Matthews International Corporation

Greetings and welcome to the Matthews International Corporation fourth quarter and fiscal year 2022 financial results. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Bill Wilson, Senior Director of Finance and Corporate Development for Matthews International Corporation. Thank you. You may begin.

Thank you, Melissa. Good morning, everyone, and welcome to the Matthews International fourth quarter and fiscal year-end 2022 conference call. This is Bill Wilson, Senior Director of Finance and Corporate Development. With me today are Joe Bartolese, 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, in the investor section last night. The presentation for our call can also be accessed in the investor section of the website. In addition, as a reminder, beginning in the first quarter of fiscal 2022, the company transferred its surfaces and engineering products business from the SGK brand solution segment to the industrial technology segment. Prior period results reflect this new segmentation. 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. we'll be discussing non-GAAP financial metrics and encourage you to read our disclosures and reconciliations tables carefully before you consider these metrics. In connection with any forward-looking statement and non-GAAP financial information, please read the disclaimer included in today's presentation materials located on our website. And now I'll turn the call over to Joe.

Thank you, Bill. Good morning. I'm going to apologize in advance. I got a bit of a head cold this morning, so if I have to break and clear my throat, you understand. But going forward, we are pleased with our fiscal 22 results. Despite the continued headwinds that we faced, we exceeded the high end of our revised guidance that was adjusted at the beginning of the third quarter due to the economic impact on our European businesses stemming from the conflict in Ukraine. Our overall results were strong. despite headwinds headlighted by foreign exchange issues that impacted our year-over-year adjusted EBITDA by over $7 million, in addition to the zero contribution from several of our European businesses due to the regional economic conditions. Our EBITDA performance, adjusted for currency impacts, was in line with our initial guidance provided last year, despite these challenges. Moreover, as noted in our earnings release, We continue to make significant progress in our energy business where we are anticipating significant orders from multiple customers in the coming months. We expect these orders will cover all aspects of our energy solutions business, including green mobility solutions like dry electrode and hydrogen fuel cell, as well as energy generation like photovoltaic. Our products and services solve some of the most difficult challenges facing the energy storage industry today. And as a result, we are seeing a ramp up in interest in our industry-leading capabilities, resulting in many of the most significant OEMs across the globe knocking on our doors. They recognize our extensive experience in roll-to-roll processing, the core of our specialized equipment derived from our history in printing, which gives us a competitive advantage in the renewable energy market. We believe the increase in orders validates the significance of our solutions in addition to the market's acknowledgement of the benefits to be derived from the recently passed Inflation Reduction Act, which is putting billions of dollars into green energy produced in the United States. We are executing on our plans and capitalizing on opportunities to grow the business. We are already seeing positive impact from our most recent acquisitions Holbrook, and R&S Automotive. Despite not being fully integrated, the engineering and manufacturing capacity gained from these businesses eased the challenge of the fulfillment of the anticipated new orders. In addition to having over 160 engineers with complementary skills and significant manufacturing capacity, highlighted by a low-cost manufacturing facility in the Czech Republic, Olbich brings its own intellectual property and products to our energy solutions portfolio, increasing our breadth of offerings and allowing us to approach one-stop shopping when it comes to solutions like dry electrode production and hydrogen fuel cells. Moving on to the rest of the industrial segment, our warehouse solutions business has had a strong year, and the pace of orders from some of the largest retailers in North America presents a positive outlook for 2023. This business continues to be amongst the best of breed in today's market when it comes to warehouse execution software and control systems. The addition of R&S Automotive, a provider of factory automation services in Europe, brings added capacity and new markets for us to address. Similarly, our products identification business finished the year strong, with revenues in this business up over 10% on a constant currency basis. In product identification, we continue to make good progress in the development of our new products, and we keep finding competitive advantages for our anticipated launch of our new product in this business. For example, when compared to current technologies, our new product significantly reduces the amount of VOCs that escape into the atmosphere during the printing process. This will be yet another competitive advantage for this product as customers increasingly focus on reducing their carbon footprint while states and local governments initiate more stringent regulations on emissions. Our industrial technology segment, which includes energy solutions, warehouse automation, product identification, Olbrich, and R&S, reported record sales of $335 million and adjusted EBITDA of $57 million. We expect this segment to maintain its growth trend into next year, and we believe $500 million of revenue could be reached in fiscal 23. To remind you, just three years ago, the businesses that make up this segment today had approximately $240 million in revenue. If you were to compare these businesses on a constant currency basis to three years ago, our growth would be significantly better. We have often spoken of these businesses as our growth engine. We are clearly demonstrating that now. Our memorialization business also delivered very good results, despite the normalization of death rates, particularly over the quarter and significantly higher costs. This business has performed exceptionally well throughout the past several years and is poised to maintain that success in 23. Strong water rates in our cemetery products business will help partially offset the lower casket sales expected from the normalization of death rates. Moreover, This segment has reset its normalized revenues to a level that is materially higher than just a few years ago, and we only expect modestly lower EBITDA results next year. In SGK, the team delivered top-line organic growth in the fourth quarter, but also experienced challenges in the European market. Due to those challenges, a goodwill charge was taken in the fourth quarter. Cost reduction actions were taken in the European market for this segment, as it's currently unclear when the situation will normalize. We believe that taking these actions will improve results on a year-over-year basis beginning in 23. As we look forward to 23, we are expecting continued consolidated growth. As discussed above, order rates in our fastest-growing businesses remain high, which bodes well for the continued development of these businesses. Also, we expect to maintain prices in our memorialization business throughout the years, to compensate for the higher costs we are incurring, some of which we absorbed during the past year. In SGK, the cost actions that we have taken in Europe should improve our overall results in this business. In addition, SGK is seeing opportunities to expand its market share as competitors struggle to meet client demands in this challenging market, particularly in Europe. The difficult economic environment in the markets in which we operate and currency translation resulting from those environments are expected to be a significant variable to our overall performance again next year. We expect currency to again negatively impact our overall performance next year. With these factors in mind, we expect our fiscal 23 EBITDA results to be between $215 and $235 million. Good growth despite the challenging environment. For purposes of understanding our projected performance, If our expected currency rates for fiscal 23 were consistent with the rates of fiscal 22, our EBITDA projections would be $10 million higher. The broad range of possible results is driven by the fact that we do not control the timing of deliveries for some of our energy orders. For better clarity, if we begin to approach revenues of $500 million in the industrial technology segment, as mentioned earlier, we have a possibility to exceed this performance. We expect to update our progress on these and more orders throughout the year. I'll now hand it over to Steve for our financial review.