Hello. Good morning, and welcome to the Myers Industries 2021 Third Quarter Earnings Call. My name is Gemma, and I'll be the operator today. I will now hand you over to our host, Monica Vinay. Please go ahead, Monica. Thank you.

Thank you. Good morning. Thank you for joining us. I'm 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 third quarter of 2021. If you've not yet received a copy of the release, you can access it on our website at www.myersindustries.com, it's 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. 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, and good morning, everyone. Welcome to our third quarter 2021 earnings call. We continued our growth trajectory during the quarter, and we made further progress on our long-term strategy despite a difficult macro environment that's impacting many businesses around the world. I'd like to thank the Myers team for their commitment and dedication that made our success this quarter possible. With that said, please turn to Slide 3 for an overview of our third quarter results. During the quarter, we saw continued strong demand from our material handling and distribution customers. This demand, combined with meaningful contributions from our recent acquisitions, drove the company to $200 million in net sales and more than 50% revenue growth for a second consecutive quarter. The company's top line was the strongest it has been in many years. On an organic basis, sales grew 20% compared to the prior year period, which marks three consecutive quarters of 20% or more organic growth. We are beginning to see the benefit of our investments in our sales force and sales training and an improved commercial focus across the company. While our top line performance was strong, we did see macroeconomic headwinds again this quarter, which impacted our margins. Input costs climbed higher due to increasing raw material costs, and tightness in the labor market impacted labor costs, both of these drove margin compression during the period. The negative impacts of labor were due to overtime pay, higher wages, and in some cases, the lack of labor, which inhibited us from making or shipping certain orders. While we believe inflationary labor and supply chain headwinds will likely persist for the next several quarters, we are taking numerous actions to mitigate possible impacts on our business. These proactive steps include improvements in our sales and operations planning process, a reinvigorated sales force, and the addition of a pricing excellence leader and team. We're also working hard to debottleneck and automate our plants, while we continue to secure the raw materials necessary to ensure that we meet the volume needs of our customers. We remain confident in our ability to manage price, volume, and cost. And as such, we are reaffirming our previous 2021 adjusted EPS guidance of $0.90 to $1.05 per share. Before I turn it over to Sonal, I want to share a few comments on the state of Myers transformation. Myers demonstrated growth is meaningful. Our company is becoming a growth story. A new Myers is here. We're pleased with the growth to date, and we expect this new growth mindset to be a sustained theme and focus at Myers Industries. In the short term, however, we continue to see an inflationary environment that is compounded by labor shortages and supply chain issues. To manage through it, we made a few near-term supply-oriented decisions that consume cash in the third quarter. These decisions were made to ensure we continue our high service level to our customers, and we expect cash flow trends to normalize in the fourth quarter. I'm thankful for the hard work of the Myers team in the third quarter, and I remain passionate about Myers and its opportunity to create significant value and provide meaningful benefit to all of our stakeholder groups: our customers, our employees, our communities, and our shareholders. With that, I'd now like to turn the call over to Sonal Robinson, our Chief Financial Officer, to provide details on our financial results and guidance.

