Q4 2022 Myers Industries Inc Earnings Call

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Speaker 2: Hello everyone and welcome to the Myers Industries full-quarter 2022 earnings call. My name is Bruno and I'll be operating your call today. During the presentation you can register to ask a question by pressing star followed by a button.

Speaker 3: Good morning and thank you for joining us. I'm Monica Vinay, Interim Chief Financial Officer and Vice President of Investor Relations and Treasurer at Meyers 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 fourth quarter and full year of 2022.

Speaker 3: We have also posted a PowerPoint presentation to accompany today's prepared remarks. If you have not yet received a copy of either the press release or the PowerPoint, you can access it on our website.

Speaker 3: and will be archived along with the transcript of the call shortly after this event.

Speaker 3: Please turn to slide 2 of the PowerPoint 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.

Speaker 3: 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.

Speaker 3: and may be found in the company's 10-K and 10-Q filings. Please turn to slide 3 of our presentation. I'm now pleased to turn the call over to Mike McGaugh. Thank you, Monica. Good morning, everyone, and welcome to our fourth quarter in full year 2022 earnings call. I'm excited to report another consecutive quarter of record top and bottom line results, making 2022 a record year for Meyers.

Speaker 4: This included annual revenue growth of 18% or 10% on an organic basis, adjusted ebit.gr of 51%, and adjusted ePS growth of 73%. Our team executed at a high level throughout the year and delivered on our promises. I'm proud of our team and believe that we have only just begun on our journey towards becoming a world class enterprise. Over the past few years, we've made remarkable progress on our transformation.

Speaker 4: This is a direct result of our entire team's commitment to our three horizon strategy. This strategy is brought in clear sets of direction and a common purpose and will continue to serve as the foundation for company-wide growth and operational excellence. We're approaching the completion of Horizon 1 and our goals of reaching $1 billion in revenue and a run rate of 15% EBITDA margins remain in focus. In 2022, we made good progress against these goals as we saw strong sales across the majority of our product lines and business units.

Speaker 4: Additionally, we continue to benefit from the numerous self-help initiatives taken over the past two and a half years, which included developing our pricing excellence team to ensure we capture the true value of our high quality products and optimizing our supply chains and manufacturing plants to improve productivity and output while becoming more competitive on our costs. What I feel good about is we did this while implementing a culture of servant leadership along with a culture of aggressive goal setting and execution.

Speaker 4: We can be excellent servant leaders while we drive aggressive performance improvement. Please turn to slide 4 where we have a more detailed outline of the full year results. We achieved net sales of $900 million, which was an 18% increase compared to the prior year. Adjusted gross profit was $284.1 million, up 34% compared to 2021. And our adjusted gross margin expanded by 370 basis points during the year. In spite of a choppy macroeconomic backdrop.

Speaker 4: which included strain supply chains, elevated raw material costs, and a difficult labor market, are strong results in Q4 and in 2022 are clear proof points that our strategy is working. Now I'll turn the call over to Monica for a review of our fourth quarter financial results in full year 2023 outlook. Monica? Thank you, Mike.

Speaker 3: Please turn to slide 5 for a summary of our fourth quarter results. On a quarterly basis, we delivered record top and bottom line results. Our fourth quarter net sales were up $13.3 million, or 6.6%, compared to the fourth quarter of 2021, primarily due to incremental sales from the Mohawk rubber acquisition in our distribution segment. On an organic basis, the contribution from higher pricing was offset by a decline in volume next.

Speaker 3: Quarterly adjusted growth profit increased $12.4 million or 23.5%, which was primarily driven by pricing actions, supply chain management, and the contributions from the Mohawk rubber acquisition. These were partially offset by lower volume and a change in sales mix. Adjusted growth margin for the quarter increased 420 basis points to 30.6%, compared with 26.4% in the fourth quarter of 2021. Through self-help initiatives, including price increases and cost reductions, we were able to counteract the effects of cost inflation. Fourth quarter adjusted operating income increased $4 million.

