Good morning and a warm welcome to the Myers Industries Third Quarter 2022 Earnings Conference Call. My name is Candice and I will be your moderator for today’s call. [Operator Instructions] I would now like to pass the conference over to our host, Monica Vinay. Please go ahead.

Thank you, Candice. Good morning and thank you for joining us. I am Monica Vinay, Interim Chief Financial Officer and Vice President of Investor Relations and Treasurer at Myers Industries. Joining me today is Mike McGaugh, our President and Chief Executive Officer. Earlier this morning, we issued a press release outlining the financial results for the third quarter of 2022. We have also posted a PowerPoint presentation to accompany today’s prepared remarks. If you’ve not yet received a copy of either the release or the presentation, you can access them on our website at www.myersindustries.com, they are under the Investor Relations tab. This call is also being webcasted on our website and will be archived along with the transcript of the call shortly after this event. 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 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, Monica. Good morning, everyone and welcome to our third quarter 2022 earnings call. I’m excited to report a third consecutive quarter of record top and bottom line results. These results were driven by strong revenue growth, continued year-over-year margin expansion and consistent progress against our 3 Horizon strategy. We saw healthy momentum across the majority of our businesses, we continue to execute and deliver on our self-help initiatives and we continue to realize the benefit from pricing actions taken by our commercial teams over the past 2 years. The quarter’s results serve as another proof point that our strategy is working and then our businesses are resilient in the face of a challenging macro environment. In the third quarter, our net sales increased 14% compared to the year ago period, which represents the eight consecutive quarter of double-digit expansion. On an organic basis, excluding the incremental $19.4 million of net sales from the Trilogy and Mohawk rubber acquisitions, our revenue grew 4%. Increased sales in our agriculture, auto aftermarket and industrial end-markets continue to more than offset the impact of weaker demand in the consumer and recreational vehicle end-markets. We also continue to meaningfully expand our profitability as our adjusted earnings per share increased by 78% or $0.18 per share compared to the year-ago period. Additionally, our adjusted EBITDA increased by 57% or nearly $10 million to the year-ago period. This bottom line performance represents our third consecutive quarterly record and I am especially proud that the Myers team was able to accomplish this in the midst of a challenging macroeconomic backdrop. As a result of our strong performance year-to-date, we are raising our earnings guidance for the full year, which Monica will review in greater detail momentarily. Please turn to Slide 4 where we have a more…

Thank you, Mike. As Mike mentioned on Slide 4, our net sales were up $28 million or 14% compared to the third quarter of 2021, driven by strong sales in both the Material Handling and Distribution segments. Excluding our recent acquisitions, organic net sales increased 4%. Adjusted gross profit increased $17.5 million or 32%, primarily driven by pricing actions and incremental contributions from the Mohawk Rubber and Trilogy acquisitions and partially offset by a change in sales mix and lower volume. Adjusted gross margin increased by 430 basis points to 31.5%, compared to 27.2% in the third quarter of 2021. Adjusted operating income increased $9.5 million or nearly 76% compared to the prior year, driven by the higher gross profit, partially offset by higher SG&A expenses. SG&A expenses increased due to cost inflation, the Mohawk Rubber and Trilogy Plastics acquisitions and higher salaries, incentive compensation costs and variable selling expenses. As a result, adjusted SG&A as a percentage of sales increased to 21.9% compared with 21% in the same period last year. Adjusted EBITDA was $27.2 million, an increase of nearly $10 million or 57% compared to the prior year. Adjusted EBITDA margin expanded 330 basis points to 11.9% for the third quarter compared with 8.6% in the same period last year. Lastly, adjusted EPS was $0.41, an increase of $0.18 or 78%. Please turn to Slide 5 for an overview of our segment performance for the quarter. For the Material Handling segment, net sales increased $6 million or 4% compared to the prior year. Excluding the incremental $2.9 million of sales from the Trilogy Plastics acquisitions, organic net sales increased 2%. Organic net sales increases in the agriculture and industrial end-markets were partly offset by a decline in sales in the consumer and recreational vehicle end markets. Adjusted operating…