Thank you, Mike, and good morning, everyone. Let's begin with a review of our third quarter financial results on Slide 4. Net sales were up $68 million, an increase of 51%. Excluding the impact of the Elkhart and Trilogy acquisitions, organic net sales increased 20% driven by price, which contributed 13%. Higher volume mix contributed 7%. Sales increased in all key end markets in both Materials Handling and Distribution Segments. Adjusted gross profit increased $7.2 million, while gross margin decreased from 35.6% in the prior year to 27.2% in the third quarter. Gross margin was negatively impacted by higher raw material costs and higher labor costs, which were not fully offset by pricing actions, leading to an unfavorable price-to-cost relationship. Included in cost of sales was a $1.6 million increase related to the LIFO inventory reserve. Adjusted operating income decreased $3.1 million to $12.5 million due to increased SG&A, driven by the addition of Elkhart and Trilogy along with higher compensation costs and higher professional fees. Adjusted SG&A as a percentage of sales decreased to 20.9% in the third quarter compared to 23.8% in the prior year as we are experiencing the benefits of our overall larger scale on our infrastructure. We're pleased with the investments we are making in support of our One Myers work strategy are yielding positive results. Adjusted EBITDA was $17.3 million, a decrease of $2.3 million compared to the prior year. Adjusted EBITDA margin was 8.6%. And lastly, adjusted EPS was $0.23, a decrease of $0.07 or 23% compared to the prior year. Turning now to Slide 5 for an overview of segment performance for the quarter. Beginning with Material Handling, net sales increased $63 million, or 73%, including the Elkhart and Trilogy acquisition. On an organic basis, Material Handling net sales increased 26%, driven by favorable price of 18%. Strong volume mix contributed another 7% and FX, 1%. Organic net sales increased in the vehicle, industrial and food and beverage end markets. You may recall that our consumer end market was up significantly last year, driven by increased storm activity, which led to higher demand for our fuel containers. Material Handling adjusted operating income decreased $1.3 million, or 8%, to $15.2 million. The decrease was driven by an unfavorable price-to-cost relationship resulting from escalating raw materials and labor costs, which were not fully offset by pricing actions. Additionally, SG&A expenses increased primarily due to the Elkhart and Trilogy acquisition, higher compensation costs, travel costs, and professional fees. In the Distribution Segment, sales increased $5 million, or 11%. Volume mix contributed 6%, resulting from increases across both equipment and supplies and price contributed 5%. Distribution's adjusted operating income decreased $700,000 to $4.4 million due to an increase in SG&A expenses, which were more than offset by higher volume mix and favorable price-to-cost relationship. Turning to Slide 6. Working capital timing negatively impacted our cash flow for the quarter. Free cash flow was negative $13.8 million compared with positive free cash flow of $16.2 million for the third quarter of 2020. Cash from operations decreased in the quarter due to increases in working capital, driven by a $14 million and an $8 million increase in accounts receivable and inventory, respectively, combined with a $3 million decrease in trade accounts payable. Additionally, capital expenditures were $6 million in the quarter. Sales were more weighted in the back half of the quarter, contributing to the elevated accounts receivable balance. In addition to higher raw material costs, our focus on meeting our customers' needs also contributed to higher inventory levels. Year-to-date free cash flow was essentially flat, down $700,000. Cash on hand at quarter end was $15 million. We expect working capital to turn favorable in the fourth quarter. Overall, our balance sheet remains strong and gives us the flexibility needed to execute on our long-term growth strategy. As a reminder, on July 30, we utilized our revolving credit facility to finance the Trilogy Plastics acquisition. We ended the third quarter with leverage at 1.8x. On Slide 7, turning to our outlook for fiscal year 2021. We anticipate net sales to increase in the mid- to high 40% range attributed to both organic growth and acquisitions. Our previous sales guidance was in the mid-40% range. A little more than half of the growth for the year is expected to come from the Elkhart and Trilogy acquisition. Elkhart's annual net sales at the time of acquisition were approximately $100 million, and Trilogy's annual net sales were roughly $35 million. While rising input costs and labor pressures continue to impact our profit growth and margins during the third quarter, we are seeing signs of resin cost easing and are cautiously optimistic it will begin to decline as we move through the fourth quarter. This, combined with additional pricing actions affected in the fourth quarter should result in a favorable price-to-cost relationship for the quarter. Taking these considerations into account, 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 and the addition of the newly acquired Trilogy business. As a reminder, Trilogy is expected to be only slightly accretive to EPS in the current fiscal year. Our key modeling assumptions include depreciation and amortization expenses of approximately $22 million and CapEx of approximately $16 million to $19 million, up slightly from our previous CapEx guidance of $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. The effective tax rate is forecast to approximate 26%. In closing, while the short term continues to be impacted by macroeconomic factors, our fundamentals remain intact. We are extremely pleased with the demand for our portfolio of products along with our ability to pass along the value proposition they bring through pricing actions. We are making solid progress on our One Myers initiative, which Mike will share with you momentarily. With that, let me thank the Myers team for their relentless efforts and turn the call back over to Mike to provide an update on our strategy.

