Q3 2023 Myers Industries Inc Earnings Call

November 1, 2023

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Hello, everyone and welcome to the Myers Industries, Inc. Closer 320 23 earnings call.

We will begin in a few moments time to register a question for the Q&A portion of today's call. Please press star followed by one on your telephone keypad.

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Operator: 4 to 3 2023 earnings call. The call will begin in a few moments time to register a question for the Q&A portion of today's call. Please press start followed by one on your telephone key pass.

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Hello, everyone and welcome to the Myers Industries, Inc. Quarter, 320, 23 earnings call. My name is Carla and I will be your operator base KOB one of them in today's prepared remarks that will be a Q&A session. Right. You start. Your question. Please press star followed by one on your telephone keypad.

If you wish to revoke your question at any point. Please press star followed by two and we kindly ask you to limit yourself to one question and two follow ups actually I will now hand over to your high cost.

Pet Executive Vice President and Chief Financial Officer of Myers Industries to begin grant. Please go ahead.

Thank you Carlos good morning, and thank you for joining us on <unk> Chief Financial Officer at Myers Industries. Joining me today is Mike Mcgaugh, our President and Chief Executive Officer, where both here in Las Vegas at the Sema Auto aftermarket show meeting with customers and suppliers and in a very exciting industry.

Operator: Hello everyone and welcome to the live industry Inc. 4 to 3 2023 earnings call. My name is Kala and I will be your operator for today's call. Following today's prepared remarks, there will be a Q&A session. To register your question, please press start followed by one on your telephone keypad. If you would sure vote your question at any point, please press start followed by two. And we kindly ask you to limit yourself to one question and two follow ups only.

Earlier. This morning, we issued a press release outlining the financial results for the third quarter of 2023.

We have also posted a presentation to accompany today's prepared remarks, if you have not yet received a copy of either of the release or the Powerpoint you can access them on our website at Www Dot Myers industries Dot com under the Investor Relations Tab. This call is also being webcast on our website and will be archived along with.

Grant Fitz: I will now hand over to your host, Grant Fed, Executive Vice President and Chief Financial Officer of Myers Industries to begin. Grant, please go ahead. Thank you, Carla. Good morning and thank you for joining us. I'm Grant Fitz, Chief Financial Officer at Myers Industries. Joining me today is Mike McGaugh, our President and Chief Executive Officer. We are both here in Las Vegas at the SEMA Auto Aftermarket Show, meeting with customers and suppliers in a very exciting industry.

The transcript transcript of the call shortly after this event.

Please turn to slide two of that Powerpoint for our safe Harbor disclosures I would like to remind you that we make so 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.

Grant Fitz: Earlier this morning, we issued a press release outlining the financial results for the third quarter of 2023. We have also posted a presentation to a company today's prepared remarks. If you have not yet received a copy by the release or the PowerPoint, you can access them 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.

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 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 maybe found in the company's 10-K and 10-Q filings. Please turn to slide three of our presentation I'm now pleased to turn the call over to Mike Mcgaugh.

Grant Fitz: Please turn to slide two of that PowerPoint for our Safe Harbor Disclosures. I would like to remind you that we may make some forwards-looking statements during this call. These comments are made pursuant to the Safe Harbor provisions of the Private Security's 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 differ materially from those expressed or implied in these statements.

Thank you Greg Good morning, everyone and welcome to our third quarter earnings call.

<unk> results are a testament to our focus on operational and commercial excellence.

These efforts have helped us offset near term macroeconomic headwinds and as a result, I'm pleased to report that we have delivered our seventh consecutive quarter of adjusted gross margin expansion on a year over year basis. In addition, adjusted EBITDA margin also expanded this quarter.

Grant Fitz: Also, please be advised that certain non-gap financial measures such as the adjusted gross profit, adjusted operating income, adjusted EBIDAM, 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 10K and 10Q filings. Please turn to slide three of our presentation.

Our gross margin and EBITDA margin resilience is a result of several operational excellence initiatives, including proactive cost containment efforts manufacturing operations optimization and improved sales and operations planning.

These initiatives continue to generate results.

While our third quarter's topline was impacted by softer demand, particularly in end markets that are more consumer oriented. We continue to believe that there are significant organic growth opportunities ahead.

Michael McGaugh: I'm now pleased to turn the call over to Mike McGuff. Thank you, Grant.

Michael McGaugh: Good morning, everyone, and welcome to our third quarter earnings call. The quarter's results are a testament to our focus on operational and commercial excellence. These efforts have helped us offset near-term macroeconomic headwinds, and as a result, a pleasure report that we have delivered our seventh consecutive quarter of adjusted gross margin expansion on a year-over-year basis. In addition, adjusted EBITDA margin also expanded this quarter. Our gross margin in EBITDA margin resilience is a result of several operational excellence initiatives, including proactive cost containment efforts, manufacturing optimization, and improved sales and operations planning.

In addition to our operational and commercial improvements we've continued to build upon an already strong balance sheet by improving free cash flow and paying down debt, allowing us to reach historically low leverage ratios.

Due to our balance sheet, we remain proactively engaged in evaluating inorganic growth opportunities that can accelerate our financial and strategic objectives.

We continue to evaluate M&A opportunities with discipline, ensuring that a potential acquisition fits our strategy and is the right move for our shareholders.

While embracing this disciplined approach we continue to refine our M&A process strengthen our deal flow ensure that target criteria are met and capture the learnings of our recent bolt on acquisitions.

Michael McGaugh: These initiatives continue to generate results. While our third quarter's top line was impacted by software demand, particularly in end markets that are more consumer-oriented, we continue to believe that there are significant organic growth opportunities ahead. In addition to our operational and commercial improvements, we have continued to build upon an already strong balance sheet by improving free cash flow and paying down debt, allowing us to reach historically low leverage ratios. Due to our balance sheet, we remain proactively engaged in evaluating inorganic growth opportunities that can accelerate our financial and strategic objectives.

We are well positioned with strong capabilities, good cash flow and our price balance sheet, just as more targets come to market at a reasonable valuation.

As I've said before we will be disciplined and patient.

We will have the capability to act and will do so when the time is right and the deal structures right now I will pass the call back to grant to walk through our financial results for the quarter.

Thank you Mike Please turn to slide four for a summary of our third quarter results. Our third quarter net sales were down $33 million or 13, 3% compared to the third quarter of 2022.

Michael McGaugh: We continue to evaluate M&A opportunities with discipline, ensuring that a potential acquisition fits our strategy and is the right move for our shareholders. While embracing this discipline approach, we continue to refine our M&A process, strengthen our deal flow, ensure that target criteria are met and capture the learnings of our recent bolt-on acquisition. We are well-positioned with strong capabilities, good cash flow, and a price balance sheet just as more targets come to market at reasonable valuation. As I've said before, we will be disciplined and patient.

This was primarily due to lower sales across both segments with the material handling segment experiencing lower demand levels within RV marine and consumer facing verticals. In addition to a calmer hurricane season. Despite the sales decline our adjusted gross margin for the quarter increased 20 basis points to 37%.

Paired with 31, 5% in the third quarter of 2022. This marks the seventh consecutive quarter with year over year adjusted gross margin expansion and is as Mike said, a testament to the power of buyers of our Meyers business system.

Michael McGaugh: We will have the capability to act and we will do so when the time is right and the deal structure is right.

Grant Fitz: Now I will pass the call back to Grant to walk to our financial results for the quarter. Thank you, Mike. Please turn to slide four for a summary of our third quarter results.

