MYERS INDUSTRIES INC

Previous wording

The Company’s results of operations for the quarter ended March 31, 2024 are discussed below. The current economic environment includes heightened risks from inflation, interest rates, banking liquidity, volatile commodity costs, supply chain disruptions and labor availability stemming from the broader economic effects of the international geopolitical climate, including the conflict between Russia and Ukraine and Israel and Hamas. Such events have increased volatility in global commodity markets, including oil (a component of many plastic resins), energy and agricultural commodities. Some of our businesses have been and may continue to be affected by these broader economic effects, including customer demand for our products, supply chain disruptions, labor availability and inflation. The Company believes it is well-positioned to manage through this uncertainty as it has a strong balance sheet with sufficient liquidity and borrowing capacity as well as a diverse product offering and customer base.

Current wording

The Company’s results of operations for the quarter and six months ended June 30, 2024 are discussed below. The current economic environment includes heightened risks from inflation, interest rates, banking liquidity, volatile commodity costs, supply chain disruptions and labor availability stemming from the broader economic effects of the international geopolitical climate, including the conflict between Russia and Ukraine and Israel and Hamas. Such events have increased volatility in global commodity markets, including oil (a component of many plastic resins), energy and agricultural commodities. Some of our businesses have been and may continue to be affected by these broader economic effects, including customer demand for our products, supply chain disruptions, labor availability and inflation. The Company believes it is well-positioned to manage through this uncertainty as it has a strong balance sheet with sufficient liquidity and borrowing capacity as well as a diverse product offering and customer base.

Previous wording

Net sales for the quarter ended March 31, 2024 were $207.1 million, a decrease of $8.6 million or 4.0% compared to the quarter ended March 31, 2023. Net sales decreased due to lower volume/mix of $24.5 million and lower pricing of $3.4 million, partially offset by $19.3 million of incremental sales from the acquisition of Signature on February 8, 2024, included in the Material Handling Segment. Signature's annual sales were approximately $110 million at the time of the acquisition.

Current wording

Net sales for the quarter ended June 30, 2024 were $220.2 million, an increase of $11.8 million or 5.7% compared to the quarter ended June 30, 2023. Net sales increased due to $31.7 million of incremental sales from the acquisition of Signature on February 8, 2024, included in the Material Handling Segment. Signature's annual sales were approximately $110 million at the time of the acquisition. The increase in net sales was partially offset by lower volume of $11.9 million, lower pricing of $7.8 million and the effect of unfavorable currency translation of $0.2 million.

Previous wording

Net sales in the Distribution Segment decreased $8.3 million or 13.1% for the quarter ended March 31, 2024 compared to the quarter ended March 31, 2023, primarily due to lower volume/mix of $8.7 million. The decrease in net sales was partially offset by higher pricing of $0.4 million.

Current wording

Net sales in the Distribution Segment decreased $10.9 million or 16.7% for the quarter ended June 30, 2024 compared to the quarter ended June 30, 2023, primarily due to lower volume of $9.8 million and lower pricing of $1.1 million.

Previous wording

Gross profit decreased $6.8 million, or 9.6%, for the quarter ended March 31, 2024 compared to the quarter ended March 31, 2023, due to lower volume/mix and pricing as described under Net Sales above, the impact from acquisition-related inventory step-up amortization of $3.1 million and increased labor and productivity costs, partially offset by lower material costs and the benefits of the acquisition of Signature on February 8, 2024. Gross margin was 31.0% for the quarter ended March 31, 2024 compared with 32.9% for the quarter ended March 31, 2023.

Current wording

Gross profit increased $7.1 million, or 10.4%, for the quarter ended June 30, 2024 compared to the quarter ended June 30, 2023, due to the benefits of the acquisition of Signature on February 8, 2024, favorable mix and lower material costs, partially offset by lower volume and pricing as described under Net Sales above, the impact from acquisition-related inventory step-up amortization of $1.3 million and increased labor and productivity costs. Gross margin was 34.3% for the quarter ended June 30, 2024 compared with 32.8% for the quarter ended June 30, 2023.