Speaker 3: Adjusted EBITDA was $22.1 million in Q4, an increase of $4.5 million, or 25.6% compared to the prior year period.

Speaker 3: Adjusted EBITDA margin expanded 160 basis points to 10.4% for the fourth quarter, compared with 8.8% in the same period last year. Lastly, adjusted EPS was 32 cents, an increase of 9 cents or 39.1%. Please turn to slide 6 for an overview of our segment performance for the fourth quarter. For the material handling segment, net sales decreased $5.1 million or 3.4% compared to the prior year. Net sales increases in the food and beverage and consumer markets.

Speaker 3: were more than offset by decreases in the vehicle and industrial markets due to decreased demand and some customer destocking at year end. Material handling adjusted operating income increased $7.8 million or 58.4% to $21 million. This was due to ongoing benefits from strategic pricing actions and self-help initiatives which were partially offset by lower volume and a change in sales mix.

Speaker 3: Additionally, SG&A expenses were higher, primarily due to increased variable selling expenses and higher incentive compensation costs. Net sales for the distribution segment increased by $18.3 million, or 35%, year-over-year. Excluding the incremental $17 million of net sales from the Mohawk Rubber acquisition, organic net sales increased 2% due primarily to higher pricing. Distribution segment adjusted operating income decreased 24% to $4.1 million.

Speaker 3: The contribution from higher pricing wasn't enough to offset higher product costs and higher SG&A expenses year-over-year. The increase in SG&A expenses was primarily due to the Mohawk rubber acquisition and higher variable selling and incentive compensation expenses. The distribution segment continues to implement price increases to offset escalating product costs. According to slide 7, for the full year of 2022, free cash flow was $48.3 million compared to $27 million for the full year of 2021. The increase in cash flow was primarily the result of higher earnings. In capital as a percentage of net sales increased 190 basis points.

Speaker 3: compared to the same period last year, due primarily to an increase in accounts receivable, driven by higher sales and a change in sales mix. On a sequential basis, working capital as a percent of net sales was flat to prior quarters. Capital expenditures for the full year of 2022 were $24.3 million, and cash on hand at year end was $23.1 million. We have a strong balance sheet, and our capital structure continues to support our long-term growth plans. With debt to adjusted EBITDA of 0.9 times. Turning now to slide eight for our outlook for fiscal year 2023.

Speaker 3: Net sales are anticipated to increase in the low to mid-single digit range, due primarily to incremental sales from the Mohawk rubber acquisition in the distribution segment. As a reminder, we acquired Mohawk at the beginning of June 2022, and annual net sales at the time of acquisition were approximately $65 million.

Speaker 3: For the material handling segment, we are currently forecasting sales to be comparable to last year due to continued self-demand in the vehicle, marine, and select pockets of our consumer end markets. We will continue to closely monitor the market conditions and provide updates as we progress throughout the year. While we do not provide quarterly guidance for the first two quarters of 2023 on a top line basis, we expect that the incremental sales from the Mohawk acquisition and the distribution segment will offset continued softness in the RV and consumer markets in the material handling segment. The corresponding change in the mix of product sold will unsavorably impact margins as compared to the prior year.

Speaker 3: but will result in stronger margins as compared to the fourth quarter of 2022. SG&A expenses are expected to approximate 22% of net sales, primarily reflecting continued investments in our people processes and operational efficiencies. Below operating income, we are projecting approximately $6.5 million of interest expense and an effective tax rate of 25% for the year. Our guidance reflects a weighted average share count of 36.9 million shares.

Speaker 3: Taking these assumptions into account, we expect an adjusted EPS range of $1.55 to $1.85 per share. Other key assumptions impacting EBITAN cash flow includes depreciation and amortization expenses of approximately $23 million and capital expenditures in the range of $25 to $30 million. CAPEX has expected to trend higher than in past years as we continue to invest in growth capabilities and drive operational flexibility and efficiencies.