Our quarterly adjusted gross profit decreased $9 2 million or 12, 8% as price increases in the distribution segment and cost containment efforts were not enough to offset volume decreases in both segments due to the challenging macroeconomic and inflationary environment.

Grant Fitz: Our third quarter net sales were down $30.3 million or 13.3 percent compared to the third quarter of 2022. This was primarily due to lower sales across both segments with the material handling segment experiencing lower demand levels within RV, marine, and consumer-facing verticals in addition to a calmer hurricane season. Despite the sales decline, our adjusted growth margin for the quarter increased 20 basis points to 30.7 percent compared to 31.5 percent in the third quarter of 2022.

SG&A expenses decreased $8 $1 million year over year, and SG&A as a percentage of sales decreased 60 basis points to 22, 1% compared with 22, 7% in the same period last year. The decrease is a result of lower incentive compensation labor and facility costs.

Which were part of our strategic cost containment efforts.

Grant Fitz: This marked the seventh consecutive quarter with year-over-year adjusted growth margin expansion and is, as Mike said, a testament to the power of buyers of our Myers business system. Our quarterly adjusted growth profit decreased 9.2 million or 12.8 percent as price increases in the distribution segment and cost containment efforts were not enough to offset volume decreases in both segments due to the challenging macroeconomic and inflationary environment. SNA expenses decreased $8.1 million year-over-year and SNA as a percentage of sales decreased 60 basis points to 22.1 percent compared to a 22.7 percent in the same period last The decrease is a result of lower incentive compensation, labor and facility costs, which were part of our strategic cost containment efforts.

Third quarter, adjusted operating income decreased $2 million or 9% compared to the prior year as a result of lower gross profit not fully offset by the SG&A reductions.

Adjusted EBITDA was $25 $6 million in the third quarter, a decrease of $1 6 million or five 6% compared to the prior year period, adjusted EBITDA margin increased 110 basis points to 13% for the third quarter compared with 11, 9% in the same period last year.

Adjusted EPS was <unk> 38, compared to 41% 41 sites in the same period last year.

Next please turn to slide five for an overview of our segments performance for the third quarter for the material handling segment net sales decreased $23 2 million or 14, 9% compared to the prior year. The decrease was a result of softer demand in the RV marine and consumer facing end markets as I mentioned earlier.

Grant Fitz: Third quarter adjusted operating income decreased $2 million or 9% compared to the prior year as a result of lower gross profit, not fully offset by the SGNA reductions. Adjusted EBITDA was $25.6 million in the third quarter a decrease of $1.6 million or 5.6% compared to the prior year period. Adjusted EBITDA margin increased 110 basis points to 13% for the third quarter compared with 11.9% in the same period last year.

Material handling is adjusted EBITDA decreased $3, one $3 $3 million or 11, 6% to $25 1 million, but adjusted EBITDA margin increased to 19% or 70 basis points compared to the year ago period.

The margin increase was driven by self help initiatives, partially offset by lower sales volume.

Grant Fitz: Lastly, adjusted EPS was $38 compared to 41% in the same period last year.

Net sales for the distribution segment decreased $7 1 million or nine 8% year over year, primarily due to lower sales volumes.

Grant Fitz: Next, please turn to slide five for an overview of our segments performance for the third quarter. For the material handling segment, net sales decreased $23.2 million or 14.9% compared to the prior year. The decrease was a result of softer demand in the RV, marine and consumer facing end markets as I mentioned earlier.

Given the actions to improve the distributions business model through improved pricing and lower cost structure distributions adjusted EBITDA increased year over year <unk> six.

$6 million or nine 4% to $6 $6 million in spite of the year over year revenue decline along with improved pricing SG&A expenses were lower year over year as a result of lower labor costs, largely due to improving our go to market and back office organizational structures through our self help initiatives.

Grant Fitz: Material handling adjusted EBITDA decreased $3.3 million or 11.6% to $25.1 million but adjusted EBITDA margin increased to 19% or 70 basis points compared to the year ago period. The margin increased was driven by self-help initiatives partially offset by lower sales volume.

Turning to slide six free cash flow for the third quarter of 2023 was $18 1 million compared to $9 8 million for the third quarter of 2022. The increase in cash flow was primarily the result of lower working capital working capital as a percent of net sales decreased 50 basis points compared to the same period.

Grant Fitz: Net sales for the distribution segment decreased $7.1 million or 9.8% year-over-year primarily due to lower sales volumes. Given the actions to improve the distribution business model through improved pricing and lower cost structure, distributions adjusted EBITDA increased year-over-year, $0.6 million or 9.4% to $6.6 million in spite of the year-over-year revenue decline. Along with the improved pricing, SGNA expenses were lower year-over-year as a result of lower labor costs, largely due to improving our go-to-market and back-office organizational structures through our self-help initiatives.

Last year, primarily due to stronger cash collections.

Capital expenditures for the third quarter of 2023 were $4 $1 million in cash on hand at quarter end totaled $24 8 million our balance sheet remains strong and continues to support our horizon strategy with the debt to adjusted EBITDA of <unk> seven times now.

Now please turn to slide seven for an update on our outlook for the fiscal year 2023.

Given the continued macro challenges in the softer demand we've seen across several end markets. We revised our topline guidance to now decline between mid to high single digits. As a result of this we are also lowering our bottomline guidance to $1 20 to $1 28 per diluted EPS and $1 35 to $1 40 for adjust.

Grant Fitz: Turning to slide 6, free cash flow for the third quarter of 2023 was $18.1 million compared to $9.8 million for the third quarter of 2022. The increase in cash flow was primarily the result of lower working capital. Working capital as a percent of net sales decreased 50 basis points compared to the same period last year, primarily due to stronger cash collections.

Diluted EPS.

We continue to retain a strong balance sheet, which is supported by consistent free cash generation for the full year, we expect capital expenditures to be in the range of $25 million to $30 million and an effective tax rate to approximate 25%. We are seeing tangible improvements from our efforts to run the business more efficiently through our Myers business system.

Grant Fitz: Capital expenditures for the third quarter of 2023 were $4.1 million and cash on hand at the quarter end totaled $24.8 million. Our balance sheet remains strong and continues to support our horizon strategy with the debt to adjusted EBITDA of 0.7 times.

And remain focused on optimizing operations to combat the current macroeconomic headwinds, we're creating critical capabilities that support significant value.

Grant Fitz: Now please turn to slide 7 for an update on our outlook for the fiscal year 2023. Given the continued macro challenges and the softer demand we've seen across several end markets, we revised our top-line guidance to now decline between mid to high single digits. As a result of this, we are also lowering our bottom-line guidance to $1.28 for diluted EPS and $1.35 for adjusted diluted EPS.

Support significant future growth and bottom line expansion now I will turn the call back to Mike Mike.

Thank you grant please turn to slide eight where we referenced our long term three horizons strategy highlighting the key areas of focus for each horizon.

Grant Fitz: We continue to retain a strong balance sheet which is supported by consistent pre-cash generation. For the full year, we expect capital expenditures to be in the range of $25 to $30 million in an effective tax rate of up to approximately 25%. We are seeing tangible improvements from our efforts to run the business more efficiently through our Myers business system and remain focused on optimizing operations to combat the current macroeconomic headwinds. We are creating critical capabilities that support significant value or support significant future growth and bottom line expansion.

Slide nine provides a view of the four strategic pillars, we use to drive alignment and execution.

As highlighted on the slide the strategic objective of the first horizon is to deliver a target revenue of a $1 billion at an EBITDA margin of 15%.