Thanks, Sonal. Starting on Slide 8. It's been a little more than a year since I first introduced our long-term roadmap and broader One Myers strategy. I'm very proud of the considerable progress we've made to date. I have a lot of passion for this company, our company, I see the upside and the opportunity every day. We're currently well into the middle innings on Horizon 1 of our transformation. As a company, we are aligned and centered on our true north, our mission, which is to transform our Material Handling Segment into a high-growth business as the true innovator of engineered plastic solutions while we also continue to grow and optimize our Distribution Segment. As I outlined in the past, Horizon 1 is built on driving self-help initiatives to improve profitability and then using these proceeds to fund organic growth through sales and commercial excellence and bolt-on programmatic M&A. We've made meaningful progress across each of these areas. As we continue to execute the remainder of Horizon 1, we'll have the necessary foundation, knowledge, and track record to move into Horizon 2. We will continue with the self-help and organic growth efforts, but will use the enterprise level M&A to create shareholder value. After the completion of Horizon 2, we will transition into Horizon 3, where we will approach M&A on more of a global scale. Our One Myers vision and the associated transformation of our business is rooted in our ultimate goal of maximizing long-term value creation for our shareholders, and we believe this will be achieved as we execute on this plan. Slide 9 covers the four strategic pillars that support our One Myers vision. My approach is to be consistent, almost broadly consistent on the pillars and on the levers and the areas of focus we're using to drive our transformation. Because they are the bedrock, the foundation of our transformation, we must maintain consistency in our approach in order to provide direction to our people and ensure execution success. These pillars and work tracks are straightforward and not terribly complicated. Simple is good. Our success comes from our relentless and dogged pursuit of their execution. Since I've covered these pillars extensively in the past, I'll move on to Slide 10 to update you on the progress we've made across each of these as it relates to our first horizon. We've displayed an outstanding growth trajectory over the last several quarters and believe we are taking the right action to help sustain this momentum. We are building a world-class commercial organization at Myers through the continued addition of strong talent at the middle level and the new and rejuvenated marketing, product management, and sales structure we put in place. We've also invested in sales training and improving our sales processes to drive organic growth, customer intimacy, and pricing to value rather than to cost. Additionally, our investments in e-commerce continue to take flight. E-commerce is showing encouraging results with year-to-date sales up approximately 30%. We've learned to use e-commerce as a flywheel for volume and have found that it is an excellent channel. We're able to accept or decline business that helps us best optimize our assets capabilities. This flywheel approach will become more impactful as we get better at S&OP and improve how we balance our growing demand across our facilities. Moving on to M&A. Growth via acquisition is and will continue to be an integral part of our One Myers strategy. We closed on our acquisition of Trilogy Plastics earlier this quarter and are very excited about its prospects. Trilogy enhances our ability to manufacture highly engineered and tight-tolerance specialty products. We're already taking some of the learnings and best practices from Trilogy into our plants that were legacy Ameri-Kart or Elkhart Plastics. So far, three months in, the integration of Trilogy is going well and is right in line with our expectations. As a reminder, the integration of Elkhart has also gone well, helping us better serve our customers and capture growth synergies and $4 million to $6 million of cost synergies, both of which exceeded expectations. From a big picture perspective, through our two acquisitions over the last year, we are making progress on developing an effective framework for selecting high-quality companies that complement our businesses. And as equally important, we're on our way to developing a strong, repeatable playbook and processes to ensure a successful integration of these acquired companies. The plastics molding industry is quite fragmented, and we believe they're acquiring technologies, niches, and best practices is a highly effective way to create value for all of our stakeholder groups. We focus on acquiring founder-owned companies with similar cultures and values to Myers, and we work with the management teams to invest and grow these businesses through improved processes, additional capital investment, retaining and incentivizing key people, and collaborating and