Speaker 3: We expect free cash flow to continue to benefit from our self-help initiatives and result in another year of strong cash flow generation. I'd like to thank the entire Myers team for delivering outstanding results in 2022, and with that I'll turn the call back over to Mike to provide an update on our strategy. Thank you Monica. Please turn to slide 9. Thank you.

Speaker 4: This year has been remarkable in both the financial and strategic successes we achieved. We have consistency in our direction and in our purpose. I outlined our long-term vision in mid-year 2020. This roadmap has been simple, consistent, and clear, and we continue to execute against it. I have confidence in our direction and in our company. We're building a solid foundation for Meyers to accelerate its long-term growth, and in Horizon 2, we'll build on that momentum as we continue to grow the company.

Speaker 4: Before I walk through our execution update, I'd like to highlight, as I have in past calls, our resilience as a company, particularly in a choppy economy. For a small-cap company, we're well-diversified. We have deliberately pursued niche technologies, niche end markets, and niche customer applications. The resulting diversification makes us surprisingly resilient to a downturn in one end market or another. This approach, coupled with the injection of large-cap talent at a company that has been undermanaged over the past decade, has been a

Speaker 4: provides us a lot of opportunity to improve our earnings and our financial results over the next years. Now back to the update on the execution of our strategy. As I mentioned on prior calls, slide 10 outlines the strategic pillars of our strategy. These pillars provide the framework for successful execution of our strategy and I'd like to take a few minutes to walk through our progress on slide 11. Starting with organic growth, we achieved 10% organic growth during 2022 due to strong demand and select end markets throughout the year, as well as benefits from previously announced strategic pricing actions. While we expect some macroeconomic choppiness in 2023, we anticipate continued revenue growth and enhanced flow through to the bottom line. At Meyers, we focused on customer-driven innovation, how we can take existing products and extend them, make them higher performing.

Speaker 4: or make them fit better with our customers' aspirations and needs. We're careful not to chase moonshots or work on innovation projects that are not tied to a specific customer need or request. This is a disciplined approach to innovation, and it's paying off with specific, targeted customer wins. Shifting on to strategic M&A. As I mentioned earlier, we completed two acquisitions during the year, both of which were on target and on strategy. Over the past two and a half years, we've been refining and improving our M&A strategy and our integration processes. As we complete these acquisitions, we learn, we find new ways and better ways to improve how we identify, pursue, and integrate acquisitions. I'd like to remind our investors that our game plan has been intentional and deliberate.

Speaker 4: We deliberately elected to acquire a few smaller, less complicated companies so that we could learn and refine our processes with lower risk and less difficulty. This approach has paid off. We now have a better developed, more robust integration playbook and process that suits us well as we start to prepare to open our aperture and pursue larger targets. Our M&A pipeline is promising and our team is ready to act.

Speaker 4: Quite frankly, we are right where we want to be. We're hitting stride financially, we're producing results, we have preserved our balance sheet flexibility, and we believe that choppiness in the economy will provide good buying opportunities. We're ready, we're engaging with prospects, but we won't overpay and we won't become over-romanticized with a particular deal. We'll be patient, we'll be deliberate. As I said before on these calls, we view every shareholder dollar entrusted with us to be a privilege and not a right. Shifting on to our third pillar, operational excellence. I'm pleased with the improvements we've made this year as we've significantly increased the efficiency of our manufacturing facilities.

Speaker 4: We're uncovering additional capacity, we're finding and tapping the hidden factory that I've spoken to in the past calls. We expect to continue in this direction and expect to maintain and improve upon this in the years to come. In 2023, we'll institutionalize many of these advancements we've made across the four pillars into an operating system.

Speaker 4: covering additional capacity, we're finding and tapping the hidden factory that I've spoken to in the past calls. We expect to continue in this direction and expect to maintain and improve upon this in the years to come. In 2023, we'll institutionalize many of these advancements we've made across the four pillars into an operating system. The Meyers operating system.