I continue to believe this performance is within the organizations reach however, near term end market weakness coupled with our decision to not acquire companies that were either off strategy or too expensive has delayed our realization of this horizon one target at <unk>.

To believe that we can achieve this performance target in the near term.

Michael McGaugh: Now we will turn the call back to Mike. Mike? Thank you, Grant. A police return to slide 8 where we reference our long-term three horizon strategy highlighting the key areas of focus for each horizon. Slide 9 provides a view of the four strategic pillars we use to drive alignment and execution. As highlighted on the slide, the strategic objective of the first horizon is to deliver a target revenue of $1 billion at an EBIT down margin of 15%.

Before shifting to our progress against these pillars I want to reiterate the importance of horizon one.

The strategic operational and financial actions. We've taken this first horizon are building the foundation of Myers and are critical to successfully reaching the milestones of horizon, two and three.

Turning to slide 10, I would like to provide more color on what we've accomplished in the recent quarter against our horizon one objectives.

Starting with organic growth, we still see meaningful runway for both revenue and margin expansion across our segments in lieu of challenging market conditions.

Michael McGaugh: I continue to believe this performance is within the organization's reach. However, near-term in-market weakness coupled with our decisions to not acquire companies that were either off strategy or too expensive has delayed our realization of the horizon one target. I continue to believe that we can achieve this performance target in the near term.

Within the material handling segment, our military related products continued to experienced strengthening demand levels due to increased artillery production and re armament of militaries worldwide.

We have recently received a meaningful new purchase order and expect to receive more shortly.

Michael McGaugh: Before shifting to our progress against these pillars, I want to reiterate the importance of horizon one. The strategic operational and financial actions we take in this first horizon are building the foundation of Myers and are critical to successfully reaching the milestones of horizon two and three.

We expect military growth to bridge the gap caused by the multiyear reduction in the size of the fuel chem market due to electrification.

We expect the gas can market to reduce in size, 3% to 5% per year over the next five to seven years.

Michael McGaugh: Turning to slide 10, I would like to provide more color on what we've accomplished in the recent quarter against our horizon one objectives. Starting with organic growth, we still see meaningful runway for both revenue and margin expansion across our segments in lieu of challenging market conditions. Within the material handling segment, our military-related products continue to experience strengthening demand levels due to increased artillery production and rearmament of military worldwide. We have recently received a meaningful new purchase order and expect to receive more shortly.

I expect our military showcasing growth to cover this EBITDA gap and then some.

Second in our injection molding and structural foam business, we expect new sales growth in our industrial food and automotive buckhorn boxes to supplement any decline in seed box sales its agriculture equipment sales cool going into 2024 and 2025.

Third e-commerce will be a substantial organic growth driver, ensuring that our material handling and distribution businesses grow at above market rates in the near and intermediate term.

Michael McGaugh: We expect military growth to bridge the gap caused by the multi-year reduction in the size of the fuel can market due to electrification. We expect the gas can market to reduce in size three to five percent per year over the next five to seven years. I expect our military shell casing growth to cover this EBITDA gap and then some. Second, in our injection molding and structural foam business, we expect new sales growth in our industrial, food, and automotive buckhorn boxes to supplement any decline in seed box sales its agriculture equipment sales cool going into 2024 and 2025.

Meyer significant diversification of its segments in markets and products ensure that the company's financial performance is resilient. We're seeing this in real time throughout 2023.

In our distribution segment, we grew third quarter EBITDA year over year, and we are putting in place the building blocks to have an even stronger distribution business going forward.

We're excited about this business because we see significant opportunity for this segment due to the electric vehicle Mega trend, which will increase demand for tire repairs is heavier electric vehicles require more frequent tire maintenance and replacement.

Michael McGaugh: Third, e-commerce will be a substantial organic growth driver ensuring that our material handling and distribution businesses grow at above market rates in the near and intermediate term. Myer's significant diversification of its segments, in markets, and products ensure that the company's financial performance is resilient. We're seeing this in real time throughout In our distribution segment, we grew third quarter EBIT die year over year and we are putting in place the building blocks to have an even stronger distribution business going forward.

In addition, the average age of cars on the road continues to increase and it's aging out of fleet is driving an increase in tire and other repairs both of which are good for Myers tire supply.

It is important to highlight that we have a high quality industry, leading distribution business embedded in our company.

The distribution business, along with the acquisitions of <unk> and Mohawk now has the size scale and strategy and is beginning to deliver the performance, we expect and have communicated in the past we anticipate that this business will become even more attractive for Myers in the future.

Across both segments, we remain dedicated to supporting organic growth opportunities with investments in sales and innovation.

Shifting to strategic M&A, our strong cash flow generation and flexible balance sheet provide us the ability to evaluate many inorganic growth opportunities.

Michael McGaugh: And this aging out of fleet is driving an increase in tire and other repairs, both of which are good for Myers tire supply. It's important to highlight that we have a high quality industry leading distribution business embedded in our company. The distribution business along with the acquisitions of Tuffy and Mohawk, now as the science, scale, and strategy in its beginning to deliver the performance we expect and have communicated in the past.

<unk> executed four bolt on acquisitions over the past five years.

Along with providing revenue and EBITDA growth. These acquisitions have delivered scale and geographic expansion, while helping us learn and improve our processes and capabilities.

As we enter into horizon, two we will focus on larger more impactful acquisition.

Based on our learnings and experience attained in the horizon, one I am confident in the company's ability to acquire the right companies the right capabilities at the right valuation.

Michael McGaugh: We anticipate that this business will become even more attractive for Myers in the future. Across both segments, we remain dedicated to supporting organic growth opportunities with investments in sales and innovation. Shifting to strategic M&A, our strong cash flow generation and flexible ballot sheet provide us the ability to evaluate many organic growth opportunities. Myers has executed four bull fun acquisitions over the past five years. Along with providing revenue and EBIT our growth, these acquisitions have delivered scale in geographic expansion while helping us learn and improve our processes and capabilities.

Moving on to the third pillar operational excellence, we are keenly focused on this pillar during these times of choppy demand.

These self help measures are largely within our control and enable us to protect margins and profitability.

Most notably our efforts to build out the Myers business system. Please turn to slide 11.

The <unk> business system delivered meaningful results driving operational improvements in supply chain and procurement as well as other cost reduction initiatives.

As I mentioned before institutionalizing, our best practices, and ensuring they're lasting and a part of Myers DNA is a vital component of delivering sustainable EPS growth and driving <unk> transformation into a world class diversified industrial company.

Michael McGaugh: As we enter into horizon two, we will focus on larger and more impactful acquisitions. Based on our learnings and experience attained in the horizon one, I'm confident in the company's ability to acquire the right companies, the right capabilities, at the right valuation.

Michael McGaugh: Moving on to the third pillar, operational excellence. We are keenly focused on this pillar during these times of choppy demand. These self-help measures are largely within our control and enable us to protect margins and profitability. Most notably are efforts to build out the Myers business system.

Moving onto our last and one of our most important pillars are high performing culture.

We continue to punch above our weight and the caliber of talent. We have at Myers. This includes legacy performers who are focused on making buyers world class as well as new additions to want to meaningfully grow the size and value of the company.

Michael McGaugh: Please turn to slide 11. The Myers business system delivered meaningful results, driving operational improvements in supply chain and in procurement as well as other cost reduction initiatives. As I mentioned before, institutionalizing our best practices and ensuring they are lasting and a part of Myers DNA is a vital component of delivering sustainable EPS growth. And driving Myers transformation into a world class diversified industrial company.

Our model to hire an employee individuals at the capstone of their careers has proven to be a breakthrough.