optimizing across all of our facilities. Paying a fair price, not overpaying, for these acquisitions is also an important part of the equation. Our M&A strategy has proven to be successful so far, and we will continue to fine-tune it as we believe it will serve us well through the remainder of Horizon 1 as we pursue large acquisitions in Horizon 2 and 3. Moving on to operational excellence. This is an area that's been crucial during the last few quarters where we were faced with multiple supply chain headaches. Our purchasing and supply chain teams have done a great job in securing raw materials and managing our supply chain so that we are able to consistently deliver for our customers during the quarter. On a relative basis to our competitors, our service levels remain high. This creates value for our customers. We believe this focus on partnering with our customers on service delivery and on a fair approach to pricing will pay dividends over the medium and long term. I'd like to speak about our ability to manufacture and get product out the door. As I mentioned earlier, we've pursued new approaches to staffing and providing labor to our plants and are encouraged by our results. We are providing a safe and well-paying environment for our workers and have been able to source some workers from agricultural markets and second chance work programs. This strategy was key to enabling our third quarter growth. In addition to getting more creative with our approach to labor, we're also investing in automating select operations within our facilities. We have several engineering teams driving automation across Myers, sharing best practices, and we're investing CapEx in the space and continue to do so, likely at an accelerated pace, as we do not see the issue of labor or lack of it going away. An important part of operational excellence is pricing excellence. And we've hired and installed a small but effective team that has led the space at other chemical and plastics companies and instituted this capability at Myers. The team is accelerating our focus on value capture through pricing. We announced additional price increases in September and October and have begun implementing value-based pricing rather than cost-plus pricing. This is a change in approach, and it will take some time to implement, but it's an important lever to deliver value for our stakeholder groups. Now I'll turn to our fourth pillar before giving my closing remarks. Our high-performance culture is a key enabler of our long-term success. Having a true north, having alignment on our values and our mission is critical for Myers to be successful. We are well on our way on this journey. We're seeing meaningful traction with our recently launched learning management system, which allows employees to take online classes to help develop their capabilities and skills within the company. Our desire is to develop our employees and promote from within. Doing this inspires loyalty, improves our company's performance, improves our stability and continuity of our employee base, and it also decreases cost. We continue to invest in and build this tool, and we believe it will help us in developing talent. An important part of our culture and value is based on servant leadership. I believe in this approach, and I'm committed to instilling it at Myers. The deployment of our servant leadership training is underway, and 50 of our leaders have already completed this training and are applying it in their work lives. We have an additional 50 going through the program in early 2022. One final point is our mindset on inclusion. Our objective at Myers is to have a company where everyone feels welcome, regardless of gender, race, age, or sexual orientation. We didn't drive to a specific set of metrics; rather, we focus on fulfilling our inclusion mission where everyone feels welcome, and the results have been impressive. At our senior manager levels and above, we've increased our hiring and promotion of female minority candidates as a percentage of total hiring by more than 100% versus past years. While we're not done yet, we're making progress. I'd like to close by letting you know that last week, our management and our Board of Directors held a multi-day retreat to review our strategy in our short-, medium-, and long-term goals and objectives. The alignment and collaboration are remarkable and helpful. We're putting the people and the processes in place to drive the company's transformation. We have people in the right roles who know what to do, have done it many times before, and are willing to work hard and get their hands dirty to deliver results. We have a clear and straightforward roadmap to create meaningful shareholder value, and we have the team and the processes to deliver. We'll navigate the short-term inflationary and supply chain bumps while we remain calm, disciplined, and focused on the longer term. I'm excited for our future, and I appreciate your interest in our company. With that, I will open the line for questions.

