Hello, and welcome to the Myers Industries Q3 2024 Earnings Call. My name is Elliot, and I'll be coordinating your call today. [Operator Instructions] And I'd now like to hand over to Meghan Beringer, Director of Investor Relations. Please go ahead.

Thank you, Elliot. Good afternoon, everyone, and thank you for joining Myers' conference call to review 2024 third quarter results. I'm Meghan Beringer, Senior Director of Investor Relations at Myers Industries. Joining me today is Dave Basque, our Interim Chief Executive Officer; and Grant Fitz, our Executive Vice President and Chief Financial Officer. After the markets closed today, we issued a press release outlining our financial results for the third 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 earnings per share 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. Please turn to Slide 3 of our presentation, as I will now turn the call over to Dave Basque.

Thank you, Meghan. Good afternoon, everyone, and welcome to our third quarter 2024 earnings call. I'm pleased to speak with you as Myers' Interim President and CEO. I would like to thank the Board for entrusting me to lead Myers Industries through this time of transition. I'm confident that together with support of the Board, we will continue to make improvements to move Myers forward. Now let's discuss the highlights of the third quarter. Please turn to Slide 4. During the quarter, the addition of Signature Systems to the Myers' portfolio, along with Scepter's strong performance allowed for sales, gross margin, and adjusted EBITDA growth. For the quarter, Signature was the primary driver of our gross margin expansion due to their highly differentiated product line. Scepter sales increased about 60% versus the prior year, driven by additional contracts and revenue in the military end market and the delivery of fuel cans to help those impacted by recent hurricanes. These two power brands helped us grow during the quarter and demonstrate the benefit of developing similar branded products to drive Myers' growth. Demand headwinds persisted in several of our end markets, notably in recreational vehicles, marine and automotive aftermarket. In addition, we are now seeing reduced demand in the food and beverage end-market as many of our customers are delaying capital spend given current macroeconomic conditions. We anticipate cautious customer spending behavior for the remainder of the year and likely continuing into 2025. In response to these challenges, we are increasing our sales activity in the affected markets and introducing an added tranche of cost-cutting initiatives that will yield $15 million in annualized savings. These initiatives are incremental to the previously announced $7 million to $9 million cost improvement plan and $8 million in synergies from the Signature acquisition. This will…

Thank you, Dave. I would like to begin on Slide 9 to go over the full summary of the third quarter 2024 financial results. Net sales were $205.1 million, which increased $7.3 million or 3.7% compared to the third quarter of 2023, with the increase driven by both the Signature acquisition and strong demand for our Scepter products in both the military end market and for fuel containers, offset by lower pricing and volumes across the other segments. Our quarterly adjusted gross profit was $66.3 million, an increase of $3.7 million, or 5.8%, compared to Q3 of last year. Adjusted gross margin was 32.4% compared to 31.7% in 2023. The favorable variance in adjusted gross margin was largely driven by the acquisition of Signature, favorable product mix and lower material costs, partially offset by lower pricing and volume. Selling, general and administrative expenses increased $4 million, or 9.1% to $47.7 million due to the acquisition of Signature, partially offset by cost savings initiatives and reduced variable compensation. SG&A as a percentage of sales increased to 23.3% in the third quarter of 2024, compared to 22.1% in the same period last year. Operating income in the third quarter decreased to a loss of $4.8 million as compared to $18.7 million in Q3 of 2023. In the quarter, we recognized a $22 million non-cash charge for goodwill impairment related to the rotational molding business within our Material Handling Segment. The impairment primarily results from the continued anticipated market headwinds that we have seen in that business. The charge does not affect cash or covenant compliance. On an adjusted basis, operating income increased to $20.5 million compared to $20 million in the third quarter of 2023. Third quarter adjusted EBITDA was up to $30.7 million versus $25.6 million in the prior year quarter.…

[Operator Instructions] First question comes from Christian Zyla with KeyCorp. Your line is open. Please go ahead.

Thank you. Good afternoon, everyone.

Hi, Christian.

First question, Dave, I know you've been at Myers for four years now. But as you've been in the CEO seat for the last two months, what have you been focused on and in which parts of the business do you think you can make the biggest impact?

Well, we're focused on two areas. One is growing our power brands and secondly, we're focused on optimizing our -- getting our costs in control for our engineered products businesses primarily. So we've been developing a slate of plans to achieve those objectives. It's been a busy time for us. I've learned a lot, but yes, those are the areas of primary focus.

Great. Thanks. And then I guess as the year has played out, where have you guys been the most surprised with the performance of your four power brands and where do you see the most upside in the near term or mid-term?

