Good morning or good afternoon all, and welcome to the Myers Industries 2021 Second Quarter Earnings Call. My name is Adam, and I will be your operator today. I will now hand you over to Monica Vinay. Monica, please go ahead when you are ready.

Thank you. Good morning. Thank you for joining us. I am Monica Vinay, Vice President of Investor Relations and Treasurer at Myers Industries. Joining me today are Mike McGaugh, President and Chief Executive Officer; and Sonal Robinson, Executive Vice President and Chief Financial Officer. Earlier this morning, we issued a news release outlining the financial results for the second quarter of 2021. If you have not cast on our website, it will be archived along with the transcript of the call shortly after this event. Before I turn the call over to Mike, I would like to remind you that we may make some forward-looking statements during this call. These comments are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on management's current expectations and involve risks, uncertainties and other factors which may cause results to differ materially from those expressed or implied in these statements. Further information concerning these risks, uncertainties and other factors is set forth in the company's periodic SEC filings and may be found in the company's 10-K and 10-Q filings. I am now pleased to turn the call over to Mike McGaugh.

Thank you, Monica. Good morning, everyone, and welcome to our second quarter 2021 earnings call. I am pleased to share that we had another quarter of strong sales growth and continue to make good progress in advancing our long-term vision. I would like to thank all of our Myers teammates for navigating what has proven to be an uncertain and dynamic environment and for remaining laser-focused on meeting the needs of our customers, reliably delivering our products and living our values every day. The second quarter was defined by continued recovery across our key end markets and strong operational execution in a challenging environment. On top of that, earlier this week, we announced the acquisition of Trilogy Plastics, which marks our second acquisition in the last nine months and another proof point in the execution of Horizon 1 of our long-term strategy. The acquisition of Trilogy continues to grow our rotational molding platform, and we have included a slide in the appendix of our slide deck today with more background for you. I will review Trilogy and provide some additional updates on our strategy in my closing remarks. But for now, please turn to Slide #3 for an overview of our second quarter results. Continued strong demand across our Material Handling and Distribution segments drove a 58% year-over-year growth in sales, and we delivered a second consecutive quarter of year-over-year revenue growth in excess of 20% on an organic basis, with all end markets supplying solid growth. Demand from our customers is strong and looks to continue. We have the leading market share of high-quality, well-regarded products, and we have seen that the demand for these products is durable and lasting, even in a pandemic. I am pleased with our niche market focus and approach. It provides us a solid foundation on which to build and grow Myers. Despite our exciting long-term vision, however, we have had some short-term headwinds. Increasing raw material prices and other inflationary pressures continued throughout this quarter. In some cases, they were more than we anticipated. While we expect them to be temporary in nature, the short-term raw material issues around supply and cost escalations have been unprecedented. We have taken swift action, announcing and implementing price increases in March and April and again in July. Unfortunately, our finished good prices were not able to keep up with the pace of cost increases, and we experienced margin compression during the quarter. As we have said before, we are committed to restoring and expanding our margins across the enterprise. This is one of the key objectives of the self-help component of Horizon 1. Like many companies, we are also seeing tightness in the labor market. While we are working to mitigate the impact, labor cost increases and scarcity have been a headwind in 2021 that will likely persist in the near-term. Over the coming months, we remain diligent in monitoring and adjusting our actions to mitigate the impact of inflation. We are working to ensure we strike a fair, long-term mindset with our customers, doing our best to ensure they have supply while ensuring our products are priced appropriately for the value they provide. Our self-help efforts are delivering results, and we are headed in the right direction strategically and operationally. We are transforming Myers and are successfully executing against our long-term vision and strategy. I would now like to turn the call over to Sonal Robinson, our Chief Financial Officer, to provide details on our financial results and guidance. Sonal?