This model allows us to have access to a higher level of talent that most small cap companies traditionally have access to.

In closing I am proud of how the company has operated in its ability to produce solid results in 2023 in spite of uneven and challenged end market demand I'd.

I'd like to thank all of our Meyers leaders and associates for living our values and for delivering for our customers our shareholders and our communities.

Michael McGaugh: Moving on to our last and one of our most important pillars are high performing culture. We continue to punch above our weight in the caliber of count we have at Myers. This includes legacy performers who are focused on making Myers world class as well as new additions who want to meaningfully grow the size and value of the company. Our model to hire an employee individuals at the capstone of their careers has proven to be a breakthrough. This model allows us to have access to a higher level of talent that most small cap companies traditionally have access to.

We are well positioned to capitalize on future organic and inorganic growth opportunities, which will ultimately deliver attractive shareholder returns.

With that I'd like to turn the call over to the operator for questions operator.

Thank you think you'd like to ask a question you May press star one.

Thank you Pat.

<unk>. Your question. Please ensure you defy.

Slightly.

Sure. Thanks for your question. Please press star one if I can.

Michael McGaugh: In closing, I'm proud of how the company is operated in its ability to produce solid results in 2023 in spite of uneven and challenged in market demand. I'd like to thank all of our Myers leaders and associates for living our values and for delivering for our customers, our shareholders and our communities. We are well positioned to capitalize on future organic and inorganic growth opportunities, which will ultimately deliver attractive shareholder returns.

As a reminder, please limit yourself to one question and two follow ups.

Our first question is from Lance Vitanza from Cowen.

Your line is now open. Please go ahead.

Thank you thanks, everyone.

Let's start off with the tough stuff the revenue outlook.

The trends over the first three quarters right year over year revenue declines have gotten worse not better.

Operator: With that, I'd like to turn the call over to the operator for questions operator. By one on your telephone keypad. When preparing for your question, please ensure your device is unmuted locally. If you wish to evoke your question, please press start followed by two. As a reminder, please limit yourself to one question and two follow ups only.

And so given that I guess I'm surprised by how wide. The range is for full year revenue guidance and really what youre seeing or thinking for the fourth quarter, Although I guess, given the narrowness of the EPS range I guess that kind of answers. The question right. I mean really we should be thinking about sales in the fourth quarter.

Down.

Eight 910% I would imagine is that fair and I guess just more broadly is there anything that you can point to specifically that would suggest the trends improve in fourth quarter or is it simply.

Lance Vitanza: Our first question is from Lance Vitanza from Cohen. Lance, your line is now open. Please go ahead. Thank you. Thanks everyone.

They can't keep getting worse forever.

Michael McGaugh: Let's start off with the tough stuff, the revenue outlook. The trends over the first three quarters, year over year revenues declines have gotten worse, not better. And so given that, I guess I'm surprised by how wide the range is for full year revenue guidance and really what you're seeing or thinking for the fourth quarter. I guess given the narrowness of the EPS range, I guess that kind of answers the question, right?

Yes.

Good.

Talk with you.

You've hit it on the head in terms of what we're looking at what I would say is just in general maybe to level set a little bit is this is really my first quarter to start to get my hands around the business been buyers now for about six months. So my tendency within guidance is to probably be a little bit more conservative to be very open.

Yes, just I feel that we.

We need to be transparent on where we're at but certainly I don't want to.

Michael McGaugh: I mean, really we should be thinking about sales in the fourth quarter, you know, down, you know, eight, nine, 10%. I would imagine is that fair? And I guess just more broadly, is there anything that you can point to specifically that would suggest the trends improve in fourth quarter or is it simply, you know, they can't keep getting worse forever? Yeah, I'm good to talk with you. So I think you've hit it on the head in terms of what we're looking at.

We have a situation, where we aren't able to meet the objectives that we set out for the company and so from that standpoint, I think we continue to see headwinds in the RV and marine markets those are big.

Big markets.

For us but.

The big question in that area when will those markets start to recover if you look at the analyst that we've had.

We've been looking at over the last.

Last couple of months they are projected to start to see some of that.

Michael McGaugh: What I would say is just in general, maybe to level set a little bit, is this is really my first quarter to start to get my hands around the business. You know, I've been at Myers now for about six months. So my tendency within guidance is to probably be a little bit more conservative to be very open. I just I feel that, you know, we need to be transparent on where we're at, but certainly I don't want to, you know, have a situation where we aren't able to meet the objectives that we set out for the company.

In 2024.

We really are probably being a little bit more concerned that we would see that continuing through the fourth quarter. Then we will see how that goes in 'twenty four but I would expect that we'll still probably be flat on the RV and marine segments as we go into next year.

Other pieces that we did have.

Some pretty strong impacts of a calmer hurricane season.

In Q3.

Michael McGaugh: And so from that standpoint, you know, I think we continue to see headwinds and the RV and marine markets, you know, those are big, big markets for us. But you know, the big question in that area is when will those markets start to recover? If you talk, look at the analysts that we've had, you know, that we've been looking at over the last couple of months, they are projecting to start to see some of that picking up in 2024.

Typically on a full year basis hurricane.

The activity will generate about eight cents of.

Earnings per share, we really don't see <unk>.

Significant impact for Hurricanes. This year, certainly things could change if something were to pick up in the fourth quarter. And then also we did have some expectation that our military orders with the shell casings that Mike talked about we're going to start in the fourth quarter third and fourth quarter, we do now have.

Michael McGaugh: We really would, you know, are probably being a little bit more conservative that we would see that continuing through the fourth quarter and then we'll see how that goes in 24, but I would expect that will still probably be flat on the RV and rain segments up as it go into next year. The other piece is that we did have, you know, some pretty strong impacts of a calmer hurricane season, you know, in Q3, you know, typically an upflow your basis.

Our firm commitment, which is very positive news on this so we do have some for firm orders, but those arent going to be starting until the fourth first quarter of next year and so essentially we are in a situation where we've got just a timing issue with the with the military orders that have come into play as well to the rest of the business I'll, let Mike comment on it I think is.

It was pretty.

Pretty stable overall in terms of our other end markets that we have certainly there will be some ups and downs what I really am excited about is our distribution business has put in what I would say are some of the foundational block building blocks are really starting to take that.

Michael McGaugh: Hurricane activity will generate about eight cents of earnings per share. You know, we really don't see a significant impact for hurricanes this year. Certainly things could change. It's something where to pick up in the fourth quarter. And then also we did have some expectation that our military orders with the showcasing that Mike talked about. We're going to start in the fourth quarter third and fourth quarter. We do now have, you know, a firm commitment, which is the very positive news on this.

Their EBITDA margin up to a higher level than what we see.

See this year and certainly I think Q3 is starting to give some indication of that is that just a really nice job on working the.

The overall cost structure, and I think that setting them up really quite well is as we look to the future. So Mike I don't know if you have some other comments.

Michael McGaugh: So we do have some firm orders, but those are going to be starting until the fourth, the first quarter of next year. And so essentially we're in a situation where we've got just a timing issue with the military orders that have come into play as well too. The rest of the business, I'll let Mike comment on it. I think is, you know, it's pretty, it's pretty stable overall, you know, in terms of our other end markets that we have.

Greg hit it well.

Yes.

At last quarter about being on the lower end of the prior guidance range caveat I caveat that with having a traditional hurricane season, which didn't.

Didn't materialize, we also had a bit of a timing shift on some of the military orders that is going to be a very good business for us. The positive note. It's the orders have been confirmed and we've got firm orders that will begin next year.