Speaker 4: Similar to our one-Myers culture, this system will be applied and integrated across all business units and work processes. I am confident in deploying such an operating system. I have done it at prior companies, it worked well, and it produced results. Our Myers operating system will drive standard work processes across the company, ensuring that best practices are applied across all of our legacy businesses as well as our new acquisitions. By crystallizing what we do well, by standardizing our work, by developing and implementing an operating system, we will be able to scale our best practices, improve our results, grow the company faster, and institutionalize a high-performing culture. On that note, I would like to speak to our fourth and final pillar, having a high-performing culture here at Myers.

Speaker 4: In 2022, we continue to implement and ingrain our one-mire's culture. As we work together as one integrated company, we continue to see significant improvements to our businesses into the company as a whole. We have a culture that combines a servant leader mindset with an aggressive approach towards performance improvement, stretch goals, and business growth. This has made Myers a rewarding place to work attracting an influx of exceptional talent. I've spoken to this before and it's a winning formula for us. It's one of the things that's driving our transformation and differentiates us, bringing large cap talent into a small cap company. Large cap trained employees and leaders are intrigued by Myers' potential and they want to be a part of a growth and transformation story. This potential is exciting for the type of employees that we seek to have here at Myers.

Speaker 4: Over the next months, you'll see us roll out with more clarity on how we will position the company around the markets we serve and the solutions we provide. We believe that a market and solutions-based approach will provide us more latitude, will provide us a bigger sandbox in which to grow the company. Over the past years, we've moved from being a holding company to being an integrated one. We took the first step by focusing the company around the technologies we use to manufacture products. This was a good interim step, but it's not our final destination.

Speaker 4: We're going to turn the dial once more and increase our focus on end markets and solutions. This will begin the next phase for Meyers as we continue to position the company to maximize growth and shareholder value creation. Before we open up for questions, I want to emphasize my excitement for what's ahead and celebrate the many achievements we made in the past two and a half years. While Meyers will celebrate its 90th anniversary this year, the past few years were transformational for our company. Introduce a new era of growth and entrepreneurship for Meyers Industries.

Speaker 4: We're going to turn the dial once more and increase our focus on end markets and solutions. This will begin the next phase for Meyers as we continue to position the company to maximize growth and shareholder value creation. Before we open up for questions, I want to emphasize my excitement for what's ahead and celebrate the many achievements we made in the past two and a half years. While Meyers will celebrate its 90th anniversary this year, the past few years were transformational for our company and introduced a new era of growth and entrepreneurship for Meyers Industries. We view ourselves as founders.

Speaker 4: Founders of a 90-year-old industrial firm that's a zadjol and adaptive as a startup company. Founders of what Myers will be in the future in just a few short years. Our results so far are proof that our dedication to a simple, but consistent strategy is working. This company is diversified, has resilience, and has a myriad of opportunities to grow. We are well in our way to becoming a world-class company, and I look forward to sharing more updates on our progress as we go forward. Before I close, I'd like to thank all of the associates of Myers Industries who helped make 2022 a record year. Thank you all. With that, we'll now turn the call over to questions. Operator?

Speaker 2: Ladies and gentlemen, if you'd like to ask a question, please press star followed by one on your telephone keypad now. Our first question is from Lance Vitenza from Cohen. Lance, your line's not open. Please go ahead. Sorry guys, can you hear me now? Yes, we can hear Ludd and Clue. Hi, thanks. Thanks for taking the questions. I guess let me start with the outlook and then ultimately we'll kind of circle into the M&A opportunity. But Mike, look, there's no question you've done a great job over the course of the year. Really since you arrived at Myers, but it certainly feels like a lot of things are going to be going on. It's like you ended the year on rather a low note with really no organic sales growth in the forecast for 2023. It's obviously...