Our first question today comes from Steve Barger of KeyBanc Capital Markets.

I'll start with some modeling stuff and then get into some bigger picture things. First, just distribution sales came in at $50 million for 2Q and 3Q. Is that how we should think about it for 4Q? Or is there a seasonal variance that we should model?

Steve, I'll have Sonal hit the modeling questions, if that works for you.

In terms of how you've seen that trend throughout the year, I would say that's still a relatively good projection as we wrap up the year. They're going to have some additional benefits of pricing continue to benefit them in Q4 as well as volume growth as well. So yes.

And then a similar question for Material Handling. Just given the revenue range that you've put out for the year, it looks like there could be a little step down sequentially in revenue. Do you expect that due to seasonality? Or how should I think about that segment?

You may remember that we will have 1.5 months to consider due to the Elkhart acquisition from last year. This will affect the year-over-year growth figure somewhat. Regarding absolute numbers and volume, my perspective on the modeling for Q4 is that acquisitions will likely account for about half of the top-line growth. Additionally, for the total company, we expect to see ongoing benefits from pricing in Q4, similar to what we experienced in Q3, along with continued volume growth.

And Material Handling operating income was down in 3Q year-over-year despite the 73% increase in sales. Can we expect operating income to be up sequentially as pricing actions or anything else flows through?

Given the fact that we're expecting price to cost to turn favorable, we would expect to see that starting to turn.

So regarding the fourth quarter guidance, it's quite a broad range. With about eight weeks remaining in the year and considering revenue trends, mix, and costs, are you leaning towards the higher end or the lower end?

Steve, we're not commenting on what part of the range we'll land in. Clearly, there's still a number of different variables that will impact that guidance range. Price mix, obviously, is one. We expect resin to continue to ease and decline. And so expecting some benefits out of that. But yet to be seen as we continue throughout the quarter. We've taken additional pricing actions which we know will continue to benefit us as well. So there are a number of moving parts. And for now, we'll leave it at we've got a range out there that takes those factors into account.

Well, you did say that you expect cash flow trends to normalize in 4Q. Can you tell us specifically what you expect for operating cash flow in the quarter?

We're not guiding to a specific number there, Steve. What we're trying to imply there is as you look at working capital as a percentage of our net sales, clearly, that's elevated at the end of Q3. We expect that to start coming back down as you saw, typically, we've been in that 10%, 11%, 11.5% range. So we expect that to start trending back down, but we have not guided to a specific number there.

Steve, what we'd tell you is, look, it's an important priority. It's an important priority for the company. We made some decisions in the third quarter to help our service levels. It's also the right inventories in place to be sure we have the raw materials and also the finished goods to fuel that growth. I won't give you a particular guidance on the cash flow and say that it's a very important priority here.

Well, as Sonal pointed out, I was going to mention that free cash flow is essentially flat for the year. Can we expect a significant change in the fourth quarter?

So Steve, as we look at the three buckets of working capital, we would expect each one of them to contribute to that working capital benefit in Q4. And so yes, we expect free cash flow to be favorable in Q4, and we'll continue to see how that plays out as we go through the year.

I'm going to keep going. If there's someone else on the line, just let me know, and I'll be happy to come back later. This is the third consecutive quarter of 50% sales growth with no significant incremental EBIT contribution, and we understand that is due to inflationary pressures. However, EBIT should increase year-over-year because of an easier comparison, I would assume. Should we expect that the first quarter will look similar to the last few quarters in terms of revenue and EBIT, falling within that low to mid-double-digit range, perhaps in the mid-single digit millions?

Do you mean 4Q, Steve?

I'm referring to the beginning of next year. Considering the inflation pressures, the year-over-year sales growth, and the conversion rates, I'm interested in when we might see a change. Should I expect the first quarter to resemble what the second, third, and fourth quarters are projected to look like?

So Steve, this is Sonal. We have not obviously provided any sort of outlook for 2022 yet. I guess a couple of things to keep in mind big picture is we continue to take pricing actions. We know those pricing actions will continue to provide benefit as we continue to go through Q4 and as we look at it next year. Clearly, we're keeping an eye on the cost side of the equation on resin and what it continues to do. And then demand, as you've seen, we started the year off very strong from an organic standpoint as we lap some of the impact of COVID last year. You saw volume come in, volume mix come in at about 7% this quarter. We continue to expect trends in that same range as we end out this year. And so we'll continue to see some benefit of that. But our teams are working on that as we go through that process.

Yes, Steve, regarding polyethylene, inventories are beginning to build. Observing any polyethylene index, you'll notice it is starting to soften as those inventories increase. This is one aspect that will change between the first quarter and the second or third quarters due to the inventory levels and their impact on indices and costs. Steel prices remain quite high. Polypropylene prices are still somewhat elevated, but polyethylene has begun to ease a bit. We have taken a proactive approach with our customers to maintain high service levels and to establish collaborative agreements on pricing. We are not a commodity company; we are more focused on specialty and engineered products. Just as we did not aggressively increase prices, we expect to see some consistency as raw material costs decline.