Michael McGaugh: Certainly there will be some, some ups and downs. What I really am excited about is our distribution business has put in what I would say are some of the foundational block building blocks. I'm really starting to take that there even a margin up to a higher level than what we've seen, you know, seen this year. And certainly I think Q3 is starting to give some indication of that. But then just a really nice job.

We also one other point I would add that.

On the grant was we did have a couple of mold of repair issues in our buckhorn seed box business that has shifted some of the revenue as well out of the third quarter into fourth and into first next year. So that's another factor.

Michael McGaugh: I'm working the overall cost structure. And I think that's setting them up really quite well as we look to the future. So Mike, I don't know if you have some other comments. Yeah, I mean, great hit it. Well, you know, we talked at last quarter about being on the lower end of the prior guidance range, caveating that with having a traditional hurricane season which didn't, which didn't materialize. We also have been of a timing shift on some of the military orders.

Sure.

Okay.

It.

Excuse me.

That's helpful and then I guess just my.

My follow up first follow up better news right the margin performance and I, just really outstanding in the third quarter across the board both segments and I guess the question. There is is there a risk that Myers is leaving itself with all of these.

Aggressive actions is it impairing myers ability in any way to participate.

Michael McGaugh: That is going to be a very good business for us. The positive note is the orders have been confirmed and we've got firm orders that will begin next year. We also, one other point I would add that on the grant was we did have a couple of mold repair issues in our buckhorn seed box business that has shifted some of the revenue as well out of third quarter into fourth and into first next year.

Michael McGaugh: So that's one another factor. That's helpful and then I guess just my first follow up better news, the margin performance and I just really outstanding in the third quarter across the board, both segments and I guess the question there is, is there a risk that Myers is leaving itself with all of these aggressive actions? Is it impairing Myers ability in any way to participate as end markets eventually recover, right? We know they're going to, we don't know when but we know they will and I just are you still going to be able to participate fully to the upside or have you sort of been you know putting yourself behind the you know behind the apal so to speak?

Michael McGaugh: Yeah, I hate Lance fair question and this is something we try to find the right balance with you know on a daily basis. We are preserving that growth upside and optionality. We have talked in the past about the hidden factory and how we do SNOP better, how we run our plants better, schedule our plants better, that's getting more output of our existing assets and so for making a few decisions on the road and molding business for example to consolidate some of the footprint that's taking cost out but it's not impacting our our volume and capacity.

We've got some innovation efforts that are already bearing fruit on as I mentioned food industrial and then also automotive boxes coming out of that Buckhorn business.

A lot of a lot of good opportunity in general under organic site.

Michael McGaugh: On the sales and marketing side we continue to go great guns on innovation, new product development. That's that's an area that continues to be well resourced. We actually have consolidated our our marketing and commercial function in the Milford, Ohio. I think I mentioned that before. It's that's across the material handling business so it's actually catalyzing the innovation and collaboration between each of the molding technologies and we're already seeing that bear fruit and example is you know look if seed box sales potentially cool in 24 or 25 we've got some innovation efforts that are already bearing fruit on as I mentioned food industrial and then also automotive boxes coming out of that buckhorn business.

And then the last follow up for me. They said the free cash flow was certainly stronger than we had expected very surprising given you know the the revenue performance, but it does appear to me that the free cash flow strength was mostly just you know working capital in capex related and not to dismiss.

[laughter] I mean, they're they're all important but but they don't feel necessarily durable to me in the face of continued sales weakness could you talk about the outlook for I mean.

What should we be thinking about not just for the fourth quarter, but just conceptually like where Capex goes and how you think about working capital as either a source or use of of cash in 2024, and I guess with working capital is it really just a function of sales continue to be weak you know you're going to continue to get cash from working capital and.

Michael McGaugh: Just a lot of a lot of good opportunity in general on the organic side. And then the last follow up for me this of the free cash flow it was certainly stronger than we had expected very surprising given you know the revenue performance but it does appear to me that the free cash flow strength was was mostly just you know working capital and CapEx related and not to dismiss those I mean there are all important but they don't feel necessarily durable to me in the face of continued sales weakness could you talk about the outlook for I mean should what should we be thinking about not just for the fourth quarter but just conceptually like where CapEx goes and how you think about working capital as either a source or use of of cash in 2024 and I guess with working capital is it really just a function of you know if sales continue to be weak you know you're going to continue to get cash from working capital and you know if if it's it when when sales eventually pick up then we should expect some reversal there and you'll grow your working capital.

If if it when when sales eventually pick up then we should expect some reversal there and you'll grow your working capital.

Yeah, Lance contextually I'll handle handle it they don't pass over the grant we are putting a significant amount of time and effort and discipline around how we manage accounts receivable collections, particularly in choppy times. Similarly on how we manage the other aspects of working capital.

It is.

It is it focus we review it on a daily and weekly basis and ultimately that's what's helped catalyze the results that you see I think those results will continue I think Myers will continue to be a good cash flow generator.

You want to build on that one.

One of the things that I've been pleasantly surprised about lance's have joined the company is that the.

Station across the board is very cash focused.

Their accounts receivable very well and continue to keep that front center their inventory levels as well too.

Michael McGaugh: Yeah Lance just contextually I'll handle and I'll pass over the grant we are putting a significant amount of time and effort and discipline around how we manage account receivable collections particularly in choppy times similarly on how we manage the other aspects of working capital. So it is it isn't focused we review it on a daily and weekly basis and and ultimately that's what's helped catalyze the results that you see I think those results will continue I think Myers will continue to be a good cash flow generator but grant you want to build on that.

And so from that standpoint, I would say that Mike's comment that we will continue to see some good free cash flow.

From the business I think are working capital as per cent of TTM sales is probably going to be pretty consistent from what it's been historically.

We did get the benefit of.

A larger payment in Q3 that did help that some but certainly I think the overall hydraulics as I would like to call out of the business.

Are very very strong in terms of how the company manages its cash and works with cash.

Michael McGaugh: Yeah you know one of the things that I've been pleasantly surprised about Lance as I've joined the company is that the organization across the board is very cash focused you know they manage their cost receivable very well and continue to keep that front center their inventory levels as well too and so from that standpoint you know I would say to Mike's comment that we will continue to see some good free cash flow you know from the business I think our working capital is percent of TTM sales is probably going to be pretty consistent from what it's been historically we did get the benefit of a larger payment in Q3 that did help that some but certainly I think the overall hydraulics as I like to call out of the business you know are very very strong in terms of how the company manages its cash and[inaudible] Thanks, guys.

Thanks, guys, a great job navigating a tough market.

Yeah. Thank you Lance appreciate it.

Thank you not I've never mind that off the question he crashed off by one on your telephone keypad.

We will now take our next question from <unk> from <unk> <unk>.

Of your line is now I can go ahead.

Good morning, My <unk>. This is actually Christians, Iowa on for Steed Burger. Thank you guys for taking my questions.

Chris Hanson.

First question is.

Good morning. My first question is just with revenue growth slowing are you starting to retrench and focus on cost controls or do you continue to invest in internal infrastructure and try to accelerate that M&A process.

Unknown Attendee: Great job navigating a tough market. Yeah, thank you, Lance. Appreciate it. Thank you, Lance.

Yeah, I'll I'll again, Christian I will take a shot at that.

Of course, we focused on cost and we talk about this this is one area I think I brought to the company over the last three and a half years.

Operator: As a reminder, ask the question, please press start, followed by one, and your telephone keypad.

Britain reliance on self help.

