Myers Industries(MYE) - 2024 Q4 - Annual Report

Part I Business Myers Industries manufactures and distributes polymer, metal, and rubber products via Material Handling and Distribution segments, recently expanding through the Signature Systems acquisition - The company operates through two business segments: Material Handling and Distribution[22] 2024 Net Sales by Business Segment | Segment | 2024 Net Sales (in millions) | Percentage of Total | | :--- | :--- | :--- | | Material Handling | $621.7 | 74% | | Distribution | $214.8 | 26% | - On February 8, 2024, the Company acquired Signature Systems, a manufacturer of composite matting ground protection, which is included in the Material Handling Segment; Signature's annual sales were approximately $110 million at the time of acquisition[25] - The company's order backlog was approximately $102 million at the end of 2024, an increase from $75 million at the end of 2023[44] - As of December 31, 2024, the company employed approximately 2,700 people, with about 125 represented by a labor union whose contract expires on June 30, 2025[45] - No single customer accounted for more than ten percent of total net sales in 2024, 2023, or 2022[43] Risk Factors The company faces operational, strategic, and financial risks, including raw material cost volatility, acquisition integration challenges, economic downturns, and environmental liabilities - The company's financial performance is vulnerable to significant increases in the cost or disruptions in the availability of primary raw materials like plastic resins, steel, and rubber[54] - The company may not realize the anticipated benefits from past or future acquisitions, such as the recent Signature Systems purchase, and could face difficulties integrating acquired businesses[74] - Variable rate indebtedness exposes the company to interest rate risk, where an increase in rates would raise debt service obligations and decrease net income[85] - The company is exposed to potential liability from environmental laws and regulations, including being named a potentially responsible party (PRP) for the New Idria Mercury Mine Superfund site[93][95] - A significant concentration of equity ownership exists, with the Gamco Group beneficially owning approximately 14.5% of the company's common stock as of December 31, 2024, which could influence shareholder actions[89] Unresolved Staff Comments The company has no unresolved staff comments from the Securities and Exchange Commission - None[104] Cybersecurity The company manages cybersecurity risks using the NIST framework, with regular board oversight and no material incidents reported - The company's information security management system is based on the National Institute of Standards and Technology Cybersecurity Framework (NIST CSF)[105] - Management provides regular reports and training on cybersecurity to the Board; there have been no material cybersecurity incidents in the periods presented[106] Properties As of December 31, 2024, the company owns and leases various properties globally for its operations, which management deems adequate Principal Properties Overview (as of Dec 31, 2024) | Status | Primary Locations | Use | | :--- | :--- | :--- | | Owned | Akron, OH; Miami, OK; Springfield, MO | Administration, Manufacturing, Distribution | | Leased | Various U.S. states, Canada, El Salvador, Panama, UK | Manufacturing, Distribution, Warehousing, Sales | Legal Proceedings The company is involved in various legal proceedings, but management anticipates no material adverse effect on its financial position or operations - The company is a defendant in various lawsuits arising in the ordinary course of business[109] - Management believes the ultimate outcome of these matters will not have a material adverse effect on the company's financial position or cash flows[110] - For specific information on the New Idria Mercury Mine and New Almaden Mine matters, the report refers to Note 9 of the Consolidated Financial Statements[111] Part II Market for Registrant's Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on the NYSE, maintained its quarterly dividend, had no Q4 2024 repurchases, and significantly underperformed market indices over five years Quarterly Dividends Per Share | Year | Quarter Ended March 31 | Quarter Ended June 30 | Quarter Ended Sept 30 | Quarter Ended Dec 31 | | :--- | :--- | :--- | :--- | :--- | | 2024 | $0.135 | $0.135 | $0.135 | $0.135 | | 2023 | $0.135 | $0.135 | $0.135 | $0.135 | - No shares were repurchased in the fourth quarter of 2024; as of December 31, 2024, 2,452,335 shares were still available for purchase under the publicly announced repurchase plans[120] 5-Year Cumulative Total Return Comparison (2019-2024) | Index | Cumulative Return on $100 Investment | | :--- | :--- | | Myers Industries Inc. | $77.39 | | S&P 500 Index | $197.02 | | Russell 2000 Index | $142.93 | | S&P 600 Materials (Sector) Index | $165.34 | Reserved This item is not applicable Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the 2024 financial results, noting a 2.9% net sales increase driven by acquisition, a significant net income decrease due to impairment and higher debt costs, and sufficient liquidity Results of Operations: 2024 Compared with 2023 Net sales increased 2.9% to $836.3 million in 2024 due to the Signature acquisition, but net income significantly decreased to $7.2 million from $48.9 million due to impairment and higher interest expenses Net Sales by Segment (2024 vs. 2023) | Segment (in thousands) | 2024 | 2023 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Material Handling | $621,655 | $555,259 | $66,396 | 12.0% | | Distribution | $214,768 | $257,875 | $(43,107) | (16.7)% | | Total Net Sales | $836,281 | $813,067 | $23,214 | 2.9% | - Gross profit increased by $11.7 million (4.5%) in 2024, primarily due to the Signature acquisition, though this was partially offset by a $4.5 million acquisition-related inventory step-up amortization[134][135] - SG&A expenses increased by $17.2 million (9.2%) in 2024, mainly due to $28.8 million in incremental SG&A from the Signature acquisition, including $10.1 million of intangible amortization[136] - A non-cash impairment charge of $22.0 million was recorded in 2024 for the full carrying value of goodwill in the rotational molding reporting unit[137] - Net interest expense increased by 387.3% to $30.9 million in 2024, driven by higher average borrowings to fund the Signature acquisition and a higher weighted-average borrowing rate[138] Financial Condition & Liquidity and Capital Resources As of December 31, 2024, the company's liquidity is supported by $32.2 million cash and $244.7 million available under its loan agreement, despite total debt increasing to $383.6 million due to the Signature acquisition - Primary sources of liquidity are cash on hand ($32.2 million), cash from operations, and availability under the Amended Loan Agreement ($244.7 million)[140] - Cash provided by operating activities was $79.3 million in 2024, a decrease from $86.2 million in 2023[141] - Net cash used in investing activities was $372.5 million, primarily due to the $348.3 million payment for the Signature acquisition[142] - Financing activities provided $295.1 million, driven by $400 million in proceeds from a new term loan facility used to fund the acquisition[143] - The company entered into an interest rate swap agreement on May 2, 2024, to hedge a portion of its variable-rate debt, effectively fixing the rate on a notional value of $200.0 million[151] - The company was in compliance with all debt covenants as of December 31, 2024, with a Net Leverage Ratio of 2.69 (max 4.00) and an Interest Coverage Ratio of 4.20 (min 3.00)[153] Critical Accounting Policies and Estimates Management identifies critical accounting policies requiring significant judgment, including contingencies, business combinations, and goodwill impairment testing, all relying on subjective estimates - Accounting for contingencies, such as environmental liabilities, requires significant judgment to estimate probable losses[156] - Business combination accounting requires management to make significant estimates regarding the fair value of acquired assets and liabilities, which impacts future operating results[157] - Goodwill impairment testing involves estimating the fair value of reporting units using discounted cash flow and market-based approaches, which rely on subjective assumptions about future performance, discount rates, and growth rates[158][159] Quantitative and Qualitative Disclosures About Market Risk The company faces interest rate, foreign currency, and commodity price risks, with a 1% interest rate change impacting annual expense by $1.9 million on unhedged debt, and no hedging for significant plastic resin costs - A one percent change in market interest rates would change the company's annual variable interest expense by approximately $1.9 million on its unhedged debt[163] - The company has entered into an interest rate swap agreement to mitigate variable interest rate risk on a portion of its borrowings[164] - The company is exposed to commodity price risk, primarily from plastic resins, and currently has no derivative contracts to hedge these price changes[166] Financial Statements and Supplementary Data This section presents the audited consolidated financial statements for 2022-2024, including an unqualified auditor's opinion, and highlights the significant impact of the Signature acquisition on assets, liabilities, and 2024 net income Report of Independent Registered Public Accounting Firm Ernst & Young LLP issued an unqualified opinion on the financial statements and internal controls, noting critical audit matters for the New Idria Mine environmental liability and Signature acquisition intangible asset valuation - The auditor, Ernst & Young LLP, issued an unqualified opinion on the consolidated financial statements and the company's internal control over financial reporting[169][170] - A critical audit matter was the New Idria Mine environmental liability, which involved a high degree of subjectivity in estimating the costs for the Remedial Investigation/Feasibility Study (RI/FS)[174] - A second critical audit matter was the valuation of intangible assets (customer relationships, technology, trademarks) acquired in the Signature acquisition, due to the complex and subjective nature of estimating their fair values[176][177] - The audit of internal control over financial reporting did not include an evaluation of Signature Systems, which was acquired on February 8, 2024[348] Consolidated Financial Statements The consolidated financial statements show 2024 net income dropped to $7.2 million, total assets grew to $860.8 million, and $348.3 million was used for the Signature acquisition, funded by a $400 million term loan Consolidated Statements of Operations Highlights (in thousands) | Line Item | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Net sales | $836,281 | $813,067 | $899,547 | | Operating income | $44,480 | $72,405 | $83,941 | | Net income | $7,201 | $48,867 | $60,267 | | Diluted EPS | $0.19 | $1.32 | $1.64 | Consolidated Statements of Financial Position Highlights (in thousands) | Line Item | Dec 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total Current Assets | $259,307 | $256,621 | | Goodwill | $255,532 | $95,392 | | Total Assets | $860,815 | $541,631 | | Total Current Liabilities | $147,112 | $165,107 | | Long-term debt | $355,310 | $31,989 | | Total Liabilities | $583,303 | $248,831 | | Total Shareholders' Equity | $277,512 | $292,800 | Consolidated Statements of Cash Flows Highlights (in thousands) | Line Item | 2024 | 2023 | | :--- | :--- | | Net cash provided by operating activities | $79,292 | $86,172 | | Net cash used for investing activities | $(372,505) | $(22,757) | | Net cash provided by (used for) financing activities | $295,095 | $(56,516) | | Net increase in cash | $1,932 | $7,151 | Notes to Consolidated Financial Statements The notes detail accounting policies and financial results, including the $348.3 million Signature acquisition, a $22.0 million goodwill impairment, $7.5 million in restructuring costs, and a $12.4 million reserve for the New Idria Mine environmental matter - The company acquired Signature Systems on February 8, 2024, for a net purchase price of $348.3 million; the preliminary purchase price allocation included $183.1 million for goodwill and $136.7 million for intangible assets[233][238][240] - A non-cash goodwill impairment charge of $22.0 million was recorded in Q3 2024 for the rotational molding reporting unit due to declining market conditions and a reduced long-range outlook[246] - In 2024, the company incurred restructuring costs of approximately $0.9 million for the rotational molding facility consolidation and $1.4 million for the Distribution Segment restructuring[258][259] - As of Dec 31, 2024, the company has a reserve of $12.4 million for the New Idria Mine environmental matter, primarily for investigation costs; the company has not accrued for ultimate remediation costs as they cannot be reasonably estimated[279][282] - To fund the Signature acquisition, the company entered into a new 5-year, $400 million term loan facility (Term Loan A) on February 8, 2024[287] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants regarding accounting principles, practices, or financial disclosure - None[336] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2024, excluding the Signature Systems acquisition from the internal control assessment - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2024[338] - Management concluded that the company maintained effective internal control over financial reporting as of December 31, 2024[343] - The assessment of internal control over financial reporting excluded the newly acquired Signature Systems, which represented approximately 9% of consolidated total assets (excluding goodwill/intangibles) and 12% of consolidated net sales for 2024[344] Other Information No directors or executive officers adopted or terminated Rule 10b5-1 trading plans or other non-Rule 10b5-1 trading arrangements during Q4 2024 - During the three months ended December 31, 2024, no directors or executive officers adopted or terminated any Rule 10b5-1 trading plan or other non-Rule 10b5-1 trading arrangement[357] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable - None[357] Part III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance, including Audit Committee financial experts and the Code of Ethics, is incorporated by reference from the 2025 Proxy Statement - Information regarding executive officers, directors, and corporate governance is incorporated by reference from the company's 2025 Proxy Statement[360][361] - The Board has identified William A. Foley, F. Jack Liebau, Jr. and Lori Lutey as 'Audit Committee Financial Experts'[362] Executive Compensation All information concerning executive and director compensation is incorporated by reference from the company's 2025 Proxy Statement - All required information concerning executive compensation is incorporated by reference from the company's Proxy Statement for its 2025 annual meeting[366] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership information is incorporated by reference from the 2025 Proxy Statement, with details on equity compensation plans as of December 31, 2024, showing nearly 1 million issuable securities and over 2 million available for future issuance - Information regarding security ownership of certain beneficial owners and management is incorporated by reference from the 2025 Proxy Statement[368] Equity Compensation Plan Information (as of Dec 31, 2024) | Plan Category | Securities to be Issued Upon Exercise | Weighted-Average Exercise Price | Securities Remaining for Future Issuance | | :--- | :--- | :--- | :--- | | Approved by Security Holders | 959,969 | $17.43 | 2,002,836 | | Not Approved by Security Holders | 0 | N/A | 0 | Certain Relationships and Related Transactions, and Director Independence Information on related party transactions and director independence is incorporated by reference from the company's 2025 Proxy Statement - Information regarding related party transactions and director independence is incorporated by reference from the 2025 Proxy Statement[370] Principal Accounting Fees and Services Information regarding principal accounting fees and services, including Audit Committee pre-approval policies, is incorporated by reference from the 2025 Proxy Statement - Information regarding principal accounting fees and services is incorporated by reference from the 2025 Proxy Statement[371] Part IV Exhibits, Financial Statement Schedules This section lists the financial statements and exhibits filed with the Form 10-K, confirming inclusion of required statements and omission of schedules, and provides a detailed exhibit index - This section lists the consolidated financial statements of the Registrant that appear in Part II of the report[374] - A detailed Exhibit Index is provided, listing all documents filed with the report, including merger agreements, loan agreements, incentive plans, and various certifications[375][376]