Previous wording

Net interest expense for the quarter ended March 31, 2024 was $6.1 million, an increase of $4.4 million, or 269.3%, compared with $1.6 million for the quarter ended March 31, 2023. The higher net interest expense was due to higher average outstanding borrowings as a result of the acquisition of Signature, which was funded through an amendment and restatement of Myers' existing loan agreement discussed below, and a higher weighted-average borrowing rate in the current quarter.

Current wording

Net interest expense for the quarter ended June 30, 2024 was $9.0 million, an increase of $7.2 million, or 403.1%, compared with $1.8 million for the quarter ended June 30, 2023. The higher net interest expense was due to higher deferred financing fees and average outstanding borrowings as a result of the acquisition of Signature, which was funded through an amendment and restatement of Myers' existing loan agreement discussed below, and a higher weighted-average borrowing rate in the quarter ended June 30, 2024.

Previous wording

The Company’s effective tax rate was 27.0% for the quarter ended March 31, 2024, compared to 25.0% for the quarter ended March 31, 2023. The increase in the effective tax rate was driven by non-deductible expenses, including expenses related to the Signature acquisition.

Current wording

The Company’s effective tax rate was 30.2% for the quarter ended June 30, 2024, compared to 26.1% for the quarter ended June 30, 2023. The increase in the effective tax rate was driven by higher non-deductible expenses in the quarter ended June 30, 2024, including expenses related to the Signature acquisition.

Previous wording

Selling, general and administrative (“SG&A”) expenses for the quarter ended March 31, 2024 were $53.5 million, an increase of $1.4 million or 2.6% compared to the same period in the prior year. The increases in SG&A expenses in the first quarter 2024 were primarily due to $4.6 million of incremental SG&A, including $1.7 million of intangible amortization, from the acquisition of Signature on February 8, 2024, $0.7 million of higher variable selling expenses, $0.3 million of higher facility costs and $0.2 million of higher commissions partially offset by $2.5 million of lower incentive compensation, $1.9 million of lower legal and professional fees, excluding acquisition costs and $1.2 million of lower salaries and benefits. Acquisition and integration costs included in SG&A expenses increased $3.2 million due to the Signature acquisition described in Note 3 and restructuring costs included in SG&A expenses decreased $0.4 million as described in Note 4. Additionally, the Company recognized a $0.7 million reduction to legal costs within SG&A for the quarter ended March 31, 2024 related to an insurance recovery of defense costs incurred on a legal matter, as described in Note 10. Environmental matters, as described in Note 10 resulted in a net $0.3 million recovery for the quarter ended March 31, 2024, which compared to $0.5 million of charges for the quarter ended March 31, 2023.

Current wording

Selling, general and administrative (“SG&A”) expenses for the six months ended June 30, 2024 were $105.1 million, an increase of $0.7 million or 0.7% compared to the same period in the prior year. Increases in SG&A expenses for the six months ended June 30, 2024 were primarily due to $13.1 million of incremental SG&A, including $4.2 million of intangible amortization, from the acquisition of Signature on February 8, 2024 and $0.6 million of higher facility costs, partially offset by $5.6 million of lower incentive compensation, $3.4 million of lower legal and professional fees, excluding acquisition costs, $2.4 million of lower salaries and benefits, $0.5 million of lower commissions and $0.4 million of lower variable selling expenses. Acquisition and integration costs included in SG&A expenses increased $3.7 million due to the Signature acquisition described in Note 3 and restructuring costs, including executive severance in SG&A expenses decreased $1.0 million. Additionally, the company incurred $1.3 million of consulting costs for the six months ended June 30, 2023, to improve its capabilities to screen and execute large acquisitions. Environmental matters, as described in Note 10 resulted in a net $0.2 million recovery for the six months ended June 30, 2024, which compared to $2.3 million of charges for the six months ended June 30, 2023.