Thank you, Monica. Now turn to Slide 8, I want to provide an update to our three Horizon strategy, which we unveiled a little more than 2 years ago. Since the launch of our strategy, we have made significant progress against the three elements of Horizon 1, self-help, organic growth and bolt-on M&A. And the first element, self-help, our continued rollout of a robust S&OP process has allowed us to better schedule, better sequence our plants, leading to the identification and unlocking of additional capacity. This hidden factory as we call it is providing both cost capacity and will allow us to continue to drive volume and revenue growth in the years to come. Our injection of new talent continues to have a significant impact in this area as well. These individuals have joined Myers from large, well-run global multinationals and expertise in running highly efficient and low-cost operations. Combining the know-how of these individuals with the passion and commitment of our legacy associates will continue to be an approach that improves margins and create shareholder value. It’s exciting we continue to see breakthrough opportunities in Myers performance using this approach that I’ve described in the past is we’ve bought in large-cap talent and capability to a small-cap company. And the second element, organic growth, we continue to drive commercial excellence through ongoing training, through the addition of new talent and through the implementation of proven and disciplined processes, we continue to improve our commercial capabilities. These improvements are lasting and are significant contributor to our record breaking results. The good news is that we are early in our journey and there is still much improvement to be obtained over the next years. And our third and final element, bolt-on M&A, we’ve integrated three companies into Myers over the past…

Operator?

Thank you. [Operator Instructions] So our first question comes from the line of Lance Vitanza of Cowen. Your line is now open. Please go ahead.

Hi, thanks, guys. Thanks for taking the questions. I’ve got a couple, if that’s okay. And Mike I thought I’d actually start on Slide 8 and the long-term vision. You talked a lot about M&A and I guess I’m curious, I think you mentioned that you – we should expect to hear more about Horizon 2 in the coming quarters, I think that’s what you said. And so my question there is, I mean, I think as I read the slide, Horizon 2 is more squarely focused on global expansion as opposed to bolt-ons within the North American market, so I just want to make sure are you suggesting that we’re going to hear more about overseas expansion in coming quarters. And then part of Horizon 2 is, is enterprise level M&A within North America, so I guess I’m just wondering if that is also – are you suggesting that you’re going to be doing a transformative type of a transaction, is that sort of the next phase for you?

Yes, Lance. Appreciate the question. We’ve looked at Horizon 1 was self-help to improve our profitability, that funds organic growth and bolt-on M&A, which gives us some scale and gets us comfortable for potential transformational deals that I think would move the needle more in terms of shareholder value creation. Horizon 2 was to focus more on largely domestic, but still potentially transformational deals. And then Horizon 3 was more global in nature. We continue to talk about it in our release, our focus on durable plastics in adjacencies, really focused on those products with competitive moats and they are typically going to be large-format or large-size products because that just has greater barriers to entry, I think allows itself for more profitability. So if you look at Horizon 2 as I’ve outlined on slide 8, we do talk about Horizon 1 kind of sunsetting through the year 2023 and Horizon 2 beginning in the year 2023 and I really believe Lance we’re right on schedule. What’s most exciting is that our company continues to hit stride on the self-help piece and on the operational excellence and organic growth in commercial. I think we will continue to see Myers hit stride just as some of the macro factors start to potentially have a more negative impact on potential acquisition targets. And so on a relative basis, I’m excited, I think we’re going to be getting stride over the next 12 to 18 months, 12 to 24 months and that’s going to put us in a great position to acquire good companies at attractive economics.

Okay. Thank you for clarifying that. So then get back to the sort of the near-term, the revenue performance that you reported 4% organic growth, that’s better than we were expecting and quite good. But it is a big slowdown from the trends that we were seeing earlier in the year as we expected, but could you just remind me why we are having this big slowdown in the year-on-year organic growth versus the rates that we saw in the first half of the year? And then just how does that generally make – how does that leave us as we think about the setup for 2023?

Yes, Lance, great question. I believe we published our segment results and when we file at the end of the day today or later today, part of that is the consumer market was down 27% year-over-year and some of that is the portable fuel container business notwithstanding Hurricane Ian at the end of the quarter, it was a pretty column and quiet hurricane season. And so we saw that. The other piece is, we make high-end consumer discretionary goods in the road molding business as an example, I’ve talked about that in the past, some of these high-end planters, household decorative moldings, lawn and garden covers, mill box covers that are really high end. We’re seeing the warehouses for some of those products get full at the retail big boxes and that’s slowing down. I think we’re seeing inflation, pinch consumers’ buying habits on high-end consumer discretionary and that’s why our consumer segment is of 27%.

