Matthews International Corporation (NASDAQ:MATW) Q1 2024 Earnings Call Transcript
Matthews International Corporation (NASDAQ:MATW) Q1 2024 Earnings Call Transcript February 2, 2024
Matthews International Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning. Welcome to Matthews International's First Quarter Fiscal 2024 Financial Results Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to Bill Wilson, Senior Director of Corporate Development. Thank you. You may begin.
William Wilson: Great. Thank you, Sherry. Good morning, everyone and welcome to the Matthews International first quarter and fiscal year 2024 conference call. This is Bill Wilson, Senior Director of Corporate Development. With me today are Joe Bartolacci, President and Chief Executive Officer; and Steve Nicola, our Chief Financial Officer. Before we start, I would like to remind you that our earnings release was posted on our website www.matw.com in Investor section last night. The presentation for our call can also be accessed in Investor section of the website. Any forward-looking statements in connection with this discussion are being made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.
Factors that could cause the company's results to differ from those discussed today are set forth in the company's annual report on Form 10-K and other periodic filings with the SEC. In addition, we will be discussing non-GAAP financial metrics and encourage you to read our disclosures and reconciliation tables carefully as you consider these metrics. In connection with any forward-looking statements and non-GAAP financial information, please read the disclaimer included in today's presentation materials located on our website. Now I will turn the call over to Joe.
Joseph Bartolacci: Thank you, Bill. Good morning. Despite the EBITDA shortfall versus prior year, we are pleased with our fiscal '24 first quarter results. All of our businesses exceeded our internal expectations, except energy which saw delays in our projected deliveries for our largest customer, which are outside of our control. Overall, we reported a modest increase in consolidated sales to $450 million this quarter from $449 million in the first quarter of fiscal '23. We cautioned last quarter, however, customer readiness to accept our equipment throughout the year will be and in this quarter clearly was the primary factor behind the performance of the energy business, as delays have impacted the timing of anticipated revenues for our fiscal '24 first quarter.
Even with the timing of the energy sales, sales for the industrials -- industrial segment increased compared to the first quarter last year, and together with OLBRICH and the rest of our industrial technology segment, we have almost $260 million of backlog expected to be substantially delivered this fiscal year. Memorialization sales also increased compared to last year and SGK sales were modestly down largely due to lower retail based sales and continued weakness in the European brand market. For our industrial segment, we continue to receive significant inbound interest for our unique energy solutions from almost all of the major global OEMs and battery manufacturers. The benefits of our solutions remain clear. By leaning on our industry leading expertise, we have developed processes that produce -- excuse me, that reduce customer cost of production by lowering capital investment, labor costs and energy consumption while greatly reducing any environmental concerns.
As a result, we continue to see an influx of inquiries from potential customers who are still several years behind our largest customer. We believe that the breadth of these inquiries reflects the continued vibrancy in the EV space and expect to announce developments [indiscernible] throughout the course of the year. Regarding other energy solutions news, I'm happy to announce that we landed our first significant order for the production of hydrogen fuel cell equipment and are in discussions with a major U.S OEM on joint development work relating to hydrogen fuel cells. In addition, in collaboration with a well-known OEM, we've applied for federal funding for the joint development of a hydrogen fuel cell production facility here in the U.S that we will own.
Interest in hydrogen fuel cell production is growing, especially with heightened levels of government support in Europe and in the U.S. In light of these activities and discussions, coupled with the fact that we are still working through approximately half of the $200 million in orders we announced last year, we currently believe that the energy solutions revenue will be higher in fiscal 2024 than in the previous year. With respect to our other industrial technology businesses, our product identification and surfaces business experienced good volume and pricing growth during the first quarter. We anticipate this as a trend that will continue. We continue to make good progress on our new print engine product, which remains on track to be launched around the end of the calendar year.
We will provide an update on the timeline this summer. As for warehouse automation, sales in the first quarter were lower on a year-over-year basis consistent with what the overall market is seeing, but we believe this will recover in the second half of the year. Note that this business is typically slower in our first fiscal quarter due to the holiday shopping season. With that said, we did see a softening in the market during the quarter, but continue to anticipate a solid year based on our existing backlog and mix. Our memorialization business performed modestly better-than-expected in the quarter, reporting $208 million in sales, despite a decline in casket sales, which returned to normalized levels. The business benefited from the contribution of our recent acquisition Eagle Granite.
