Matthews International(MATW) - 2024 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements The company reported flat sales of $450.0 million, a net loss of $2.3 million, and improved operating cash flow for Q1 FY2024 Consolidated Balance Sheet Highlights (Unaudited) | (In thousands) | Dec 31, 2023 | Sep 30, 2023 | | :--- | :--- | :--- | | Total Assets | $1,903,125 | $1,887,381 | | Total Current Assets | $658,063 | $648,257 | | Goodwill | $708,961 | $698,109 | | Total Liabilities | $1,394,316 | $1,362,100 | | Long-term Debt | $857,423 | $786,484 | | Total Shareholders' Equity | $508,809 | $525,281 | Consolidated Statement of Income Highlights (Unaudited) | (In thousands, except per share data) | Three Months Ended Dec 31, 2023 | Three Months Ended Dec 31, 2022 | | :--- | :--- | :--- | | Sales | $449,986 | $449,240 | | Gross Profit | $132,353 | $138,930 | | Operating Profit | $9,427 | $17,228 | | Net (Loss) Income | ($2,303) | $3,647 | | Diluted (Loss) Earnings Per Share | ($0.07) | $0.12 | Consolidated Statement of Cash Flows Highlights (Unaudited) | (In thousands) | Three Months Ended Dec 31, 2023 | Three Months Ended Dec 31, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | ($27,266) | ($36,224) | | Net cash used in investing activities | ($14,186) | ($14,153) | | Net cash provided by financing activities | $36,114 | $22,322 | | Net change in cash and cash equivalents | ($4,180) | ($26,298) | Note 3. Revenue Recognition Revenue was disaggregated by segment and geography, with North America as the largest market and Memorialization as the largest segment Disaggregated Sales by Segment and Region (Three Months Ended Dec 31) | (In thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Memorialization | $208,071 | $206,502 | | - North America | $197,165 | $195,199 | | - Europe | $7,971 | $8,363 | | Industrial Technologies | $111,374 | $109,143 | | - Europe | $76,776 | $71,301 | | - North America | $33,139 | $36,140 | | SGK Brand Solutions | $130,541 | $133,595 | | - North America | $62,720 | $67,580 | | - Europe | $50,132 | $48,517 | | Total Sales | $449,986 | $449,240 | - Revenue from products or services provided to customers over time increased to approximately 19% of total revenue for the three months ended December 31, 2023, up from 13% in the same period of 2022[31] Note 7. Debt and Financing Arrangements Total debt increased to $862.4 million due to higher revolving credit borrowings, with liquidity managed via multiple financing facilities Long-Term Debt Composition | (In thousands) | Dec 31, 2023 | Sep 30, 2023 | | :--- | :--- | :--- | | Revolving credit facilities | $521,071 | $463,168 | | 2025 Senior Notes | $298,635 | $298,500 | | Other borrowings | $28,117 | $19,241 | | Finance lease obligations | $14,548 | $9,271 | | Total debt | $862,371 | $790,180 | - The company maintains a $750 million senior secured revolving credit facility maturing in March 2025, with outstanding borrowings of $454.4 million in USD and €55.0 million ($60.7 million) as of December 31, 2023[35][36] - The company utilizes a receivables purchase agreement (RPA) to sell up to $125.0 million of trade receivables, with $101.9 million in receivables sold and derecognized as of December 31, 2023[38][39] Note 14. Segment Information Segment results show flat consolidated sales and a decline in total Adjusted EBITDA to $45.5 million, with varied performance across segments Segment Sales and Adjusted EBITDA (Three Months Ended Dec 31) | (In thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Sales | | | | Memorialization | $208,071 | $206,502 | | Industrial Technologies | $111,374 | $109,143 | | SGK Brand Solutions | $130,541 | $133,595 | | Consolidated Sales | $449,986 | $449,240 | | Adjusted EBITDA | | | | Memorialization | $36,700 | $39,137 | | Industrial Technologies | $9,622 | $12,202 | | SGK Brand Solutions | $12,893 | $12,232 | | Corporate and Non-Operating | ($13,733) | ($14,280) | | Total Adjusted EBITDA | $45,482 | $49,291 | - The company's primary measure of segment profitability is adjusted EBITDA, which excludes certain items to better evaluate operating results[69] Note 16. Goodwill and Other Intangible Assets Consolidated goodwill increased to $709.0 million, with the SGK Brand Solutions unit showing a narrow 4% cushion against impairment Goodwill by Segment | (In thousands) | Dec 31, 2023 | Sep 30, 2023 | | :--- | :--- | :--- | | Memorialization | $370,028 | $366,015 | | Industrial Technologies | $116,004 | $115,073 | | SGK Brand Solutions | $222,929 | $217,021 | | Consolidated Goodwill | $708,961 | $698,109 | - The