Thank you, Mike, and good morning, everyone. Let us begin with a review of our second quarter financial results on Slide 4. Net sales were up $69 million, an increase of 58%. Excluding the impact of the Elkhart acquisition, organic net sales increased 26% due primarily to higher volume mix. Favorable price contributed 5% and FX 1%. Sales increased in both our Material Handling and Distribution segments in all key end markets. Adjusted gross profit was up $12.5 million, while gross margin decreased from 36% in the prior year to 29.4% in the quarter. Margin was negatively impacted by higher raw material costs, primarily resin, which continued to increase sequentially during the quarter. These costs were not fully offset by higher prices, which led to an unfavorable price to cost relationship. Adjusted operating income increased $2.80 million to $15.1 million. The increase in gross profit was mostly offset by higher SG&A expenses, driven by the addition of Elkhart, higher salaries and incentive compensation costs and higher legal fees. Adjusted EBITDA was $20.5 million, an increase of $2.4 million compared to the prior year, and adjusted EBITDA margin was 10.9%. Lastly, adjusted EPS was $0.29, an increase of $0.06 or 26% compared to the prior year. Turning now to Slide 5 for an overview of segment performance. Beginning with material handling, net sales increased $56 million or 70%, including the Elkhart acquisition. On an organic basis, material handling net sales increased 24% due to strong volume mix. We gained an additional 6% due to favorable price and 2% in FX. Material handling adjusted operating income increased approximately 8% to $17 million, driven by higher volume mix and the addition of Elkhart, which were partially offset by an unfavorable price to cost relationship due to escalating raw material costs and higher SG&A expenses. The increase in SG&A expenses was primarily due to the addition of Elkhart, higher salaries and incentive compensation costs, increased travel cost and legal fees. In the Distribution segment, sales increased $12.6 million or 34%, driven by both equipment and consumable sales. Distribution's adjusted operating income more than doubled from the prior year to $4.2 million. The growth was driven by higher volume mix that was partially offset by higher incentive compensation costs. Turning to Slide 6. Free cash flow was $11.7 million in the quarter, an increase of $8.1 million over the prior year, driven by higher cash from comps. On a year-to-date basis, free cash flow was $13.1 million. Cash on hand at quarter end was $13.5 million. Our balance sheet remains strong. At the end of the second quarter, leverage was 1x. Our capital structure continues to provide the flexibility needed to execute our growth strategy. On July 30, we utilized our revolving credit facility to finance the Trilogy acquisition. Before providing an update on guidance, let me take a moment to discuss the ongoing macroeconomic environment. As Mike mentioned, and similar to many other industrial manufacturers, we are facing what we believe are temporary disruptions in the supply chain, which have led to unprecedented increases in raw material costs this year. We have continued to take pricing actions to mitigate these significant increases. Still, due to a lag in price realization, we have not been able to keep up with the pace of cost increases. As a result, we expect to remain in an unfavorable price to cost position for the third quarter. We believe many factors, including additional supplier capacity should result in resin costs moderating and potentially easing as we continue through the year. As such, we expect our price to cost relationship to turn favorable in the fourth quarter. Let me now provide an update on our outlook for fiscal 2021, which includes expected results of the Trilogy acquisition completed on July 30. Reported net sales are anticipated to increase in the mid-40% range. Our previous sales guidance was in the high 30% range. Note that a little more than half of the expected increase over the prior year is due to the impact of both the Elkhart and Trilogy acquisitions. Elkhart's annual net sales at the time of acquisition were approximately $100 million, and Trilogy's annual net sales are roughly $35 million. We are reaffirming our 2021 outlook for adjusted EPS of $0.90 to $1.05 per share. Our guidance reflects a weighted average share count of 36.5 million shares. Also note that Trilogy is expected to be slightly accretive to EPS in the current fiscal year. Other key modeling assumptions include depreciation and amortization expenses of approximately $23 million and CapEx of approximately $15 million to $18 million. CapEx is expected to trend higher than past years with our renewed focus on investing in our facilities and improving our capacity, along with the addition of Elkhart and Trilogy. Interest expense is forecasted to be between $4 million and $4.5 million, and the effective tax rate is forecasted to be 26%. In closing, while the short term is being pressured by significant inflationary headwinds, our long-term fundamentals are intact. We continue to manage cost increases through pricing actions while balancing the potential impact on volume. Our teams are working extremely hard in this dynamic environment, and we appreciate all of their efforts. Before turning it back over to Mike, I would like to extend a warm welcome to the Trilogy team.