So you would expect that even in a somewhat inflationary environment next year, you can get back to driving margin expansion on what has been pretty significant revenue growth.

Yes.

Can you tell us what some of the short-term goals are? I assume the long-term goals align with the three horizons, but what do you see as near-term priorities?

It's really about the aspects we've outlined related to self-help, supply chain, and S&OP, focusing on enhancing the effectiveness of the pricing team. We need to ensure that team is well-equipped to make a positive impact. Striking the right balance between service level and inventory is quite delicate. What we’re emphasizing in our strategy is the self-help component, making sure we have a solid and well-planned acquisition pipeline, which we do, and ensuring we continue to support e-commerce without making hasty decisions that could undermine that. This will generate significant value for us, especially as we optimize our assets. Additionally, we are fundamentally transforming the company in areas like sales, product management, marketing, and market management by elevating our standards and ensuring we’re committed to these changes. Cash flow in the third quarter didn't meet our expectations, but this is a long-term endeavor. We need to keep investing in SG&A and CapEx. The S&OP, demand modeling, and the supply model are crucial, and implementing these will unlock additional capacity from our current assets. We're also starting to view our assets as a network, optimizing which products we manufacture on which assets, and establishing a continuous operation schedule, particularly across the U.S. This is increasingly important with our expanding roto footprint, and we intend to keep building on that. The focus is on executing effectively, and much of the conversation has revolved around preparing for Horizon 2, acknowledging that it might happen sooner than expected.

I just had to pick some of that apart. That was a great answer. Just to ask directly on the goal of hitting $1 billion in run rate revenue by the end of '23. Are we still on track? Because if I just assume organic growth moderates to more normal levels, you'll need to add maybe another $150 million-or-so in revenue depending on timing.

It's on track. We said our run rate by the end of '23, and I stand by that.

And has any of that grid work been done? Have you moved product lines to lower-cost facilities or more geographically advantageous places? Or is that still all yet to happen?

On some of our injection molding assets, we're getting better at that. On the roto side, there's a lot of untapped potential there. We've brought in and are bringing in some I would call it professional product managers, product management, that mindset, that asset management mindset. That's ramping, Steve. On the Roto side, where there's the most optimization from a grid standpoint, I'd say we're in inning number one of a nine-inning ballgame.

And can we talk about pricing for just a second? You said you have a new pricing team in place. What are they focused on first? Is it specific product lines or products that are most negative in terms of price cost? And just how are they determining value to the customer for value-based pricing?

So we've got an extensive approach on building out our market plans. And these are very robust 20-page plans to do a value chain analysis, figure out who has the right power in that value chain, figuring out where we fit and then what opportunities we have to capture more value for our shareholders. So it's the market planning process, it's the account planning process, the pricing team themselves, a lot of this tail analysis. There's a lot of tail analysis that needs to be done. A lot of it is also getting to a consistent contract framework. How we do our quotes and contracts and ensuring that we have more flexibility going forward to make more rapid adjustments than maybe what we had in the past. So the leader we brought in was from a prominent chemical and plastics company. I've worked with him quite some time. He's very good, and he's brought in a couple of analysts to help them, I think, clean enough to tail, clean up quotes of contracts and then moving to this value-based mindset. And like I called out in my comments, that may be a year journey or a year or two journey. As we're moving away from being a contract manufacturer in a toller to being more of a value-added specialty provider. That's really who we are. And it's just having some of those discussions with some of our key channel partners to get to that point. But it's moving. So that's, in my opinion, that's a very significant value creation lever for the company.

And I know that ultimately, the intent is to be an innovator of engineered plastic solutions. Have you rolled out any new products based on your updated capabilities? Or what do you have on the drawing board that you think can drive some revenue in the next year or two?