Speaker 2: a big change from the pace over the past nine months or the first nine months of 2022, I should say, is that just the softening economy? Could you talk a little bit about what are the guideposts that we can look to in order to eventually see improvement in the outlook? And then in a related question, if we think about horizon two of your strategy, getting to 2 billion of sales over the next few years, I think, and this, please correct me if I'm wrong. When I think you had initially talked about that growth, roughly in terms of two thirds from M&A and one third organic. So the question is, do you still think you can eventually get to that kind of organic growth and if so, what gives you confidence in that? Yes, let me try to break it up a little bit on the, and I'll have Monica supplement on some specifics and I can speak to direction. Look, I've got a lot of confidence in the material handling and confidence in the distribution segment.

Speaker 4: We're going to see some fruit that's going to bear from the Mohawk acquisition on the distribution side. I'm excited about that. On the overall, the growth and the volume that you call about, you know, there's a couple stories there. Ag is strong and we continue to think that strength will hold and that's a high margin segment for us. What we talk about and we call it the vehicle side, which is recreational vehicles and some votes in the products that sell them to the marine market. You know, that that got soft in the back half of the year. And we think there will be some recovery in the back half of 23. But, but you see some weakness there on the vehicle side.

Speaker 4: On the consumer side as well, the high-ticket discretionary items continue to be soft and we have premium products that we sell at a premium price and some of those discretionary higher-ticket items have been weaker. We've talked about them prior calls. So I think the overall volume outlook in what you saw in fourth quarter is still going to be directly true for the first half of 2023. Strong Ag, balance industrial, balanced auto-aftermarket, maybe some upside-down auto-aftermarket, consumer a bit choppy and the high-ticket discretionary is going to be a little, struggle a little bit for the first half of the year. And that's part of why we have a bit of a wider range on our guidance for the year is, look, I'm very bullish on the company. We're pulling all the right levers. We're making the company fundamentally stronger. We're starting from a low base.

Speaker 4: There's a lot of outside quarter over quarter, year over year, and we're going to continue to execute. However, there's some choppiness in these end markets. It actually allows us a little bit of time to gear down and get our plants even more dialed in. On the longer term outlook, 23, 24, 25, I'm very bullish on the company. Let's see, M&A, we said two-thirds, one-third, one-quarter, three-quarter. We are and will be an acquisition-oriented company. We have some really tight screens that we look at. We really take a disciplined approach. We want to acquire companies that make proprietary products that are in durable plastics or adjacencies. Adjacencies, we're going to widen that a little bit. I gave a little bit of prelude on how we're going to start looking at our company in terms of markets and solutions. We'll talk about that at a future call. Thanks for watching.

Speaker 4: Again, the lion's share is going to be acquisition oriented. I really think we continue to hear this, we are right where we want to be. The choppiness in the economy, the higher interest rates has put some of the financial buyers on the sidelines. Being a strategic buyer with a clean balance sheet, with really having our processes dialed in, I couldn't think of a better position to be in to grow the company via acquisition. I don't know if we are necessarily going to get fire sale prices on companies. I don't expect to. I think we can get very fair prices on quality companies that more than likely have more scale than what we have acquired in the past. But as I said, we are not going to fall in love with any one deal. We are not going to overpay. I think Lance, that $2 billion mark in 26, that is still in focus and in sight. I still feel very confident we can hit that and continue to have those EBITDA margins in the mid-teens. I think that all still holds together.

Speaker 2: It's just some of these curve balls we've had in the choppiness of our end markets. That's put a little bit of uncertainty in what I'll call the next couple quarters. I'm monitoring what would you say to that? And Lance, I would just as a reminder, you know, through in 2021 and through COVID, we did get quite a boom in the recreational vehicle Marine and select, you know, what might call the consumer discretionary. So those are very high quarters throughout 21 and even into early 22. So, you know, right now, I think things are choppy, as Mike said, but they're starting to stabilize. It's just trying to determine where they're going to kind of even out. So a little bit of a digestion of some of the above average growth that we've had. Maybe a little bit of a reset on the growth rates and then a more normalized growth rate perhaps starting in 2024 and beyond. And I'm not looking for guidance to just, you know, conceptually, I think that's what I'm saying.

