orders if you can quantify it to a certain extent, just trending so far and what are you hearing from your customers about their inventory needs?

Yes. I’ll give a high level and then maybe Sonal can provide any more data, but right now the question is can we supply demand. The demand from and almost all market is strong. The demand on our plants is strong. Across the board, whether it’s auto after market and distribution whether it’s fuel containers, whether it’s IBCs, whether it’s tanks from our roto business. I’ll tell you, Ken, it’s just demands robust, demands healthy. I don’t see it backing off most of these products that we have in front of us for the next year or two. I think there’s going to continue to be uptake. Sonal can maybe quantify a bit more, but the guidance we gave when high-single to low-double that’s about right. That’s the best numbers we have at this point.

Mike, that’s right. I mean I think just once again front half loaded versus back half loaded, recall once again, Trilogy was bought at the end of July last year. So we’ll get seven additional months of that in the front half of this year. The pricing actions once again benefited us in Q3 and Q4 more so last year than this year. So once again that lapping impact and that’s essentially the key factors there.

Yes. Just one more for me, obviously you’ve been very acquisitive this year. You feel that you can still be or maintain that acquisitive nature in coming years, but maybe just talk a little bit about to the M&A pipeline, what are you seeing coming across your desk from a multiple and target size perspective and does all the uncertainty in the macro environment make it harder to do deals or not, why is that?

Yes, Ken, what I’ll tell you is so up until let’s say the Ukraine invasion in the reset there, let’s say the reset over the past couple months just in the overall stock market in general, I think we were more at the top of the cycle. It felt things were a bit expensive. I want to be real careful that we don’t overpay. The types of companies we’re looking at is where we were buying a capability, a technology or market access. Then we can leverage across all of our business. And that’s true, whether that’s on the Distribution side or the Material Handling side. What we’re doing as we stated in our strategy is buying typically private companies that are in that size of the bolt-on range $50 million to $100, $150 million in revenue. We’re finding that most of the time, there’s a bit of a list to do with those companies. But we’re able to buy them for an attractive price work on the pricing, work on the commercial, which is what we know how to do. And they turn out to be really positive from a return standpoint. All that being said is, we’re going through these iterations. As I mentioned in my comments to bring in bolt-on capabilities that we can digest given our size today, but we’re also really cognizant of building processes in a playbook and discipline around how we acquire, how we integrate, how we get the synergies, so that when it’s time to click into those Horizon 2 deals, which are more enterprise level that we’re ready to go, and that we have a good plan and we get the synergies as aggressively as we’ve been able to get from Elkhart primarily and Trilogy secondarily. So I think the market’s there. The issue is prices were getting pretty frothy and we have a lot of discipline. I want our shareholders understand that. I mean we have a lot of discipline. We’re not going to overpay. We’ve got a lot of organic opportunities and capital investment opportunities as well. So we’ve got a number of leverage to create shareholder value. We’re going to continue to work those and be smart about it. Sonal, any points to add?

That’s great.

Yes, that’s a good question, Ken. That’s a good question. The prices are I think the prices way come down just to touch here over the next little bit with this uncertainty. And that’s a great opportunity for us with a great balance sheet and having a few deals under our belt to go, continue to acquire and hopefully acquire even at more favorable terms than maybe what we could have six months ago.

Yes. That makes tons of sense.

Yes.

Thanks for all the color.

Thank you.

Thank you so much for your question. At this time, there are no further questions and I would like to thank everybody for joining today’s call. You may now disconnect your line.