Yes, we have made some incremental advancements in the roto sector. We discovered a lot of impressive technology with Trilogy, exceeding our expectations. Their engineering-focused approach has been beneficial as we integrate their processes with the Elkhart and Ameri-Kart assets and customer bases. We've secured proprietary programs with notable consumer and aerospace companies, which has been quite interesting. Much of this innovation has been rooted in engineering on the roto side. On the blow molding side, we are also seeing continuous extensions with our fuel containers, and we have some upcoming innovations that we haven't announced yet. Additionally, we're expanding into the military segment to reduce our reliance on portable fuel containers, which positions us well for the coming years. While I expect some long-term challenges, we plan to leverage the cash flow from this business and the expertise of our team to diversify further into military applications. The military sector has a longer sales cycle, but we are capable of producing high-quality products to exact specifications, and we are developing that area. Much of our efforts are focused on line extensions rather than big, risky projects. In plastics molding, we don't need to take extreme risks, but there is still room for innovation. I would also consider our approach to e-commerce as part of this innovation. The dynamics in that channel have changed significantly, positively impacting the Distribution business. There’s a lot of potential in advancing our Distribution efforts toward more of an online inside sales model. Consumers increasingly want to research and purchase products online through e-commerce channels, which presents a lot of opportunities. Currently, we are incurring start-up costs as we invest in this area. We are seeing some returns from increased volume, but I believe we need to commit to three to five years of investment in e-commerce to truly establish ourselves as a key player.

Well, I guess, to that point on expanding the channel. Last quarter, I asked about demand destruction from aggressive pricing, and the answer was no. I'll just ask that again. Any negative demand response?

I mean, really, the issue has been just get this product. I mean a lot of these end markets are strong and growing. On some of the products and injection, some of the more expensive products there's a few customers that will push back and through negotiation, manage the order flow to try and give them a little bit of an incremental advantage on negotiations. But generally speaking, there's a lot of demand for the products that we make. My compliment to the legacy teams here, they got us in the right niches. We have good brands. We have quality products. We just need to get bigger.

I have two more questions. I appreciate your time. Last quarter, you mentioned that the automation strategy was crucial for addressing the labor situation and that you have automation consultants in the plants. What have you learned or implemented in the past 90 days, and what can we expect in 2022 regarding automation?

Same thing there. Again, it's early innings in our different plants in the blow molding side, the injection molding side. Blow molding has got a number of opportunities where you can put robots in place. And we're really not displacing jobs. What we're doing is we are filling work that needs to be done where we cannot get workers. And so that's been a big constraint for us. So there's incremental automation going in place in the blow molding plants. Plans for automation on the injection molding plants, but we need to do more there. And then roto as well as we're really trying to look at a few of these businesses, i.e., Trilogy has a bit of a petri dish. And can we test or can we pilot some automation approaches in the roto business? My mindset, our mindset is we want to be innovators. We want to take some smart risks and go partner up with some of these innovative roto molding companies that can take two or three laborers off of a machine and you're taking your labor down by 50%. Again, very early innings, very early innings, but I think that's just going to be a sustained theme over the next five to ten years; it has to be. It's just not enough labor to what we need.

And last question, you said paying a fair price for M&A, not overpaying is critical for success. How are you determining fair price on these acquisitions? Is it based on how you see revenue synergies or on return on capital based on current EBIT? Or just what's your process?

We evaluate potential acquisitions primarily by looking at EBITDA multiples and return on capital. Our goal is to invest in and grow these businesses, particularly those that are founder-owned and represent a significant part of their legacy. Founders often want to pass their businesses on to someone who shares their values and is committed to investing in the company and its employees rather than taking a more aggressive approach that could hinder growth. Consequently, we may find ourselves in a position where we can only offer a lower multiple compared to private equity firms. It’s crucial for us to connect with sellers who value their legacy and the work culture, as this aligns with our investment philosophy. While we do identify cost synergies, much of this comes from sourcing raw materials and minor operational consolidations, rather than drastic cost-cutting measures. Our strategy is similar to what I implemented in my previous company, which resonated well with certain founder-owners seeking liquidity. However, this approach does mean that we may not be able to compete in auctions as effectively as private equity firms.

Thank you, Steve, and that concludes today's call. Thank you all very much for joining today. You may now disconnect your lines. Thank you.