Thank you, Sonal. I appreciate it. Now please turn to Slide 8. I introduced our long-term roadmap in October of last year. In a short period of time, we have made meaningful progress against the current phase of this roadmap Horizon 1, and our transformation of Myers is well underway. We have a shareholder-focused, value-creating vision for our company. I believe we have the right team in place with the right strategic plan and the right focus on execution to make it a reality. We are off to a strong start, and we continue to execute against our goal of transforming our Material Handling segment into a high-growth business that's a true innovator of engineered plastic solutions, while we also continue to grow and optimize our Distribution segment. Horizon 1 of our strategy is rooted in the execution of three areas: #1, self-help initiatives, which includes improvements in purchasing, value-based pricing, and SG&A optimization; #2, organic growth fueled by sales and commercial excellence, one important component of which is to build out our e-commerce channel; and #3, bolt-on M&A to build out our existing businesses. Continued execution across these three elements will propel us into Horizon 2, where we plan to use our cash flow and knowledge gained from Horizon 1 to pursue enterprise-level M&A in North America. The focus on Horizon 3 will be to pursue enterprise-level M&A on a global scale. This vision and roadmap is supported by our four strategic pillars outlined in Slide 9. Because I have described each pillar in detail on previous calls, I will move to Slide 10 and give an update on the recent progress we have made with respect to each. On the organic growth front, we continue to make headway in implementing our improved commercial structure that standardizes and strengthens our focus in sales, marketing, and product management. We are installing a world-class commercial organization at Myers. While this will take some time, we are moving the needle with new additions and new training. Examples of our areas of focus include improving our capability and processes in account planning and management, demand planning, and optimizing how we run our supply chain and planning processes. Additionally, through critical investments in talent and infrastructure, including the summit we held last quarter, we have fortified a stand-alone e-commerce organization, and we are seeing good traction with that group. On Pillar 2, as it relates to M&A, we are very pleased to have closed our second bolt-on acquisition to supplement our plastics business. Trilogy Plastics is well aligned with our strategic objectives and culture and has an exemplary track record of providing high-quality products to its customers with superior service and on-time delivery. We are targeting approximately $1 million of annual cost synergies, which we expect to realize by the end of 2022. Most of this will be through supply chain cost reductions. This is on top of the $4 million to $6 million of cost synergies we expect from Elkhart. In addition to these cost synergies, we are seeing growth opportunities and synergies with Elkhart, and we expect the same from Trilogy. As expected, as part of our Horizon 1 approach, as we pursue more acquisitions, our organization is learning. We are fine-tuning our playbook and our capabilities to identify and complete deals as well as to integrate and obtain synergies. This plan and approach are working. We are gaining capability and speed as we move forward. Trilogy was an important step in our journey, and we continue to seek opportunities to acquire complementary businesses, and we currently have numerous actionable targets in our pipeline. Moving on to operational excellence. This pillar has been integral to our growth over recent quarters. In the midst of global supply chain issues, our newly centralized procurement team has done a good job sourcing the necessary raw materials to meet most of our customers' needs. The last several months have been a challenge on raw material cost and availability. Jeff Baker and his team in procurement and supply chain have done a nice job on both issues. Over the past months, we positioned Myers as a value-added solutions provider. We have made thoughtful decisions on price and supply to ensure we create long-term goodwill and value for our customers as well as all of our stakeholders. As you may have seen, Myers recently unveiled its new brand identity, logo, and website. We consider this new visual identity to be much more than an aesthetic change, but rather a strategic choice to reflect our One Myers vision and reinforce our key values of integrity, optimism, customer focus, and a can-do attitude. We are changing signs, business cards, the website, and name badges, all to a single one-team mindset. We are no longer a collection of smaller brands; we are coming together as one company. We have more critical mass, more capability to serve our customers and our employees. It is exciting. It's working. With that, I will turn to our fourth pillar, which is our high-performance culture. In order to execute and achieve breakthrough performance, we need to have a high-performing culture. To that end, we recently launched our new Learning Management System, which is comprised of live and online classes to help drive growth, improvement, and continuity in our employee base. We see that this LMS will help us win the war on talent. Our employees see that we are investing in them, in their careers and in their development. We want our employees to grow here at Myers. We are creating a culture of employee success within the company. This includes the type of training and employee development programs in career and succession planning typically found at larger world-class companies. We seek to replicate that here. Our people are and will be a key competitive advantage. I would like to close today by thanking the Myers team again for their hard work. We are serving our customers in this very fast-paced economic environment while managing quality and service. Our long-term strategy is gaining considerable momentum. It is producing tangible results that we believe will create significant long-term value for our customers, our employees, our communities, and our shareholders. And with that, we will now open the line for questions.

