Michael McGaugh: Yes, Lance, just contextually, I’ll handle and I’ll pass it over to Grant. We are putting a significant amount of time and effort and discipline around how we manage accounts receivable collections, particularly in choppy times, similarly, on how we manage the other aspects of working capital. So, it is – it isn’t focus. We review it on a daily and weekly basis. And ultimately, that’s what’s helped catalyze the results that you see. I think those results will continue. I think, Myers will continue to be a good cash flow generator. But Grant, do you want to build on that?
Grant Fitz: One of the things that I’ve been pleasantly surprised about, Lance, I’ve joined the company, is that the organization across the board is very cash focused. They manage their accounts receivable very well, and continue to keep that front center, their inventory levels as well, too. So from that standpoint, I would say to Mike’s comment that we will continue to see some good free cash flow from the business. I think our working capital as percent of TTM sales is probably going to be pretty consistent from what it’s been historically. We did get the benefit of a larger payment in Q3 that did help that some, but certainly, I think the overall hydraulics, as I’d like to call it of the business, are very strong in terms of how the company manages its cash and works its cash.
Lance Vitanza: Thanks, guys, great job navigating a tough market.
Michael McGaugh: Yes. Thank you, Lance. I appreciate it.
Operator: Thank you. [Operator Instructions]. We will now take our next question from Steve Barger from KeyCorp. Steve, your line is now open. Please go ahead.
Christian Zyla: Good morning, Mike. Grant. This is actually Christian on for Steve Barger. Thank you, guys for taking my questions.
Michael McGaugh: Hi, Christian.
Christian Zyla: First question is – good morning. My first question is just with the revenue growth slowing, are you starting to retrench and focus on cost controls? Or do you continue to invest in internal infrastructure and try to accelerate that M&A process?
Michael McGaugh: Yes, I’ll – again, Chris, I’ll take a shot at that. Of course, we focused on cost. And we talk about this. This is one area I think I’ve brought to the company over the last three and a half years is this – we’re reliance on self-health. And we’ve talked about that in cost and productivity, that’s part of the Myers business system. That gives us the latitude and the ability to invest even in choppy times. And that investment is what we talked about with Lance, the commercial, the sales and marketing, but also that investment is pursuing M&A opportunities. We are continuing to maintain our focus and discipline to acquire companies that are on strategy and move us forward. We talk a lot about this. You are what you eat.
And so we want to acquire accretive EBITDA companies that we can make better that more attractive EBITDA profile than we do today. There’s a number of companies out there that we could acquire, that are not as attractive or not as solid or as off strategy. We don’t want to do that. And so I would rather do fewer but higher quality acquisitions. And again, the valuation comes into question. We’re now starting to see valuations come back into focus. I think over the last 12 to 24 months, they were still high. Our belief is we’ve got a great balance sheet, we’ve got great operations. We’ve got great cash flow generation. We think the next 12 to 24 months we’re going to be advantaged and we’re going to be in an environment where we can acquire more attractive, more valuable companies on target at fair valuations.
And that last piece Christians what’s been missing over the last year. So grant?
Grant Fitz: I’ll just reiterate what Mike said, Christian. The Myers business system, that is a fundamental part of our business. And coming from the automotive, having spent some time in the automotive industry, I pointed to what is often called the Toyota Production System. It’s just our version of how do we standardize, simplify, make things more efficient, and just drive continuous cost improvement. So that I think is going to be part of the core DNA that will continue going forward within the Myers’ team. Additionally, we are always looking at trying to determine what’s the right size of our production capacity, because what we don’t want to do is we don’t want to get in a situation where we get to a level of capacity that we’re at when the markets are low, and then when they come back, we’re not able to meet the market demand.
So we’d like to have a good balance with that. And our ops team does a really good job on just managing through that. To Mike’s comment about M&A, I do think that the market is going to start to pick up overall. As you know, the M&A activity is slowed down pretty dramatically from where it was, maybe a year or so plus ago. I do think that a lot of private equity firms are sitting on the sidelines, waiting to see how things will develop. And so, we are getting, to some degree of buildup of companies that will probably be coming to the market over the next one to two years at a higher pace than what may have been in the past, and we certainly are looking at not overpaying and I think there has been some differences between what buyers have wanted versus what sellers are willing to pay.
Those are starting to tighten, and we will be very opportunistic. But without question, we will buy companies that we think are going to be very strong for our profile and accretive to the business. And we’re not going to just buy companies just to check the box that we’ve hit some acquisitions.
Christian Zyla: Great. That’s helpful. Thank you for that color. And I know you don’t want to look too far forward in terms of guidance. But when you think about the first half of 2024, can you just give high level comments on organic growth expectations? What do you think the segments look like over the next few quarters? I guess, ultimately, just looking for maybe an expectations reset, just because if we look over the next few quarters, seems to be running ahead of the 2023 quarterly run rate, so, just any thoughts on expectations maybe in 2024? Thanks,
Michael McGaugh: Christian, I think I think consumer, consumer discretionary. So as you recall, we make a lot of – $100, $200 decorative flower pots, planters, mailbox, that business is going to continue to I think stay soft as inflation, just takes the share of wallet away from the consumer. RV and Marine, so pontoon boats and RVs, I think are going to continue to be down, but they may be up off of the bottom of 2023. The auto aftermarket piece we’re very intrigued about where we are excited about that. That’s why we’re doing the call from Las Vegas at five in the morning at the SEMA Show. There’s good attendance here. This business seems to be getting some lift. The drive to electric vehicles, as well as the auto, the ageing autos on the road.
Those are big trends for us. We’re a little bit off right now on distribution revenue, quite frankly, because of still some consequences of the merger of Mohawk into Myers Tire Supply. There’s some choppiness there, as accounts got sorted out between sales reps, and you have some turnover of your sales reps, which temporarily will depress that revenue. But again, the strategy we’ve got with that business, focusing on large national customers, large national tire shops is the right strategy, because there’s consolidation going on there. And we’re the best prepared to service those national accounts. So I’m optimistic about where distribution is going to go from a revenue and volume standpoint, next year, and then the following year, I think that’s a real opportunity.