SGK Brand Solutions reporting unit's estimated fair value exceeded its carrying value by only 4% as of September 1, 2023, indicating a risk of future goodwill write-downs[80] Note 17. Subsequent Event The company amended its domestic credit facility post-quarter end, extending its maturity to January 2029 for enhanced financial flexibility - On January 31, 2024, the company amended its domestic credit facility, extending the maturity to January 2029 and updating the interest rate structure[84] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses flat sales, a decline in Adjusted EBITDA to $45.5 million due to cost pressures, and a solid liquidity position Results of Operations Q1 FY2024 sales were flat at $450.0 million, while gross margin and Adjusted EBITDA declined due to unfavorable mix and higher costs - Memorialization sales rose due to higher granite product sales and the Eagle Granite acquisition, but were offset by lower casket and cremation equipment sales[92] - Industrial Technologies sales increased, driven by energy storage solutions for the EV market, but were partially offset by reduced warehouse automation sales[92] - SGK Brand Solutions sales decreased, primarily reflecting lower retail-based sales[92][93] - Gross profit declined due to unfavorable sales mix (lower casket sales, higher granite sales), lower margins on engineered products, and increased material and labor costs[94] Liquidity and Capital Resources Liquidity is supported by improved operating cash flow and credit facilities, with $65 million in planned capex and $17.2 million in share repurchases Cash Flow Summary (Three Months Ended Dec 31) | (In millions) | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | ($27.3) | ($36.2) | | Net cash used in investing activities | ($14.2) | ($14.2) | | Net cash provided by financing activities | $36.1 | $22.3 | - Fiscal 2024 capital spending is projected to be approximately $65 million, an increase to support new production capabilities[107] - The company repurchased 465,953 shares for $17.2 million in Q1 FY2024, with 729,060 shares remaining available for repurchase[123][146] Forward-Looking Information Future performance depends on EV trends, death rates, and economic conditions, with ongoing efforts to mitigate cost and supply chain pressures - The Industrial Technologies segment received over $200 million in new orders for its energy storage solutions business during Q1 FY2023, expected to impact fiscal 2024 sales[132] - Key factors influencing future sales include North American death rates and cremation trends for the Memorialization segment, and global economic conditions for the SGK Brand Solutions segment[132] - The company expects ongoing pressure from labor cost increases, supply chain issues, and inflation, which it aims to offset with price increases and cost-reduction initiatives[133] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company reports no material changes in its market risk profile during the first quarter of fiscal 2024 - There were no material changes in the Company's market risk during the first quarter of fiscal 2024[138] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls during the quarter - The CEO and CFO concluded that as of December 31, 2023, the Company's disclosure controls and procedures were effective at a reasonable assurance level[140] - No material changes to internal controls over financial reporting were identified during the quarter ended December 31, 2023[141] PART II - OTHER INFORMATION Item 1. Legal Proceedings Ongoing legal proceedings are not expected to have a material adverse effect on the company's financial condition or results - Management does not expect any ongoing legal proceedings to have a material adverse effect on the company's financial condition or results[143] Item 1A. Risk Factors There have been no material changes to the company's risk factors since the last annual report - There have been no material changes in risk factors from those disclosed in the Annual Report on Form 10-K for the fiscal year ended September 30, 2023[144] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 465,953 shares for $17.2 million in Q1 FY2024, with 729,060 shares remaining under the buyback plan Monthly Stock Repurchase Activity (Q1 FY2024) | Period | Total Shares Purchased | Weighted Average Price Paid | Shares Remaining in Plan | | :--- | :--- | :--- | :--- | | October 2023 | 84,962 | $36.73 | 1,110,051 | | November 2023 | 287,039 | $37.56 | 823,012 | | December 2023 | 93,952 | $34.94 | 729,060 | | Total | 465,953 | $36.88 | 729,060 |