Speaker 4: years, and we said, look, let's build a really solid process on building the deal funnel, being able to negotiate a quality deal for our shareholders, and then being able to integrate it and get the synergies both cost and growth. What we did is we acquired in distribution and we acquired in rotomolding. Remember, we also acquired a facility in Decatur, Georgia in the summer as well into the rotomolding business.

Speaker 4: And so we did two acquisitions last year, one in rotational molding, one in distribution. And we used those deals as an opportunity to really tighten our processes on integration. And we've got a number of staffers as well as advisors that the company is ready. And we are in discussions when would a deal go forward. It all depends when just not going to get out ahead of our skis. But I think at 23, the environment is very favorable for us to...

Speaker 4: to do a deal that fits our screens, that aligns with what we've been telling our shareholders. And we're very ready. I've got a lot of confidence. You remember, Lance, my background is on a lot of integrations, and I've brought more people to the company who are very experienced in integrations. Like I said, we're right where we need to be, and I think 23 should be here when we continue to transform the company. Well, that's great to hear. We look forward to that. We'd love to see you continue to be acquisitive. Obviously, the deals have to make sense, as I'm sure that they would, but it'd be great to see the company grow through M&A as well. So with that, thanks, guys, very much for taking the questions. I'll just jump back in the queue.

Speaker 4: a deal that fits our screens, that aligns with what we've been telling our shareholders, and we're very ready. I've got a lot of confidence. You remember, Lance, my background is on a lot of integrations, and I've brought more people to the company who are very experienced in integrations. I think, like I said, we're right where we need to be, and I think 23 should be here when we continue to transform the company. Well, that's great to hear. We look forward to that. We'd love to see you continue to be acquisitive. Obviously, the deals have to make sense, as I'm sure that they would, but it'd be great to see the company grow through M&A as well. So with that, thanks, guys, very much for taking the questions. I'll just jump back in the queue. Yeah, thanks, Lance.

Speaker 4: As a reminder, ladies and gentlemen, if you'd like to ask a question, please press star followed by one on your telephone keypad now. Our next question is from Steve Burger from Key Corp. Steve, your line's not open, please go ahead. Thanks. Mike, it seems like you've already put a lot of workflow improvements in for sales, purchasing, and operations. How much of an incremental change is the Myers operating system going to be and what kind of results do you expect it can produce? Yes, Steve, it's a good question. I would say in general, we are six out of 10, seven out of 10, four or five out of 10, and some functions. And what we found was we brought in a lot of outside capability on all the areas you talked about, manufacturing, processing, purchasing, pricing, finance, processes, sales marketing processes. But what we needed to do was we needed to package it together and leverage it more. And so I'd say that we're not only we're halfway there. So the packages up and leverage across all of our businesses is the remaining one half of value creation. But we also felt Steve in order to really scale as we acquire companies, we need to have this lockdown documented and crystallized. A person from from????? States, a public institution's economy, a green team, rich shared guestrooms, poor and vulnerable, and yet, they made Ryan jade with football in business. Very fast. Be timemoving your dealer, including the

Speaker 4: And we also wanted to outlet of any of us. And so we've got a lot of experts here. As you all know, I brought in a number of people who are kind of at the twilight of their careers. They're very, very good. But what I said is, look, we need to crystallize this locket down, document it, and be able to replicate it, independent of the FTE, independent of the people in the chairs. And so really this is more about resiliency, longevity, of all the good things we've brought here. I want to be sure that they continue to live on. They're part of our DNA, and that we can seamlessly apply them to acquisitions. And so I'd say, yeah, just to say Namely Steve, we're halfway to where I think we should be. And I know this will be a continual process, but how long does it take to get from halfway to 80 or 90 percent? Yeah, that's our work focus for 23 and 24. Yeah, 23 and 24. We've got a lot of documentation on here. We're a smaller company. We can't do it all in one shot because I don't want to dilute ourselves. They'd rather do three things well in a given year rather than chase 10 or 11 things. So we're really focused. But the codifying crystallizing this operating system. Also bringing in a more robust approach to IT and updating our IT systems. Those are the two flanges coupling that with what we're calling our MNA technology center. Our MNA expertise center. Those pieces, the expertise center on MNA, the operating system coupled with renewal on IT.

