Matthews International Corporation

Greetings, and welcome to the Matthews International Second Quarter Fiscal 2024 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief 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. It is now my pleasure to introduce your host, Bill Wilson, Senior Director of Corporate Development. Thank you, sir. You may begin.

Thank you, Christine. Good morning, everyone, and welcome to the Matthews International second quarter fiscal year 2024 conference call. This is Bill Wilson, Senior Director of 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.com, in the investor section last night. The presentation for our call can also be accessed in the investor section of the website. Any forward-looking statements in connection with this discussion are being made pursuant to the State of 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 reconciliations 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. And now I'll turn the call over to Jeff.

Thank you, Bill. Good morning. We are generally pleased with our fiscal 24 second quarter results, given the transitory challenges that we face in several of our businesses. Sales and adjusted EBITDA were relatively consistent, declining only slightly during the quarter due to macro trends impacting several of our businesses, while other businesses performed very well. Memorialization continues to maintain strong sales and EBITDA post-COVID, while SGK's digital initiatives and restructuring efforts are showing promise. As for our industrial technology segment, energy solution sales were higher, but we continue to see delays in customer installations. Additionally, the warehouse automation business reported lower sales consistent with the overall market, which has seen a moderation in new warehouse development recently. Despite these near-term events, however, we see both businesses continuing to offer strong long-term growth opportunities. Sales for the memorialization business remained relatively consistent with the prior year, despite lower death rates. We're pleased with the trends in this business as the segment continues to outperform, with sales and adjusted EBITDA run rates significantly exceeding pre-COVID levels. In addition, I'm pleased to add that we recently won another significant cemetery account, which we hope will afford us continued opportunity for growth as we offer our extensive portfolio of solutions. We continue to be encouraged by the performance of SGK as a segment reported sales growth in the second quarter, despite continued challenges in the European market. Thanks to pricing and cost actions taken over the past 12 months, we also saw a significant increase in the segment's adjusted EBITDA and margin improvement. The team at SGK continue to outperform and win new accounts, despite the challenges they have faced over the last year. They also continue to execute on the e-commerce digital initiative we mentioned last quarter. We expect this program to hit the $40 million sales target we set for the current year as our clients look for ways to consolidate their e-marketing spend more efficiently. With respect to our industrial technology segment, total sales were lower for the quarter, primarily driven by market conditions that impacted our warehouse automation business, but offset by higher energy storage sales, As I mentioned on our earlier calls, we and other industry peers experienced a pullback dating back to the mid-last year as customers evaluated the prevailing economic conditions highlighted by continued high interest rates and concerns about consumer confidence. We still see some softness in larger warehouse projects, but continue to be brought in on customer upgrades, and we have seen a pickup in quoting activity. Our confidence in the growth opportunities for this business is supported by recently published industry research that indicated more than 75% of respondents expected an increase in their investment in robotic systems in the next few years. We believe that advances warehouse automation, like autonomous robots, which we manage, will drive demand for our warehouse execution systems software as we continue to enhance the platform through cloud and AI technology improvements. Turning to our new printhead solution, we made significant progress during the quarter. All milestones related to launching the product were met, and we remain on schedule to launch the solution by calendar year-end, as previously stated. We will continue to update you on our progress for this product. As for our energy solutions business, we reported sequential growth, reflecting the benefit of orders from multiple customers, though we continued to experience the previously discussed and anticipated customer installation delays from our largest customer, which are out of our control. Let me reiterate our strategic focus in this business segment, as we believe that we have a unique opportunity We've had no shortage of interest in our dry battery electrode solutions, and we hope to have significant announcements to share before our fiscal year end. Interest in dry battery electrode across the globe remains very high. In the second quarter, we had good order entry, including two battery OEMs, but as we mentioned before, however, the dry battery electrode development cycle within the industry can be lengthy. Therefore, we are laser-focused on leveraging our technology advantage and assisting our customers in their development process. With that in mind, our hope is to accelerate adoption of dry battery electrode as the definitive solution for battery production. We intend to build a production-scale system which would allow our clients to run their formulation at speed, thus significantly shortening the adoption cycle. Our total addressable market of over $8 billion remains unchanged, but our timeline is extended due to the current EV market cool-down. Demand remains in place, and we expect the market to move toward our dry battery electrode solution given the inherent advantages it offers, including lower required investment, lower op-ex, faster build-out, and improved battery performance in a solvent-free process. In the end, it offers a cheaper and better battery. Secondly, on the hydrogen fuel cell side, we are focused on creating a solution that significantly reduces the cost for components of the fuel cell stack via throughput increases utilizing our proprietary know-how. We hope to announce a significant partnership for this development as well by our year end. Finally, with respect to our balance sheet, we will continue to emphasize debt reduction in our capital allocations. and expect to further improve our leverage ratio by the end of the fiscal year. As we progress through fiscal 24, we anticipate continued demand in our energy storage solutions business, as evidenced by the recent flow of orders from multiple customers in the second quarter. We caution that customer delays within the energy business outside of our control have and may continue to impact our forecasted results. With that said, We expect to start deliveries of some of the orders soon. We expect further reductions in working capital in the latter half of the fiscal year and well into next year as those orders are delivered. As a result, we project adjusted EBITDA for fiscal 24 to be around $220 million. I'll now turn it over to Steve for more insight on our financial results. Steve?