Okay. I understand. Thank you. And then on the margin side, I just – the gross margin trend into fourth quarter, I’m wondering if you were to hit the same sort of level of revenues that you were – that you hit in the third quarter, as you think about you have a lot of different puts and takes, there is inflationary pressures, you’ve got the cost increases, the price increases that are flowing through. Do you think that, that gross margin of 3Q, is that sustainable? Or is that biased, should we think about that as biased to the downside or upside as we think about the rest of the year and into next year?

Lance, let me ask Monica to address that.

Sure. Thanks. Lance, you have started the question with at the same sales level, I would say at the same sales level, that margin would be sustainable. But based on the midpoint of our guidance and our revenue outlook, obviously, sales in Q4 are going to be down sequentially. We still expect margin expansion year-over-year to be up the plus 400 basis points we saw in Q3, but again we expect lower top line. So, it will – the lower volume will have an impact on overall margins.

Yes. Lance, if I can, just talking about the overall sales volume for fourth quarter as you look into 2023 and beyond, I think ag is going to still be healthy, construction is going to be healthy, industrial is going to be healthy, industrial and infrastructure will be healthy. I think consumer is still going to be problematic. I think RV is going to continue to be problematic. And as those things kind of balance themselves, you do see more muted sales growth in spite of having three or four segments that are really good and two or three segments that are significantly off.

Okay. Thanks for that clarification Mike, appreciate it. Why don’t I get back into the queue, hand the baton to the next person. Thank you.

[Operator Instructions] Our next question comes from the line of Steve Barger of KeyBanc. Your line is now open. Please go ahead.

Hey good morning. Thanks.

Hi Steve.

Mike, no question your team has done a great job of managing price-cost from both sides of the equation. As some input costs come down, yet you see other areas that are still high, how are you thinking about your ability to hold price? And maybe can you compare auto, ag and industrial versus the weakness you are seeing in consumer?

Well, I would say, in general, Steve, we have taken a – through commercial excellence, through the training, we really take this pricing our products for the value they bring to our customer. We really take that seriously. I believe that’s going to provide a durable expansion of margin. I believe it’s going to allow us to continue to hold price directionally. And there will be areas where – there will be areas where we may have to moderate based upon competitive pressures. But in general I think we are going to be able to hang on to the price, I think we are. So, as I look into the next quarters and years, I think what we will be able to hold and expand margin even if volumes are down a bit. Now, across what our asset base, Steve, is not extremely high cost capital. So, we are not having to run the plant to cover a big fixed cost basis. We can throttle these plants up and down based upon need. I talked in the past, we actually had a labor force for these facilities, some of that is contract deliberately. So, we can throttle that down as well. There is a lot of ability to vary down our plants and our labor as needed. And so we don’t have to – we are not in a position where we have a big high cost, fixed cost asset that we have got to run and in order to run it, we have got to drop price if demand slows. Fortunately, we are just not in that situation. And so – and remember most of our niche markets, we are the leader or we are in the top one or two and we make great high quality products and our service levels most of the time are really good, and that allows us to have confidence in our stickiness of the pricing.

It’s great color. And as to the point on the plants, you are running, call it, $230 million per quarter this year, where are utilization rates on the plants? And is the footprint where you want it to be, do you need to close anything or shift anything or spend money just to rationalize?

Yes, that’s a good question. We are doing some of that, Steve, as far as trying to figure out. Over the next 2 years to 3 years, we actually brought in some really good capital planning personnel that have really helped us dial that in. Directionally, I think we could have more assets in the South and the Southeast. And we are looking – quite frankly, we are looking at if there is a potential recession, does that provide us with opportunity to go expand at attractive price points into the South of the Southeast. Overall – in an overall rationalization, I think our footprint is a good footprint. There may be a few asset consolidations, Steve, that we may need to do, but it’s not driven necessarily by a decrease in demand, but it’s more of an outlook of – we need more exposure in the South, Southern United States, more exposure into the Southeastern United States. I am really pleased with the personnel we have brought in to help us on capital planning, capital discipline and we are seeing really good results from that.

That’s great. Shifting to end markets a little bit, do you expect – and I think you already said you expect continued strength in auto and industrial. Any pockets of weakness there, or is that remaining pretty firm as you go into year-end?

Auto still seems to hang in there. Industrial still seems to hang in there. If there is any industrial that has more exposure to infrastructure, we are seeing good uptake there. Construction still seems to be strong as well. Any sorts of tanks or plastic parts that we make for some of the big construction equipment companies, that’s going well. In fact, I think a lot of those companies will still take all the products we can make for them. Just the consumer discretionaries where we see the weakness and if the customer is spending so much money putting food in the shopping cart or putting gas into their car, they don’t have a lot left over for something that’s nice to have, particularly if it’s a premium good. And we are seeing some of that thing, some of that weakness. But let me – Monica, any additional color?