Yes. Hi, Christian, this is Grant. So I would say, looking back at the year, for the bulk of the year, we've been facing headwinds as we've been talking about with the RV and marine, as well as in our automotive aftermarket with the distribution business. So that is -- it's continued to unfortunately be something that's been in front of us throughout the year. I think what's changed since the last time we talked in our Q2 earnings is that we're seeing now some continued or some additional headwinds in our food and beverage end market, particularly with the seed containers, as well as our IBC paste containers. We had anticipated that we were going to see some declines with the seed containers just because last year was a record year and certainly there's a seven-year cycle within that product. We were hoping to offset that with some -- to some degree with our industrial boxes, as well as our IBCs to some degree. That hasn't happened to the full extent. And so I think that's probably the piece that has changed the most since we last met after the Q2 earnings. The additional issue is that I think we've also just recognized that our distribution business, we need to make some changes and we need to go -- move forward to really get that business back on track and start to work towards growing the business. We've talked a lot in the past on some of the Mohawk integration issues. I think our focus now is what can we do to improve the overall commercialization of that business, looking at where we might have gaps with sales coverage and where we might have issues that we need to win back customers that we had lost through the Mohawk transition, as well as just focusing on cost reductions in that business as well too. And we're pretty excited about the team that's been put in place. We think they've got really some strong capabilities. And it's not just been the leader of the business. We've also made some significant changes with other leadership members for the distribution business.

Thanks. I guess that tees up my next question pretty well. So your EPS guide suggests 4Q in a range of $0.07 to $0.17. So should we be thinking that distribution will post negative margin or is it positive and you expect a significant reduction in the material handling margin?

Yes, it's going to be probably a mix across things. In general, we might have a little bit of seasonality with the fourth quarter. Some of our businesses, things start to slow down a little bit for that fourth quarter. So there is some margin impact just with the lower volumes that we would have with our Material Handling business. I wouldn't throw in the towel on a negative margin quite yet on the Distribution business. We would like to continue to have that business be profitable and continue to grow profits over the longer term. But we have work to do in that business, without question, as I mentioned with some of the leadership changes that we need to be putting in place for that. You did ask in the prior question, I probably didn't address it as well. Is just in terms of the upsides that we see for the business. We really do see some significant continued upside with the -- with -- in particular, the military business for Scepter. We've talked about growing that business from, I think, it was $11 million last year to over $25 million this year and we projected that we will get up to $40 million next year. So really strong continued improvements there as we both ramp up some of the contracts and the capacity that we've put in place for that business. Additionally, we will get some further tailwinds from some of the hurricane activity, storm recovery activity in the fourth quarter as that -- those two hurricanes essentially balance between Q3 and Q4 and the timing of that. So we see some upside opportunities potentially with that or just the quarter just as we balance that out. Additionally, we feel very, very good about the Signature business. Continue to see strong demand for the infrastructure projects and that business, we continue to see longer-term growth and continue to drive that forward. And as we talked about the e-commerce continues to do well for us and helps to support not only our four power brands but also other parts of our business including the rotational molding business with our RV tank sales as well as in our Distribution business.

Great, thank you. Last one for me and then I'll jump back in queue. But just kind of going on that e-commerce point is, can you just give us an update on the e-commerce strategy, kind of what's been working? And then are there other parts of your portfolio that you look at and think can benefit from opening up to some e-commerce or DTC channels? Thank you.

Yes, we continue to -- Akro-Mils is our largest product line that's sold through e-commerce. We continue to grow that. It's primarily through Amazon. We're learning and growing in our ability to influence the sales through Amazon. So we're getting better at that and that's helping drive our increases. But we're also launching new product lines through Amazon, for example, in the Roto products and also some distribution products and Scepter. So those are all helping to fuel growth. We spend a lot of -- we have a team focused on that. We spent a lot of effort on that and there's a -- in order to the -- it's a fine line, really when you're working with Amazon because you're constantly managing the competitive profile and -- but we're getting better and better at that, and that's resulting in greater sales and also substantial margins for that product.

Great. Thank you for the color.

We now turn to William Dezellem with Tieton Capital Management. Your line is open. Please go ahead.

Thank you. Two questions. First of all, does Jeff and the new distribution team come with salespeople or relationships with salespeople that they can bring in to kind of quickly to help fill the disti gaps or will they be in a more traditional recruiting process to bring additional people in?

Yes, I think there's a little bit of both there, right? They do have relationships in the industry and they're already taking action to bring certain salespeople on board. But we are also recruiting. They've done a very good job of analyzing the territories, a very good customer analysis to determine where we have coverage gaps, and they're working rapidly to fill those positions.