As we look to the balance of the year, we are currently seeing higher-than-normal volumes for the past few weeks. So we are expecting this business to continue to perform well. Our memorialization business continues to outperform pre-COVID operating results reflecting improvements that were made to the business over the last few years that have led to higher sales and higher performance overall. As a testament to these improvements, we continue to win new accounts on our memorialization section -- segment, a reflection of the quality of our products and services. As I said before, we expect another solid year of results from memorialization. As for SGK, the segment reported operating results in the first quarter, despite reporting -- reported solid operating results in the first quarter despite reporting slightly lower sales compared to the corresponding period in fiscal '23.
Thanks to pricing and cost actions taken over the past 12 months. U.S and Asia Pacific brand sales were relatively stable, and the lower retail base sales was primarily due to timing of projects pushed into the latter quarters. But we still continue to see softness in the European brand market. Our team at SGK should be commended for the work and commitment during the challenging period as we won significant new business from several global brands that are just beginning to be transitioned. The team is also beginning to see the benefits of the strategy to extend our marketing execution services to eCommerce digital marketing services that we expect will reach over $40 million in sales this year. This platform places SGK ahead of significant competitors in the space and is a key differentiator as we continue to win new work from our competitors.
We believe that this strategy will drive future market share growth in the enormous market for digital marketing. We expect this business to deliver a good year, particularly as our customers are beginning to realize the need to reinvest in their brands. Finally, Steve will provide greater detail on this, but I'm happy to announce that we renewed our revolving credit facility and extended it to 2029 with no major changes in pricing in terms and conditions. Having the comfort of access to capital and a supportive bank group during this extended period of uncertainty in the global economy is essential. Our leverage target is scheduled to be -- excuse me, our leverage target is to approach three by the end of the year. As we progress through 2024, we anticipate a reduction in working capital in the latter half of the fiscal year as we convert to cash from the orders we received last year.
Due to the timing of deliveries, we should see stronger cash flow trends in the latter portion of the fiscal year and into the next. We are still project -- currently projecting continued consolidated sales growth and EBITDA for the full year despite the current delays in energy. As discussed above, interest in our fast growing business remain strong with over $100 million in backlog at the end of the first quarter. I caution, however, given the increased level of larger long-term projects, the timing of orders deliveries remains a wildcard. We continue to expect our fiscal '24 results to exceed the prior year, but being more specific on growth levels is difficult to provide at this time. I'll now turn it over to Steve for more insight into our financial results.
Steve?
Steven Nicola: Thank you, Joe and good morning. Consolidated sales for the fiscal 2024 first quarter were $450 million compared to $449.2 million a year ago. The increase primarily reflected higher sales for the industrial technologies and memorialization segments. The Industrial Technology segment reported a sales increase of $2.2 million compared to a year ago, primarily reflecting higher engineering product identification and surfaces sales. Memorialization sales were $208.1 million for the current quarter, compared with $206.5 million a year ago, primarily reflecting higher granite sales and the acquisition of Eagle Granite last fiscal year. Sales for the SGK brand solution segment were $3.1 million lower than a year ago, primarily reflecting lower retail base sales and continued softness in the European brand markets.
On a consolidated basis, changes in currency rates had a favorable impact of $5.1 million on current quarter sales compared to a year ago. On a GAAP basis, net loss attributable to the company for the quarter ended December 31, 2023 was $2.3 million or $0.07 per share, compared to income of $3.7 million or $0.12 per share in the prior period. On a non-GAAP adjusted basis, earnings for the fiscal 2024 first quarter were $0.37 per share, compared to $0.53 per share a year ago. The decrease was primarily attributable to lower consolidated adjusted EBITDA and higher interest expense for the current quarter compared to a year ago. Consolidated adjusted EBITDA which represents net income before interest expense, income, taxes, depreciation and amortization and other adjustments for the fiscal 2024 first quarter was $45.5 million compared to $49.3 million a year ago.
The decrease reflected lower adjusted EBITDA for the industrial technologies and memorialization segments, offset partially by an increase in adjusted EBITDA for the SGK Brand Solutions segment and lower corporate and other non-operating costs. Changes in currency rates had a favorable impact of $354,000 on current quarter consolidated adjusted EBITDA compared to a year ago. Please see the reconciliations of adjusted EBITDA and non-GAAP adjusted earnings per share provided in our earnings release. Please turn to Slide 8 to begin a review of our segment results. Sales for the Industrial Technology segment for the fiscal 2024 first quarter were $111.4 million, compared to $109.1 million a year ago. The engineering business reported higher sales for the current quarter compared to a year ago, primarily reflecting further growth in the energy storage solutions business.
The product identification and surfaces businesses also reported higher sales for the current quarter compared to last year. Sales for the segments warehouse automation business declined from a year ago, primarily reflecting the lower order rates we indicated in our previous call and the normal seasonality of this business. Sales for the automotive equipment business that was acquired as part of the OLBRICH and R+S acquisition also declined as we continue to wind down this small business. Changes in currency rates had a favorable impact of $3.7 million on the segment's current quarter sales compared to a year ago. Adjusted EBITDA for the Industrial Technology segment for the current quarter was $9.6 million, compared to $12.2 million a year ago.
The decrease primarily reflected lower margins for the engineering business compared to a year ago, which is influenced by the stage and timing of the projects, the impact of lower warehouse and automation sales and a small divestiture. The declines were partially offset by higher sales and improved pricing for the product identification and surfaces businesses and favorable currency rate changes. Changes in currency exchange rate had a favorable impact of $405,000 on the segment's current quarter adjusted EBITDA compared to a year ago. Please turn to Slide 9. Sales for the memorialization segment for the fiscal 2024 first quarter were $208.1 million, compared to $206.5 million for the same quarter a year ago. The increase primarily reflected higher Granite Memorial sales and the acquisition of Eagle Granite, partially offset by lower unit sales of caskets.
Changes in foreign currency rates had a favorable impact of $381,000 on current quarter sales compared to a year ago. Memorialization adjusted EBITDA for the current quarter was $36.7 million, compared to $39.1 million for the same quarter last year. The decrease primarily resulted from the impact of the decline in casket sales, which was partially offset by the increase in Granite Memorial sales. The acquisition of Eagle Granite and improved net pricing changes. Material and labor costs were higher for the quarter, but were offset by the benefits of cost savings initiatives. Please turn to Slide 10. The SGK Brand Solutions segment reported sales of $130.5 million for the quarter ended December 31, 2023, compared to $133.6 million a year ago.
The decrease primarily reflected a decline in retail base sales, primarily reflecting timing and lower sales in the segments European brand markets on a constant currency basis. The declines were offset partially by improved pricing, a small acquisition in December 2022, and the impact of favorable currency changes. The currency rate changes had a favorable impact of $969,000 on current quarter sales compared to a year ago. Adjusted EBITDA for the SGK Brand Solutions segment was $12.9 million for the current quarter compared to $12.2 million a year ago. The increase primarily reflected the benefits of improved pricing and the segment's recent cost reduction actions offset partially by the impact of lower sales. Changes in currency rates had an unfavorable impact of $142,000 on adjusted EBITDA compared to a year ago.
Please turn to Slide 11. Cash used in operating activities for the quarter ended December 31, 2023 was $27.3 million compared to $36.2 million a year ago. Operating cash flow for the prior quarter included payments of $24.2 million in connection with the termination and settlement of the company's supplemental retirement plan. Current year operating cash utilization primarily reflected higher working capital. Our first fiscal quarter is seasonally slower from an operating cash flow perspective, primarily due to year-end related payments such as performance based compensation and the seasonality of earnings. Outstanding debt was $862 million at December 31, 2023, compared to $790 million at September 30, 2023. At December 31, 2023, the company's leverage ratio based on net debt, which represents outstanding debt, less cash and trailing 12 months adjusted EBITDA was 3.71 compared to 3.31 at September 30, 2023.
The increase primarily reflected the first quarter operating cash utilization I just referenced. At December 31, 2022 our leverage ratio was 3.85. Additionally, earlier this week, we renewed our $750 million domestic revolving credit facility under generally the same pricing terms and conditions as the previous facility. The term of the renewed facility is 5 years subject to the terms and conditions of this facility. We had strong interest in the current renewal process with total commitments from participating banks exceeding $1.1 billion. For the fiscal 2024 first quarter, the company purchased approximately 466,000 shares under the stock repurchase program at an average cost of $36.88 per share. A majority of the purchases were in connection with withholding tax obligations on equity compensation, since equity compensation is generally awarded annually in November, a substantial portion of vesting activity occurs in our fiscal first quarter each year.
Approximately 30.7 million shares were outstanding at the end of the fiscal 2024 first quarter. Finally, the Board last week declared a dividend of $0.24 per share on the company's common stock. The dividend is payable February 19, 2024 to stockholders of record February 5, 2024. This concludes the financial review and we will now open the call for any questions. Sherry?
See also 12 High Quality Headphones Under $100 and 15 Highest Quality Bluetooth Speakers for 2024.
To continue reading the Q&A session, please click here.