Our first question today is from Steve Barger at KeyBanc.

You have been aggressive on price. You are still behind on price costs. The first question is, have the price increases had any impact on demand? Or can you just talk about end market dynamics as you see them?

Yes. Steve, at this point, no. There's an acceptance in the market based upon the inflation you are seeing in all raw materials. We still feel we have good success in implementing the recently announced July and August increases. We are not seeing demand tail off in a market way. There may be certain submarkets where you may have some positives. But generally speaking, no, we are not seeing it impact demand at this point.

And you said you expect the supply chain disruptions are temporary. What's the thought process there? Or what are you hearing from suppliers and any way to handicap when those prices might start to roll off?

Yes. A lot of it is on the polyethylene, polypropylene side, but also steel, to a lesser degree. The polyethylene side and polypropylene side, a number of those factors came into play. We had COVID and the pandemic, which pushed out maintenance turnarounds. When those maintenance turnarounds were to be done, we had to freeze the spring, which threw out over 20 force majeures. That was a unique circumstance of events that also pushed out more maintenance turnarounds into the second and third quarter. We think that it will ultimately stabilize and revert over the course of the next month. But we don't have a crystal ball. It's tough to read that one. So Sonal's information, we expect price to cost to gain ground in the fourth quarter favorably is accurate.

What percentage of the product line has contracts where you can't push price right now until contract renewal?

Yes, at this point, we have not disclosed that in the past, and so I would prefer not to disclose that at this time, Steve.

Okay. Well, do you have any product lines right now that are breakeven or unprofitable? Or is everything still contributing?

At this point, I don't want to go into the specifics. I would say there's significant demand. That's the positive. The short-term disruptions from a price standpoint on polyethylene, polypropylene have been significant. We are addressing that with the price increases. The vast majority of our product lines continue to contribute. However, we need to get that more healthy. I mean, you can see that in our EBITDA second quarter versus second quarter. We need to mean revert, Steve.

I understand that this is an unusual situation. My last question is quite difficult. Sales from the first half compared to the first half of the previous year have increased by over $120 million, yet operating income has only increased by $3 million. I realize that a major factor contributing to this is the input cost inflation you've mentioned. But what did you anticipate, or what should be the expected normalized operating leverage from the combined effects of organic growth and acquisitions?

Yes. Sonal, do you like to take that?

Sure, Steve. I would start with what you saw in terms of our gross margin compression in this quarter. We were down 660 basis points. As you think about our commentary around being unfavorable from a price to cost relationship, about two-thirds of that was due to this relationship of the compression. So as you look out when some of this starts to turn, we would expect to regain much of this margin compression that we have seen.

Yes. Yes. That's right. That's right. And there's incremental on labor, labor shortages, labor scarcity. I think the labor scarcity is going to be a headwind for the next quarters. That's hitting everyone. You're covering it on premium labor expense, but also as a lot of the supplemental unemployment insurance falls off. Barring a curveball from COVID, we expect a good bit of that to be remedied. We are also taking proactive actions on staffing solutions, employee development, employee investment, employee training, and I feel confident that we are closing that gap, Steve, but the labor scarcity and labor cost has also been a headwind.

Our next question is from Jonathan Natera from Cowen.

This is Jonathan on for Lance. Congratulations on the quarter. My first question is with material handling increasing 32% organically, can one also assume that organic sales volumes increase? Or was it just a function of increase in price?

No. Jonathan, this is Sonal. So yes, of that 32%, approximately 24% of that was volume mix. That was driven by good solid growth on that side, 6% then from pricing and about 2% from FX.

Okay. I understand. I know you have increased prices three times this year, but you still haven't been able to keep up with costs. I'm confident that you will eventually. When you do reach that point where prices align with costs, do you think prices will remain stable? And do you see that as a potential benefit for Q4 and beyond in 2022? How do you view that?

Yes, Jonathan, this is Mike. So it kind of goes back to some of my comments. We make high-quality, highly reliable products that we continue to invest in. We believe that we can price our products to the value they create for our customers. I mentioned we want to approach this with a long-term mindset in a fair way with our customers. On the same token, we want to price the value and not price opposite cost. Those are one of the initiatives I have talked about in the past. That's one of the initiatives we have at Myers. It's underway. It's focused on value-based pricing. I don't know if that answers your question.