Christian Zyla: We will now take on next question from Steve Barger, from Keycoop. If your line is not open, please go ahead. Good morning, Mike and Grant. This is actually Christian Zyla, on for Steve Barger. Thank you guys for taking my questions. First question is morning. My first question is just with revenue growth slowing. Are you starting to retrench and focus on cost controls? Or do you continue to invest in internal infrastructure and try to accelerate that M&A process?

We've talked about that is in cost and productivity, that's part of the Myers business system.

That gives us the latitude and their ability to invest even and choppy times.

And that investment is what we talked about with lamps, the commercial the sales and marketing.

But also that investment is pursuing.

<unk> opportunities.

We are continuing to maintain our focus and discipline.

To acquire companies that are on strategy and move us forward.

We talk a lot about this you know you you are what you eat and so we want to acquire accretive EBITDA.

Christian Zyla: Yeah, I'll, again, Christian, I'll take a shot at that. Well, of course, we focus on cost, and we talk about this. This is one area I think I brought to the company over the last three and a half years. This is reliance on self-help. And that we've talked about that is in cost and productivity. That's part of the Myers business system. That gives us the latitude and the ability to invest even in choppy times.

Companies that we can make better that have a more attractive EBITDA profile than we do today.

There's a number of companies out there that we could acquire that.

That are not as attractive or not a solid or I was off strategy. We don't want to do that and so I would rather do fewer but higher quality acquisitions and again. The evaluation comes into question. We are now starting to see valuations come back into focus.

Christian Zyla: And that investment is in what we talked about with Lance, the commercial, the sales and marketing. But also that investment is pursuing M&A opportunities. We are continuing to maintain our focus and discipline to acquire companies that are on strategy and move us forward. We talk a lot about this. You are what you eat. And so we want to acquire creative EBITDAQ companies that we can make better that have a more attractive EBITDAQ profile than we do today.

I think over the last 12 to 24 months they were still high our belief is we've got a great balance sheet. We've got great operations. We've got great cash flow generation. We think the next 12 to 24 months, we're gonna be advantaged and we're going to be in an environment, where we can acquire.

More attractive more valuable companies on target.

At fair valuation and that last piece Christians, what's been missing over the last year. So grant.

I'll, just reiterate what Mike said Christian the.

Christian Zyla: There's a number of companies out there that we could acquire that are not as attractive or not as solid or as off-strategy. We don't want to do that. So I would rather do fewer but higher quality acquisitions. And again, the valuation comes into question. We are now starting to see valuations come back into focus. I think over the last 12 to 24 months they were still high. Our belief is we've got a great balance sheet.

Myers business system that is a fundamental part of our business.

Coming from the automotive having spent some time in the automotive industry I equated to what is often called the Toyota production system. It's just our version of how do we standardize simplify make things more efficient and just drive continuous cost improvements. So so that I think is going to be part of the core DNA that will continue going forward within the Myers.

The Myers team. Additionally, we are always looking at trying to determine what's the right size of our production capacity because what we don't want to do is we don't want to get in a situation, where we get to a level of capacity that were at when the markets are low and then when they come back we're not able to meet the market demand and so we'd like to have a good day.

Christian Zyla: We've got great operations. We've got great cash for generations. We think the next 12 to 24 months we're going to be advantaged and we are going to be in an environment where we can acquire more attractive, more valuable companies on target at fair valuations. And that last piece, Christians, what's been missing over the last year. So Grant. I'll just reiterate what Mike said, Christian. The Myers business system, that is a fundamental part of our business.

With that in our ops team does a really good job on and just managing through that too.

Mike's comment about.

I do think that the market is going to start to pick up overall.

Christian Zyla: And coming from the automotive, I haven't spent some time in the automotive industry. I equated to what is often called the Toyota production system. It's just our version of how do we standardize, simplify, make things more efficient, and just drive continuous cost improvement. So that I think is going to be part of the core DNA that will continue going forward within the Myers team. Additionally, we are always looking at trying to determine what's the right size of our production capacity because what we don't want to do is we don't want to get in a situation where we get to a level of capacity that we're at when the markets are low.

As you know.

You have an activity has slowed down pretty dramatically from where it was maybe a year or so plus ago.

Do you think that a lot of.

Private equity firms are sitting on the sidelines waiting to see how things will develop it. So we are getting some.

Some degree of buildup of companies that will probably be coming to the market over the next one.

One to two years at a higher pace of what's of.

May have been in the past and we certainly are looking at not.

Over pain and I think there has been some differences between what buyers have wanted versus what.

Christian Zyla: And then when they come back, we're not able to meet the market demand. So we like to have a good balance with that. And our ops team does a really good job on just managing through that. To Mike's comment about M&A, I do think that the market is going to start to pick up overall. As you know, the M&A activity is slowed down pretty dramatically from where it was maybe a year or so plus a go.

Sellers are are willing to pay those are starting to to tighten.

We will be very opportunistic, but without question. We will buy companies that we think are going to be very strong for our profile and accretive to the business and we're not going to just buy companies just a total wild.

Check the box that we've we've had some acquisitions so.

Christian Zyla: I do think that a lot of private equity firms are sitting on the sidelines. We need to see how things will develop. So we are getting, you know, to some degree, a build-up of companies that will probably be coming to the market over the next one to two years at a higher pace than what may have been in the past. And we certainly are looking at not overpaying, and I think there has been some differences between what buyers have wanted versus what sellers are willing to pay.

Great that's helpful things about color.

I know you don't want to look too far forward in terms of guidance. When you think about the first half of 2024 can you just give high level comments on organic growth expectations.

What do you think the segments looked like over the next few quarters I guess ultimately just looking for maybe an and expectations reset just because if we look over the next few quarters seem to be running ahead of the 2023 quarterly run right. So just any thoughts on expectations maybe in 24. Thanks.

Christian Zyla: Those are starting to tighten, and we will be very opportunistic. But without question, you know, we will buy companies that we think are going to be very strong for our profile and accretive to the business. And we're not going to just buy companies just to check the box that we've hit next. Great. That's helpful. Thank you for that color. And I know you don't want to look too far forward in terms of guidance.

Christian I think I think consumer.

Humor discretionary so.

As you recall, we make a lot of.

100 dollar 200 dollar decorative flower pot planters mailboxes.

Business is going to continue to I think stay soft as inflation just takes the share of wallet away from the consumer.

V. A marine so pontoon boats in R. V's I think are going to continue to.

Christian Zyla: When you think about the first half of 2024, can you just give high level comments on organic growth expectations? What do you think the segments look like over the next few quarters? I guess ultimately just looking for maybe an expectations reset just because if we look over the next few quarters, seem to be running ahead of the 2023 quarterly run rate. So just any thoughts on expectations may be in 24. Thanks.

Be down, but they may be it may be up off of the bottoms of 2023.

The auto aftermarket peace, we're very intrigued about where we are excited about that that's why we're doing the call from Las Vegas at five in the morning at the Sema show.

There's good attendance here this business seems to be getting some lift the drive to electric vehicles.

Christian Zyla: Christian, I think I think consumer consumer discretionary. So as you recall, we make a lot of $100, $200 decorative flower pots, planters, mailboxes. That business is going to continue to, I think, stay soft as inflation. Just takes the share walled away from the consumer RV and marine. So pontoon boats and our RVs, I think are going to continue to be down, but they may be, it may be up off of the bottom of 2023.

As well as the auto at the aging others on the road those are big trends for us.

We're a little bit off right now in distribution revenue quite frankly, because there's still some consequences of the merger of Mohawk into Myers tire supply.