No, I think that covers. One other comment too is just that ag will continue to be strong.

Yes. For sure, that’s true.

And then in the press release, you talked about looking to – you are thinking about adjacencies with moats. And I am just trying to define what that moat means. Is that a hard-to-replicate manufacturing process? Is that a patent? Is that a relationship? What are you – how do you see that playing out?

Yes. Steve, good question and maybe I should have teased that a little bit more. We always talk about is what’s our sweet spot at this company. So, we have all these plastics technologies and we are actually reasonably good at executing them and we’re getting better. And so we look at it and say, can we get – can we make large-format products because they are difficult to ship from a low-cost geography like China or Southeast Asia. So, it gives us a bit of a competitive moat because we are competing against U.S. only companies. Now, I will tell you that also benefits from the trend we are seeing of onshore. I think Myers is well positioned to capitalize on this pro-USA manufacturing push. So, that’s a good thing. The other I will talk about is on a technology and difficulty standpoint, I like the larger products because they are more difficult to make, the molds are more expensive, the know-how is greater. And so as a result, the competitive moat is CapEx and knowledge and a little bit of the difficulty to make the parts. And just naturally that falls out that you have 3 or 4 competitors rather than 10 or 12. And so we just want to stay in that spaces. We know how to do it. It’s what we do well. But can we look beyond material handling potentially. And can we – that’s our core large-format material handling, but can we look beyond that. And I really believe, we are giving a lot of inbounds in the last few months, I think that’s going to continue. There is a lot of companies, particularly private companies that I think are going to have some challenges and I think it’s going to present some opportunities with us with a great balance sheet. And over the last 3 years, we have really worked to get our capabilities dialed in on how to run plants and make money. And I think it’s going to present us with some great opportunities to create value for our shareholders over the next couple of years.

One last one from me. It’s interesting that you brought up the near shoring [ph]. We are asking this question about – of a lot of industrial companies. Do you think that’s a real trend? Are you getting requests for quotes for things that people want to resource from other countries?

We are because it’s just – I think the supply chain issues spooked some customers that we saw over the last 2 years or 3 years. And if you can make it in the Quad Cities as an example versus somewhere in Southern China, even if the costs are little bit higher on labor, the ability to have rapid feedback and rapid delivery, it means something to our customers, particularly those construction and ag customers that are oversold. And so a reliable supplier that’s 300 miles away, we are seeing the quotes versus a supply chain that’s 8,000 miles away.

Yes, perfect. Thanks.

Awesome. Thanks Steve.

Thanks Steve.

Thank you. We have a follow-up question from Lance Vitanza of Cowen. Your line is now open. Please go ahead.

Thanks guys. I did want to just ask you about the adjusted EPS guidance, which I believe suggests the fourth quarter will be coming in between $0.14 and $0.34. That range is wide and it’s wider than I would have expected. And I am wondering if that’s representative of real variability or volatility that you are seeing over the last couple of months of the year, or if there is something else there? And what – maybe if you could talk a little bit, Mike, about what sort of circumstances could lead the EPS to come in closer to the $0.14 versus closer to the $0.34 of that range? Thanks.

Yes. That’s fair, Lance, I mean we put that guidance out. I mean just to keep it simple, we just raised it by $0.10. But you raised a good point of the spread between $0.14 and $0.34. Mathematically that’s correct. I just think that lower end is a very low probability. I don’t see that happening realistically. So, we just raised it a $0.10. But Monica, do you add any color to that?

I would just say that I think while there is some uncertainty, we feel pretty confident about the midpoint of the range, and we have raised it to $0.10 to continue to emphasize that we think we will be around the midpoint of the range.

Yes. Lance, I was focused more on the midpoint and I kept it $0.10 on either side, maybe I should have tightened it up, just late in the year.

Thanks guys. Appreciate it.

Thank you.

Thank you. As there are no more questions registered at this time, I would like to hand the conference call back over to the management team for closing remarks. End of Q&A:

Thank you. Thanks to everyone for your time today and your interest in Myers Industries. Have a wonderful day.

Ladies and gentlemen, this now concludes today’s conference call. You may now disconnect your lines.