No, it's helpful. My last question, I noted that financial leases have become a portion of the balance sheet. And I am wondering, is this something that will remain like the status quo going forward? Or were the leases of opportunities that came up and you have decided to take those?

Yes, Jonathan. No, it's really not a structural change in how we think about our capital structure and how we will proceed going forward. It really was an opportunity as we took a look at the project fund plan that we had announced and the opportunity to essentially sell it and lease it back as we went through that process.

We have a follow-up from Steve Barger.

Mike, in the past, you've said that Myers is one of the only companies that can bring the four plastic molding technologies to market. Can you talk about how that's translated into new product wins in the marketplace? Or how customers have responded to those broader capabilities?

Yes, it's still early days, but we're seeing evidence of progress. We've implemented cross-training, and I may have mentioned it in previous calls. For example, we've experienced growth in both sales and technical areas in our blow molding plants due to significant overlap with our rotational molding operations. This helps everyone understand our company's capabilities and what constitutes a good order in terms of price, volume, and run rate for both blow molding and rotational molding. Most of the cross-selling is happening there, and the revenue from that is currently in the single-digit millions. This aligns with our strategy concerning the four plastic molding technologies, and we are starting to see results. Interestingly, we have a new leader for the distribution platform, and I'm pleased with the business's performance. We are also identifying initial cross-selling opportunities with our plastic products, such as the Conbon Bin in Akro Mills and storage containers from Buckhorn. We've been increasing the awareness among our 130 salespeople about our products and how they can promote them, despite these segments being separated previously. We're observing increased volume from our One Myers approach. While I would like to see higher pricing, we're making progress. We are moving a significant amount through our P&L, but we need to see more pronounced pricing results so that we can enhance our bottom line.

On the last call, you mentioned that the sales training was a 30-day process and that it was about one-third complete. Assuming that is now finished, is it fully implemented across the organization on both sides?

Yes, I may have been unclear earlier; it's actually more of a 90-day process. We have phases in progress. The distribution team is training the management team, but not all 150 managers are involved. As for the 60 or 70 salespeople on the material handling side, I believe that training is mostly completed or will be very soon. This focus is contributing to our success. Our sales team is paying greater attention to customer needs, improving their ability to identify those needs, and adding value for customers, which is driving some volume along with the recovery in the end markets. Our priority is to maximize the output from our assets. We are pushing our assets to their limits with fewer staff than needed. We are experiencing a 20% to 30% increase in volume while we may have 10% to 15% fewer employees to operate those plants. As a result, we have implemented mandatory overtime. Our team is working very hard to keep pace with the demand.

Is there any way to address that? As you consider the long term, do you think it’s necessary to relocate some of these facilities to more populated areas? Or do you view it as an automation issue? What steps should we take?

Yes, it's an automation strategy that will take some time to fully realize. We have automation consultants at each of our facilities who are helping identify opportunities, many of which involve smaller incremental costs rather than large capital expenditures. We are also running several pilot programs that are showing promise, particularly with seasonal or migrant workforces that can come in and contribute right away. While there are some language barriers to navigate, our HR leaders have developed innovative solutions that have shown early success. In my previous experience in the framing and construction industries, it was common to bring in H2B visa workers, and we are exploring how to apply that model here, which is yielding positive results. That’s why I believe the gap will continue to shrink as unemployment benefits decrease and we implement these creative staffing solutions. Additionally, we have had to raise our hourly wages, which is another challenge, but I believe we are managing it effectively and performing well in that area.

Yes. One last question from me, do you have any updates on e-commerce? I know it's a small area, but it's an exciting new channel that has potential for growth.

It's very exciting. We have a strong team, and I'm really pleased with the individuals that Chad Collins has assembled. They are highly talented. We see it as a flywheel. The profit margins for some customers and channels are actually very good, while others not as much. Currently, our plants are operating at full capacity, and we've had to limit production slightly because we can't keep up with the volume leaving the facility. That's a positive challenge to have, and the e-commerce channel is truly yielding positive results. I believe it will be key to our success in the future.

As we have no further questions, I will hand back to the management team for any closing remarks.

Thank you. Thanks everyone for your time and participation today. We appreciate your interest in Myers Industries. Have a great day. Thank you.

Ladies and gentlemen, this concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.