There is some choppiness there is accounts got sorted out between sales reps and you have some turnover of your sales reps, which temporarily will depressed that revenue, but again the strategy, we've got with that business focusing on large national customers large national Tyre shops is the right strategy because there's.

Christian Zyla: The auto aftermarket piece, we're very intrigued about work. We are excited about that. That's why we're doing the call from Las Vegas at five in the morning at the SEMA show. There's good attendance here. This business seems to be getting some lift. The drive to electric vehicles, as well as the auto, the aging auto's on the road. Those are big trends for us. We're a little bit off right now on distribution revenue, quite frankly, because of still some consequences of the merger of Mohawk into Myers tire supply.

Consolidation going on there and we are the best prepared to service those national accounts. So I'm optimistic about where distribution is going to go from a revenue in volume standpoint next year and then the following year I think Thats I.

Think that's a real opportunity, but just overall on the on the you call. The hydraulics grant on the revenue outlook for 2004, what else would you add yeah. I mean, I think we talked about it a little bit earlier, but the big question, Mark and what's going to happen with army and Marine is still out there a lot of different views on that I think we're going to tend to probably be a little bit concerned that.

Christian Zyla: There's some choppiness there as accounts got sorted out between sales reps, and you have some turnover of your sales reps, which temporarily would depress that revenue. But again, the strategy we've got with that business, focusing on large national customers, large national tire shops, is the right strategy, because there's consolidation going on there, and we are the best prepared to service those national accounts. I'm optimistic about where distribution is going to go from a revenue and volume standpoint.

It's.

Going to stay.

And that trial that we're in right now for for at least the first part of next year, but but overall.

Again, I'll use the term hydraulics the fundamentals the business I really I really quite a stir.

Strong and compelling with admires I think we've got.

Good good cost structure, we're trying to become more variable on our costs. So that we can even flaw with the with the market trends, but overall.

Christian Zyla: Next year, in the following year, I think that's a real opportunity. But just overall, on the hydraulics grant, on the revenue outlook for 24, what else would you add? I mean, I think we talked about a little bit earlier, but the big question mark of what's going to happen with RV and Marina is still out there. A lot of different views on that. I think we're going to tend to probably be a little bit considerer that it's going to stay in the trial that we're in right now for at least the first part of next year.

Myers does have a history over the last few years of having both organic and inorganic growth and I think.

Tenuous stay very focused on driving organic growth is part of our yeah I've been strategies, Yeah, Cristian, just affirm that up a little bit the big growth spots for us are going to be auto aftermarket I talked about that.

E Commerce, we actually are getting a lot of traction there that that continues to be a bright spot and we're resourcing. It accordingly, and then the military artillery shell casings.

Christian Zyla: But overall, again, I'll use the term hydraulics. The fundamentals of the business are really quite strong and compelling within Myers. I think we've got good cost structure. We're trying to become more variable in our costs so that we can have them flow with the market trends. But overall, Myers does have a history of the last few years of having both organic and inorganic growth. And I think we're going to continue to stay very focused on driving organic growth as part of our health strategies.

As you May recall, we sold those casings to militaries around the world, but not the United States and that business was actually doing well that could have doubled over the last two or three years now there were qualified and we can supply the U S.

And those orders have shown up the purchase orders.

Given the conflict in the Ukraine the conflict in the <unk>.

Middle East.

We continue to get some.

Volume projections that are they are quite significant how and when those materialize, we don't know, but I feel very confident in the negative trend that.

Christian Zyla: Yeah, Christian, just to firm that up a little bit, the big growth spots for us are going to be auto aftermarket. I talked about that. E-commerce, we actually are getting a lot of traction there. That continues to be a bright spot and we're resourcing it accordingly. And then the military artillery shell casings. As you may recall, we sold those casings to militaries around the world and not the United States. And that business was actually doing well.

The military and the artillery shell casings and the <unk> is going to be good for our company.

Great. Thanks, and then last question for me can you just sticking with auto Aston Martin can you just talk about the margin improvement that we're seeing in distribution set largely a function of those costs and it should've said you guys are talking about or or some.

Christian Zyla: It factored and doubled over the last two or three years. Now that we're qualified and we can supply the US in those orders have shown up, the purchase orders. Given the conflict in the Ukraine, the conflict in the Middle East, we continue to get some volume projections that are quite significant. How and when those materialize, we don't know, but I feel very confident in the trend that we're going to be able to do that, that the military and the October shell casings and the rearmament is going to be good for our company.

Some kind of price slipped through that we should be thinking about it.

Where do you see those feelings for the margin in that segment, giving your optimism on the auto aftermarket repair and tire repair tell us that you have so much yeah.

Oh, sorry Christian Yep.

It's really a mix of both Ah.

Both price and.

And cost improvements.

Jim Kearney, who has been put in as the new leader.

<unk> talked about that last quarter. You know he is really a a person that has some significant go to market expertise.

And so he's he's basically is looked at how do we best optimize the cost structure of our business, while still getting you know generating good good sales opportunities with them.

Christian Zyla: Great, thank you for that. And then last question from me. Can you just sticking with auto aftermarket? Can you just talk about the margin improvement that we're seeing in distribution? Is that largely a function of those costs? And it should have said you guys are talking about it or is it some kind of price flow through that we should be thinking about? And just where do you see the ceilings for the margin in that segment, giving your optimism on the auto aftermarket repair and tire repair tellings?

Probably a little bit more of a focus on some of the larger corporate accounts as we see some real opportunities there, but part of what he's fraud is also the discipline on pricing so value based pricing is something that we've seen.

And then additionally, just on the cost side, we have have worked significantly I'm just working down the the cost within the business and getting ourselves.

Christian Zyla: Thank you guys so much. Yeah. Sorry, Christian. It's really a mix of both price and cost improvement. Jim Gurney who's been put in as the new leader, you know, might talk about that last quarter. You know, he is really a person that has some significant go to market expertise. And so he's basically has looked at, you know, how do we best optimize the cost structure of our business while still getting, you know, generating good, good sales opportunities within, you know, probably a little bit more of a focus on some of the larger corporate accounts as we see some real opportunities there.

Good position from a competitive basis. So so I would see the the margin overall, we're we're targeting to get to them.

To the low double digits within that business.

And that's you know that's probably take a little bit of time to work up to that but I think certainly Q3 is a good indication of how you can start to see that.

EBITDA growth in spite of the revenue decline that we have for the quarter.

Great. Thank you so much.

Christian Zyla: But part of what he's brought is also the discipline on pricing, so value based pricing is something that we've seen. And then additionally, just on the cost side, you know, we have worked significantly on just working down the cost within the business and getting ourselves in a good position from a competitive basis. So I would see the, you know, the margin overall, we're, you know, we're targeting to get to them to the low double digits, you know, within that business.

<unk>, we will now take our next question from William is Alan from Titan Capital Management. When your line is now a P. I N. Please go ahead.

Alright, Thank you relative to the artillery casein business are you display scene and.

An incumbent whereas the military simply expanding suppliers.

Christian Zyla: And that's, you know, that's going to probably take, you know, a little bit of time to work up to that. But I think certainly Q3 is a good indication of how you can start to see that the EBITDA growth in spite of the revenue decline that we have for the quarter. Good. Thanks so much. Thank you, Steve.

Williams This is Mike.

It's the ladder, there's just so much demand.

There's so much demand and so.

Where we are evaluating.

Capital investment to meet that demand and we're trying to ensure that we balance our capital investments with our ramp and the demands put upon us so it's not.