Previous wording

The Company’s primary sources of liquidity are cash on hand, cash generated from operations and availability under the Amended Loan Agreement (defined below). At March 31, 2024, the Company had $32.7 million of cash, $235.4 million available under the Loan Agreement and outstanding debt of $409.7 million, including the finance lease liability of $9.1 million. Based on this liquidity and borrowing capacity, the Company believes it is well-positioned to manage through the working capital demands and the heightened uncertainty in the current macroeconomic environment. The Company believes that cash on hand, cash flows from operations and available capacity under its Amended Loan Agreement will be sufficient to meet expected business requirements including capital expenditures, dividends, working capital, debt service, and to fund future growth.

Current wording

The Company’s primary sources of liquidity are cash on hand, cash generated from operations and availability under the Amended Loan Agreement (defined below). At June 30, 2024, the Company had $37.3 million of cash, $231.4 million available under the Amended Loan Agreement and outstanding debt of $409.0 million, including the finance lease liability of $8.9 million. Based on this liquidity and borrowing capacity, the Company believes it is well-positioned to manage through the working capital demands and the heightened uncertainty in the current macroeconomic environment. The Company believes that cash on hand, cash flows from operations and available capacity under its Amended Loan Agreement will be sufficient to meet expected business requirements including capital expenditures, dividends, working capital, debt service, and to fund future growth.

Previous wording

Net cash provided by operating activities was $20.3 million for the quarter ended March 31, 2024, compared to $25.8 million in the same period in 2023. The decrease was primarily due to lower net income in the current period partly offset by net improvements in working capital.

Current wording

Net cash provided by operating activities was $34.6 million for the six months ended June 30, 2024, compared to $48.6 million in the same period in 2023. The decrease was primarily due to lower net income in the current period. Year to date cash used for working capital was $3.7 million for the six months ended June 30, 2024, compared to cash generated from working capital of $6.8 million in the prior year to date period.

Previous wording

Net cash used for investing activities was $354.5 million for the quarter ended March 31, 2024 compared to cash used of $9.2 million for the same period in 2023. In 2024, the Company paid $348.9 million to acquire Signature, net of cash acquired and subject to working capital adjustments, as discussed in Note 3. Capital expenditures were $5.7 million and $9.1 million for the quarter ended March 31, 2024 and 2023, respectively. Full year 2024 capital expenditures are expected to be approximately $35 million to $40 million.

Current wording

Net cash used for investing activities was $358.4 million for the six months ended June 30, 2024 compared to cash used of $15.2 million for the same period in 2023. In 2024, the Company paid $348.3 million to acquire Signature, net of cash acquired and working capital adjustments, as discussed in Note 3. Capital expenditures were $10.1 million and $15.2 million for the six months ended June 30, 2024 and 2023, respectively. Full year 2024 capital expenditures are expected to be approximately $30 million to $35 million.

Previous wording

Cash provided by financing activities was $336.9 million for the quarter ended March 31, 2024 compared to cash used for financing activities of $11.5 million for the same period in 2023. In 2024, the Company received proceeds of $400 million under a new term loan facility, as described below and made repayments of $38.0 million of senior unsecured notes, including $26.0 million of senior unsecured notes that matured in January 2024 and the prepayment of $12.0 million of senior unsecured notes in conjunction with the amendment and restatement to the Loan Agreement described below. Net borrowings (repayments) of the Company's existing revolving credit facility were $(11.0) million and $(5.2) million for the quarters ended March 31, 2024 and 2023, respectively. Net proceeds from the issuance of common stock in connection with incentive stock option exercises were $2.4 million and $1.1 million for the quarter ended March 31, 2024 and 2023, respectively. Cash paid for tax withholdings on vesting of stock compensation totaled $1.9 million and $2.0 million in the quarter ended March 31, 2024 and 2023 respectively. Fees paid for the amendment and restatement to the Loan Agreement in February 2024 totaled $9.2 million. The Company also used cash to pay dividends of $5.3 million and $5.3 million for the quarter ended March 31, 2024 and 2023, respectively.