Those three pieces are going to allow us to be, to have more success in an acquisition mode, acquiring companies that may be outside the scope of plastic products. Metal products. We feel we have the right people, we feel we can do that, but that's the work we're doing over the course of the year 2023 and 2024. That's what's going to drive us from, let's say, a billion in change, a billion and a half to three or four or more. But it's those three pieces, those three legs of the stool. And again, that's what we plan to talk about on subsequent calls quite frankly. Well, since you brought it up, what would you contemplate outside the scope of plastic or metal products? You know, so if you look at our business and see if you look at it and we're really more in the storage and handling business. So we make high performance branded products that move, store and organize. So if we look at our businesses in that lens rather than as a buckhorn or acro mills lens, you get some confidence and other things we can do in the storage and handling world. Or an auto aftermarket. You know, auto aftermarket, we make and sell high quality repair and replacement parts. For passenger cars, commercial vehicles, heavy equipment. We can broaden that scope. We do some of that well, but what else could we do? And then again, designed an engineer product, designed an engineer's solutions. We do a lot in that space on the engineer product side, designed product side. What else can we do to bring high performance value added products to our customers? So those three silos and see if I'll talk more about it in the future. It's exciting because it takes all this operation. That's what it's worth. We're doing.

And it really expands our horizons without getting us into S-O-T-R-I-K-N markets. We're really trying to strike the right balance of opening the aperture, but also sticking to our roots and know-how. And we think by taking the operating system, IT updates, ERP updates, and then an expertise center on M&A, I think those are the three pieces of the ingredients that are really going to help the company fly. I'm really excited about it. Yeah, I'm looking forward to hearing more about that. Your team did a nice job driving the 370 basis points of gross margin expansion from the inflation mitigation efforts. As you think about MIX and the consumer products, the trends that you talked about, do you think you can hold gross margin where it was last year, or is that likely to come down a little bit as you work through the first half of the year? And the question is about the full year, but just as you think about the cadence. Yeah, let me just obnoxious go ahead, that's it. Yeah, Steve, we would still, our focus in goal would still be to further expand gross margins in 2023. Obviously not to the extent that we did in 2022, but we're holding price wherever we can, and we're going to continue on the operational efficiency. And in order to continue to drive further margin expansion. Yeah, Steve, you saw a little bit of choppiness on the distribution margins. I think that was more related to remember that business bought a sizable, sizable participant in the market with Mohawk. And you have 456 months of integration with two IT and ERP systems and merging of large, very large sales force. And so you can see a place on that 7% EBITDA.

that our cost of goods got away from us a little bit. So we've since announced beginning of the year some really robust price increases in the distribution segment. And I believe we'll start to see those show up in our financials in first quarter and second quarter. So in the distribution side, I feel good about the margins and the outlook there. And again, across the board on the material handling side, we make high quality niche products. We have a good reputation and a good service level. We've been able to hold. And I think that's we're going to continue to be able to hold particularly as polyethylene wines of it. I think we're going to continue to have some expansion. As I this last question, as I think those through those two things that you just talked about for distribution and material handling, should I think that distribution outgrows this year because the weakness in the first quarter or can material handling make it up in the back half and outgrow distribution? Yeah, I'll look to Monica for the specifics. A bit of it is there are some unknowns in there. There are some unknowns in those in market Steve. I feel pretty good about distribution. But let me go ahead Monica once you. Yeah, I would say currently just based on the choppiness. We're outside of Mollhawk. We're looking for distribution to still grow organically in the low single digit range, low to mid single, like just like our outlook, whereas material handling is more likely to be comparable to last year's I said in the remarks. All right, great. Thanks. Thanks. We currently have no further questions. I will now hand back to our speaker for final comments. Monica Vene, please go ahead. I appreciate your interest in myres industries. Thanks for joining us and have a great day. Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines. Thank you. You