You're replacing metal and wood.

Michael McGaugh: We will now take our next question from William DeZellam from Titan capsule management. William, your line is now open. Please go ahead. Thank you. Relative to the artillery casing business. Are you displacing an incumbent or is the military simply expanding suppliers? William, this is Mike. It's a ladder. There's just so much demand. There's so much demand. And so we're, we are evaluating capital investment to meet that demand and we're trying to ensure that we balance our capital investments with our ramp and the demands that put upon us.

Those are entrenched incumbents, but our product as lighter and stronger and easier to easier to recycle and easier to return from the battlefield.

It's preferred by the user.

What we found is the conflicts had been a catalyst to drive to a new material.

Obviously wood and metal are still still dominant still the leaders in that space, but <unk>.

Injection molded plastic.

The model that we have.

Then it's been working effectively with other militaries outside the U S had been good proof points and we found a receptive audience, mostly that's driven just because of the significant demand level.

Michael McGaugh: So it's not, you're replacing metal and wood. Those are entrenched incumbents, but our product is lighter and stronger and easier to, easier to recycle and easier to return from the battlefield. It's preferred by the user. What we found is the conflicts have been a catalyst to drive to a new material. Obviously wood and metal are still, still dominant still the leaders in that space, but injection molded plastic in the model that we have.

The only thing I would add William just with that is that is a.

Engineered product that it's.

It's not the easiest to meet the standards that the military has and so so we've been working with the military on that.

And it's it's been it's taken some time over the last last year's such as.

Get up to the point, where we are now supplier and I think it's just been a great Testament to the team that we do now have secured orders coming in and really working on getting a driver ready to start to fulfill some of that demand.

Michael McGaugh: That it's been working effectively with other militaries outside the US, have been good proof points and we found a receptive audience mostly that's driven just because of the significant demand level. The other thing I would add William, just with that is, you know, that is an engineered product that, you know, it's not the easiest to meet the standards that the military has. And so, you know, so we've been working with the military on that. And it's, you know, it's been, it's taken some time over the last last years to just get up to the point where we are now supplier.

Thank you both and taking that one step further or are you finding that the incumbent wood and metal suppliers are also.

Creating plastic options or.

Or are you are you the sole source for low low.

Low weight plastic alternatives.

Yeah. Thank you at the metal and wood guys to my knowledge or not <unk>.

Creating a plastic part we.

And this is the situation we are actually.

Reasonably good at.

Michael McGaugh: And I think it's just been a great testament to the team that we do now have secured orders coming in and, you know, really working on getting ready to start to fulfill some of that demand. Thank you both and taking that one step further, are you finding that the incumbent wood and metal suppliers are also creating plastic options or, or are you the sole source for low low weight plastic alternatives? Yeah, thank you.

I'll call it moderately difficult technologies for plastic parts dig.

Complicated parts, that's where we excel.

Frankly, that's where we would like to be because you are competitive intensity is lower your barriers to entry are higher. So we always talk about branded products with a moderate level of technology difficulty.

And engineering difficulty and that's really our sweet spot. This fits in it it's a it's quite a difficult part two manufacturer we've been making these for about a decade for other militaries.

We continue to improve with each year and each cycle in terms of durability and design.

Michael McGaugh: The metal and wood guys to my knowledge are not creating a plastic part. We, and William, this is a situation we are actually reasonably good at, I'll call it moderately difficult technologies for plastic parts. Big, complicated parts. That's where we excelled. Quite frankly, that's where we like to be because your competitive intensity is lower, your barest entry or higher. So, we are talking about branded products with a moderate level of technology difficulty and engineering difficulty.

And as a result, that's allowed us to get the qualification with the U S. But it's.

Quiet part of the reason why I don't mind talking about it in a public forum like this it's a difficult part to make and we actually do a pretty good job at it so.

I feel that those sales will be durable for our company.

Mmm, Okay. One additional one additional follow up diving diabetes, and just a touch deeper uhm. If it's in fact that wouldn't metal guys do not move to plastic and plastic is is going to be lighter weight and and therefore.

Michael McGaugh: And that's really our sweet spot. This fits in it. It's quite a difficult part to manufacture. We've been making these for about a decade for other militaries. We continue to improve with each year and each cycle in terms of durability and design. And as a result, that's allowed us to get the qualification with the US. But it's, that's quite part of the reason why I don't mind talking about it in a public form like this. It's a difficult part to make. And we actually do a pretty good job at it. So, I feel that those sales will be durable for our company.

More desirable.

Does this ultimately could create a very large opportunity for you all or or would you expect at some point there will be competition that will come in.

Yeah, I think any sort of environment. If it has become such a significant opportunity inevitably more competition will flow in and hey, that's a good thing it makes us better it makes it.

I think competition is always a good thing.

For the for the short term and short to intermediate term.

Michael McGaugh: Okay, one additional one additional follow-up diving diving into touch deeper. If, if, in fact, the wooden metal guys do not move to plastic and plastic is, is going to be lighter weight and, and therefore, or desirable. Does this ultimately create a very large opportunity for you all? Or, or, would you expect at some point there will be competition that will come in? Yeah, I think any sort of environment, if this becomes such a significant opportunity, inevitably more competition will flow in.

I feel good about our position I Ah I still think all you know all.

<unk>, an old habits die hard.

And if.

Metal and wood or the incumbents.

And there are fully suitable product.

You could argue that this is a very significant opportunity for Myers, but I at this point I kind of want to take it one step at a time.

One thing to point is that's really a lot of our business.

We sell a premium product at a premium price that has a greater payback for our customers, but it's a more durable are sustainable product. As an example are structural phone buckhorn boxes fell against corrugate.

Michael McGaugh: And hey, that's a good thing. It makes us better. It makes us, you know, I think competition is always a good thing for the, for the short term and short to intermediate term. I feel good about our position. I, I still think all, you know, old technologies and old habits die hard. And if, with what metal and wood are the incumbents and they're a fully suitable product. You can argue that this is a very significant opportunity for Myers, but at this point, I kind of want to take it one step at a time William One thing to point is that's really a lot of our business.

And so over time, the the value to the customers compelling, but there's more initial upfront investment and so we are.

That's our wheelhouse is selling a higher engineered.

Longer lasting product that's at a higher price point, but it's better for the user.

And that's why we feel confident that will continue to have success in military, but you're right. It could be a meaningful opportunity I just want a all followed suit with grant and be more conservative early on I, I'd, rather underpromise and over deliver.

Michael McGaugh: We sell a premium product at a premium price that has a greater payback for our customers, but it's a more durable or sustainable product. As an example, our structural phone buckhorn boxes sell against corgates. And so over time, the value prop to the customer is compelling, but there's more initial upfront investment. And so we are that that's our wheelhouse is selling a higher engineered longer lasting product that's at a higher price point, but it's better for the user.

Alright, Thank you both.

Thankfully.

Thank you and again, we have made some of the questions righteousness Tonight, So bad that you needed today Cove.

Thank you thank.

Thank you.

Thank you Kimberley.

Thank you for your participation you may now disconnect your line.

Michael McGaugh: And that's why we feel confident that we'll continue to have success in the military, but you're right, it could be a meaningful opportunity. I just want to follow suit with Grant and be more conservative early on. I'd rather under promise and over deliver. Thank you both. Thank you. Thanks William. Thank you William. We have no further questions registered today.

Operator: So with that, we can conclude today's call. Thank you, Carla. Thank you. Thank you for your participation.

Operator: You may now disconnect your lines.

Q3 2023 Myers Industries Inc Earnings Call

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