And the other thing I would just add, Bill, is we are here in Las Vegas at the SEMA Conference this week. So that's one of the largest Auto Aftermarket conferences. And just in short order, the team has really done a nice job in putting together a very big promotional program that's been sponsored by our suppliers that we really are pretty excited about to see that we might get some additional incremental volume that we haven't quite anticipated completely through this activity here this week. So just in a short time, the team's been there for probably less than a month, but they really have come up with some good analysis, as Dave mentioned, but also good fresh thinking about ways that we can leverage some of our existing channels and also leverages things like this with the event that we have here at SEMA this week.

Great, that's helpful. And then back to the original cost savings of $7 million to $9 million. What was the original anticipated timeline for that to be fully implemented?

Bill, this is Grant. It's similar to what we have with the $15 million. Probably a little bit more front-loaded because we had an earlier start on that and we did announce some closures that we had with our distribution system or distribution centers as well as our Atlantic roto molding facility. So I would say, in general, we're probably going to continue to implement those through 2025, but I would -- and we should be up at a full-year run rate by the end of the year. But that would definitely be probably a little bit ahead of time versus the current tranche that we've identified at the $15 million. So we may not be giving you a firm guideline of the exact timing, but I would say, in general, that first tranche should be implemented earlier than the second tranche.

Great. Thank you both.

Yes. Thanks, Bill.

[Operator Instructions] We now turn to Nick Toor with BlackRoot Capital. Your line is open. Please go ahead.

Thank you. Just to follow up on the previous question, are any of the cost-cutting measures, the Tranche 1 or the Tranche 2, reflected in your third quarter results?

For the most part, Nick -- this is Grant, we were really implementing our Tranche 1 initiatives in Q3. So not a significant impact with the Q3 results. We will get some of that in Q4. But again, we will be continuing to implement those initiatives throughout 2025. But I would say that we'll start to pick up some momentum from some of those initiatives. Really looking at it potentially offsetting some of the headwinds that we've talked about with some of our end markets. So it is something that we want to continue to keep a very close eye on just how the markets develop and where we're at in terms of accelerating those actions.

Okay, great. So nothing really is reflected in your EBITDA in the third quarter, but we'll -- we should start to see some of those in the fourth quarter, but really in 2025 is where we see sort of the full impact.

So that's correct, yes.

Okay, great. And then in terms of your distribution business, if you could just give me a sense of how does that business strategically fit with what you are trying to accomplish in terms of high-grading your portfolio? What is sort of the strategic rationale continuing to keep it as part of Myers?

Yes. Well, we -- distribution is an important part of Myers heritage. I mean, Myers was founded on -- as one of the original businesses was the distribution business and the original business was a distribution business. We're very committed to improving that business. So we've got a lot of -- we're focusing a lot of effort and we put some of our best operations and commercial people on it now to improve that business. So that's our stance, certainly is that our main focus on that distribution business is to return it to the profitability levels that we've enjoyed in the past and improve from there.

Okay. I mean, I guess, just one shareholder's opinion, but it just seems, it's a lower-margin business. It doesn't have a secular growth profile. And maybe once you turn it around, it's maybe better in somebody else's portfolio. But just going back to the guidance you guys had given a few quarters back of sort of 10% organic growth profile on the top line, is that sort of still your thinking either generically going forward that, that is the growth profile of the business.

So, I would say in general, we still see very strong growth profile opportunities for the four power brands. And so, I would say that we're moving away from that. We certainly have some headwinds that we're dealing with in the food and beverage area, but we really continue to see very strong growth profile with the Signature business, with our Scepter business. And also with the Akro-Mils business and Buckhorn business, we expect those to continue to grow in the future. So no, I wouldn't say there's any significant change there. The one that's been disappointing to us obviously has been our distribution business, our automotive aftermarket with the declines that we've had this year, we really want to continue to focus on -- both on the cost side, as well as how we can improve the revenue trends that we've seen in that business. But I would say, as we put those measures in place, we've looked at, I believe we had said, basically, the distribution business and our Engineered Solutions portfolio would be essentially GDP type of businesses in terms of the growth levels.

Okay, great. That's all for me. Thank you so much.

Thanks, Nick.

We have no further questions. So this concludes our Q&A. I'll now hand back to Meghan Beringer for any final remarks.

Yes. Thank you everyone for joining us today. If you have additional questions or would like to schedule time with our management team, you can contact me. My information is on Slide 16. Thanks for your interest in Myers and have a great day.

Thank you.

Thanks, everyone.

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