Current wording

Cash provided by financing activities was $331.0 million for the six months ended June 30, 2024 compared to cash used of $26.0 million for the same period in 2023. In 2024, the Company received proceeds of $400 million under a new term loan facility, as described below and made repayments of $5.0 million of Term Loan A and $38.0 million of senior unsecured notes, including $26.0 million of senior unsecured notes that matured in January 2024 and the prepayment of $12.0 million of senior unsecured notes in conjunction with the amendment and restatement to the Loan Agreement described below. Net borrowings (repayments) of the Company's existing revolving credit facility were $(7.0) million and $(15.0) million for the six months ended June 30, 2024 and 2023, respectively. Net proceeds from the issuance of common stock in connection with incentive stock option exercises were $2.8 million and $1.6 million for the six months ended June 30, 2024 and 2023, respectively. Cash paid for tax withholdings on vesting of stock compensation totaled $2.0 million in both the six months ended June 30, 2024 and 2023. Fees paid for the amendment and restatement to the Loan Agreement in February 2024 totaled $9.2 million. The Company also used cash to pay dividends of $10.4 million and $10.3 million for the six months ended June 30, 2024 and 2023, respectively.

Previous wording

On May 2, 2024, the Company entered into an interest rate swap agreement to mitigate the variable interest rate risk of borrowings under the Amended Loan Agreement. The swap has a beginning notional value of $200.0 million, which reduces proportionately with scheduled Term Loan A amortization payments, and has a final maturity date of January 31, 2029. The swap is designated as a cash flow hedge and effectively results in a fixed rate of 4.606% plus the applicable margin for the hedged debt, as described in Note 11.

Current wording

On May 2, 2024, the Company entered into an interest rate swap agreement to mitigate the variable interest rate risk of borrowings under the Amended Loan Agreement. The swap has a beginning notional value of $200.0 million, which reduces proportionately with scheduled Term Loan A amortization payments, and has a final maturity date of January 31, 2029. At June 30, 2024, the remaining notional value of the Company's interest rate swap totaled $197.5 million. The swap is designated as a cash flow hedge and effectively results in a fixed rate of 4.606% plus the applicable margin for the hedged debt, as described in Notes 1 and 11.

Previous wording

As of March 31, 2024, $235.4 million was available under the Amended Loan Agreement, after borrowings and the Company had $5.6 million of letters of credit issued related to insurance and other financing contracts in the ordinary course of business. Borrowings under the Amended Loan Agreement bear interest at the Term SOFR, RFR, SONIA, EURIBOR and CORRA-based borrowing rates.

Current wording

As of June 30, 2024, $231.4 million was available under the Amended Loan Agreement, after borrowings and the Company had $5.6 million of letters of credit issued related to insurance and other financing contracts in the ordinary course of business. Borrowings under the Amended Loan Agreement bear interest at the Term SOFR, RFR, SONIA, EURIBOR and CORRA-based borrowing rates.

Previous wording

As of March 31, 2024, the Company was in compliance with all of its debt covenants. The most restrictive financial covenants for all of the Company’s debt are an interest coverage ratio (defined as earnings before interest, taxes, depreciation and amortization, as adjusted, divided by interest expense) and a net leverage ratio (defined as total net debt divided by earnings before interest, taxes, depreciation and amortization, as adjusted). The ratios as of and for the period ended March 31, 2024 are shown in the following table:

Current wording

As of June 30, 2024, the Company was in compliance with all of its debt covenants. The most restrictive financial covenants for all of the Company’s debt are a net leverage ratio (defined as net debt divided by earnings before interest, taxes, depreciation and amortization, as adjusted) and an interest coverage ratio (defined as earnings before interest, taxes, depreciation and amortization, as adjusted, divided by interest expense). The ratios as calculated under the terms of the Amended Loan Agreement as of and for the period ended June 30, 2024 are shown in the following table: