Matthews International(MATW) - 2024 Q4 - Annual Report

Financial Performance - Consolidated sales for fiscal 2024 were $1,795,737 thousand, with Memorialization contributing $829,731 thousand, Industrial Technologies $433,156 thousand, and SGK Brand Solutions $532,850 thousand[8] - Consolidated sales for fiscal 2024 were $1.80 billion, a decrease from $1.88 billion in fiscal 2023, primarily due to lower sales in the Industrial Technologies and Memorialization segments[158] - Memorialization segment sales decreased to $829.7 million in fiscal 2024 from $843.0 million in fiscal 2023, driven by lower unit sales of caskets, cemetery memorial products, and cremation equipment[158] - Industrial Technologies segment sales declined to $433.2 million in fiscal 2024 from $505.8 million in fiscal 2023, reflecting lower sales of energy storage solutions and warehouse automation solutions[158] - SGK Brand Solutions segment sales increased slightly to $532.9 million in fiscal 2024 from $532.1 million in fiscal 2023, driven by higher sales of cylinder products in Europe and Asia-Pacific[158] - Gross profit for fiscal 2024 was $529.7 million, down from $577.7 million in fiscal 2023, with gross profit margin decreasing to 29.5% from 30.7%[159] - Adjusted EBITDA for fiscal 2024 was $205.2 million, compared to $225.8 million in fiscal 2023, with declines in the Memorialization and Industrial Technologies segments partially offset by growth in SGK Brand Solutions[162] - Net loss for fiscal year 2024 was $59.66 million, compared to a net income of $39.14 million in 2023 and a net loss of $99.83 million in 2022[172] - Total Adjusted EBITDA for fiscal year 2024 was $205.16 million, compared to $225.81 million in 2023 and $210.41 million in 2022[172] - Depreciation and amortization expenses for fiscal year 2024 were $94.77 million, slightly down from $96.53 million in 2023 and $104.06 million in 2022[172] - Strategic initiatives and other charges increased significantly to $65.59 million in 2024, up from $13.92 million in 2023 and $28.06 million in 2022[172] - Goodwill and asset write-downs totaled $33.57 million in 2024, compared to none in 2023 and $92.50 million in 2022[172] - Net cash provided by operating activities was $79.3 million in 2024, nearly flat compared to $79.5 million in 2023 but down from $126.9 million in 2022[174] - Capital expenditures decreased to $45.2 million in 2024, down from $50.6 million in 2023 and $61.3 million in 2022[176] - Cash used in investing activities was $47.0 million in 2024, lower than $58.7 million in 2023 and $80.9 million in 2022[175] - Cash used in financing activities for the year ended September 30, 2024 was $35.0 million, including repayments on long-term debt of $31.3 million, treasury stock purchases of $20.6 million, and dividend payments of $31.4 million[177] - The company's consolidated working capital decreased to $197.8 million at September 30, 2024, compared to $253.7 million at September 30, 2023[194] - The company's current ratio was 1.5 at September 30, 2024, down from 1.6 at September 30, 2023[194] Segment Performance - The Memorialization segment's sales decreased slightly from $842,997 thousand in 2023 to $829,731 thousand in 2024[8] - Industrial Technologies segment sales declined significantly from $505,751 thousand in 2023 to $433,156 thousand in 2024[8] - SGK Brand Solutions segment sales remained relatively stable, with $532,850 thousand in 2024 compared to $532,148 thousand in 2023[8] - The Memorialization segment is a leading manufacturer of caskets in North America, offering metal, wood, and cremation caskets in various designs and materials[13][15] - The Memorialization segment provides cremation systems and services globally, with primary markets in North America and Europe, and additional sales in Latin America, the Caribbean, Australia, Africa, the Middle East, and Asia[18][19] - The Industrial Technologies segment has over a decade of experience in developing dry electrode battery solutions, which are more cost-effective and environmentally sustainable for lithium-ion battery production[33] - The company's energy storage solutions business has grown due to increased demand for batteries in electric vehicles, with products delivered to major vehicle producers and tier 1 battery manufacturers[29][33] - The Industrial Technologies segment's warehouse automation systems serve major retail, e-commerce, and third-party logistics companies in the United States[35] - The SGK Brand Solutions segment serves clients in highly regulated industries such as food and beverage, pharmaceutical, healthcare, beauty, cosmetics, alcohol, and tobacco[45] - The SGK Brand Solutions segment leverages over 100 years of packaging expertise to create assets for e-commerce and multi-channel marketing[43] - The company’s Industrial Technologies segment offers a broad product line for energy storage solutions, product identification, and warehouse automation applications[39] - The SGK Brand Solutions segment generates incremental revenue from standalone SaaS sales by automating brand content creation and management[48] Geographic Sales Distribution - In fiscal 2024, 66% of the company's sales were from North America, 29% from Europe, 4% from Asia, and 1% from other regions[8] - International sales accounted for 36% of the company's total sales in fiscal 2024, with operations in over 30 countries[70] Intellectual Property and Legal Issues - The company holds over 100 domestic and foreign patents and maintains numerous trade secrets as part of its intellectual property portfolio[49] - The company faces significant risks related to intellectual property protection, including potential infringement by third parties and the inability to enforce IP rights, which could harm its competitive position and operating results[91][92] - Tesla filed a complaint against the company in June 2024 alleging trade secret misappropriation, breach of contract, and unfair business practices related to dry battery electrode solutions, which could adversely affect the company's business and financial condition[92] - Matthews' dry battery electrode solutions accounted for approximately 6% of fiscal 2024 sales, amid ongoing legal proceedings with Tesla[129] Cybersecurity and IT - Matthews has implemented a comprehensive cybersecurity program, including risk management, data privacy, incident management, and regular phishing testing for all employees[112] - The company maintains cybersecurity insurance coverage to protect against business losses from cyber incidents[113] - Matthews conducts regular penetration testing and tabletop exercises to enhance incident response preparedness[114] - The company assesses third-party service providers' cybersecurity risks through SOC 1 and SOC 2 reports and direct vendor interactions[116] - Matthews has experienced cyber-attacks in the past, but none have materially disrupted business operations as of fiscal 2024[118] - The Board of Directors oversees cybersecurity risks, with regular reports from the CIO and Director of IT Security on program effectiveness and emerging threats[119] - The company's CIO and Director of IT Security have decades of experience in managing cybersecurity risks and implementing global IT infrastructure[120] - The company relies on third-party IT services, and disruptions in these services due to factors like software errors, security breaches, or natural disasters could harm its business operations and customer delivery capabilities[96] - Security breaches or failures in IT systems could disrupt operations, lead to unauthorized data access, and result in legal claims, financial losses, or reputational damage[106] Environmental, Health, and Safety (EHS) - The company’s environmental, health, and safety (EHS) management system is integrated into its business strategy, with measurable objectives and targets[64] - The company is subject to environmental laws and regulations, which may lead to substantial unforeseen expenses, including compliance costs and potential liabilities for contamination or remediation[93][94] Labor and Supply Chain Risks - The company is exposed to risks from labor shortages, turnover, and rising labor costs, which could materially impact its operations and financial results[105] - Recent labor cost increases and supply chain challenges are expected to impact near-term results, with mitigation efforts through price realization and cost-reduction initiatives[203] - The company initiated cost reduction programs in Q4 fiscal 2024, focusing on engineering and tooling operations in Europe and general administrative functions[203] - The company relies on a limited number of suppliers, and supply chain disruptions could lead to extended lead times and higher costs[83] - Raw material price increases and supply chain disruptions could adversely affect profitability and cash flows[77] Financial Obligations and Debt - The company holds $300.0 million in 8.625% senior secured second lien notes due October 1, 2027[76] - The company amended its domestic credit facility in September 2024, increasing it to a $750.0 million senior secured revolving credit facility, with a portion available in foreign currencies up to $350.0 million[179] - Outstanding U.S. dollar denominated borrowings on the revolving credit facility at September 30, 2024 were $410.5 million, with a weighted-average interest rate of 4.59%[180] - The company issued $300.0 million of 8.625% senior secured second lien notes in September 2024, with proceeds used to redeem $300.0 million of 5.25% senior unsecured notes due December 1, 2025[181] - The company's interest rate swaps had a notional amount of $175.0 million at September 30, 2024, with a weighted-average received rate of 4.85% and a pay rate of 3.83%[188] - The company's cross currency swaps had a notional amount of $146.4 million at September 30, 2024, with unrealized losses of $6.4 million recognized in AOCI[191] - Total contractual cash obligations amount to $1,049,467 thousand, with $116,059 thousand due in 2025, $155,486 thousand in 2026, $766,834 thousand from 2028 to 2029, and $11,088 thousand after 2029[196] Stock Repurchase and Dividends - The company repurchased 2,044 shares of Class A Common Stock in Q4 2024 at a weighted average price of $24.25 per share[143] - As of September 30, 2024, 611,321 shares remain available for repurchase under the company's stock repurchase program[142] - The company's stock repurchase program had 611,321 shares remaining available for repurchase as of September 30, 2024[193] Regulatory Compliance - The company must maintain effective internal controls over financial reporting to comply with Sarbanes-Oxley Act requirements, and any failure could harm investor confidence and the company's stock price[109] - Compliance with Dodd-Frank and other evolving regulations, particularly regarding Conflict Minerals, may increase costs and expenses related to compliance and potential violations[110] - Compliance with data privacy laws like GDPR and CCPA may result in significant operational costs and require changes to business practices, with potential risks of litigation or enforcement actions if compliance measures are deemed inadequate[98] Strategic Initiatives and Growth - The company expects organic growth through internal efforts, including new product development, market expansion, and cost structure improvements[201] - Industrial Technologies segment growth is influenced by EV and e-commerce trends, while Memorialization segment growth is tied to North America death rates and cremation trends[202] - The company made lump sum payments of $24.2 million in Q1 fiscal 2023 to settle SERP and ORRP obligations, resulting in a non-cash charge of $1.3 million[198] - Unrecognized tax benefits as of September 30, 2024, are approximately $4.5 million, excluding penalties and interest[199] Risks and Challenges - The company faces risks from currency exchange rate fluctuations, which could negatively impact revenue and cash flows[74] - Interest rate fluctuations could increase financing costs and limit the company's ability to obtain additional debt or refinancing[75] - The company's Memorialization segment may be impacted by increasing cremation rates, which could reduce sales of traditional memorialization products[80] - Global conflicts, such as the war in Ukraine, could disrupt operations and supply chains, particularly in Eastern Europe[86] - Acquisitions and divestitures involve risks, including potential failure to achieve expected synergies or manage integrated businesses effectively[89] - The company operates in markets where technological advancements are critical, and failure to develop or market new products effectively could weaken its competitive position[97] Employee and Diversity Initiatives - The company employs over 11,000 people globally across 6 continents, 300 locations, and 30 countries as of October 31, 2024[52] - The company’s global D&I Council focuses on four key pillars: Infrastructure, Employee Engagement, Talent Acquisition, and Community[54]