Matthews International(MATW) - 2023 Q3 - Quarterly Report

FORM 10-Q Filing Information Registrant Information Details Matthews International Corporation's identification, incorporation, and SEC filing compliance as a large accelerated filer - Registrant: MATTHEWS INTERNATIONAL CORPORATION[2] - Incorporation: Pennsylvania[2] - SEC Filing Compliance: Filed all required reports in the preceding 12 months and subject to filing requirements for the past 90 days (Yes). Submitted every Interactive Data File electronically (Yes)[3][4][5] Filer Status | Filer Status | Selection | | :-------------------- | :-------- | | Large accelerated filer | ✓ | | Accelerated filer | ☐ | | Non-accelerated filer | ☐ | | Smaller reporting company | ☐ | | Emerging growth company | ☐ | - Common Stock Outstanding (as of June 30, 2023): 30,467,662 shares of Class A Common Stock[7] PART I - FINANCIAL INFORMATION Item 1. Financial Statements Presents Matthews International Corporation's unaudited consolidated financial statements and notes for periods ended June 30, 2023 Consolidated Balance Sheets (Unaudited) Consolidated Balance Sheet Highlights (Amounts in thousands) | Metric | June 30, 2023 | September 30, 2022 | | :---------------------- | :------------ | :----------------- | | ASSETS | | | | Total current assets | $619,550 | $628,616 | | Property, plant and equipment, net | $273,572 | $256,065 | | Goodwill | $702,916 | $675,421 | | Total assets | $1,884,191 | $1,882,771 | | LIABILITIES | | | | Total current liabilities | $380,071 | $411,375 | | Long-term debt | $772,056 | $795,291 | | Total liabilities | $1,362,370 | $1,395,695 | | SHAREHOLDERS' EQUITY| | | | Total shareholders' equity | $521,821 | $487,076 | - Total assets increased slightly from $1,882,771 thousand at September 30, 2022, to $1,884,191 thousand at June 30, 2023. Goodwill saw an increase from $675,421 thousand to $702,916 thousand[10] - Total liabilities decreased from $1,395,695 thousand to $1,362,370 thousand, primarily driven by a reduction in current liabilities and long-term debt. Shareholders' equity increased from $487,076 thousand to $521,821 thousand[10] Consolidated Statements of Income (Unaudited) Consolidated Income Statement Highlights (Amounts in thousands, except per share data) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Nine Months Ended June 30, 2023 | Nine Months Ended June 30, 2022 | | :-------------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Sales | $471,908 | $421,719 | $1,400,728 | $1,305,276 | | Gross profit | $138,305 | $120,865 | $426,858 | $377,021 | | Operating profit | $21,524 | $10,963 | $61,803 | $29,108 | | Income (loss) before income taxes | $8,113 | $3,915 | $25,579 | $(21,182) | | Net income (loss) attributable to Matthews shareholders | $8,738 | $2,893 | $21,568 | $(18,815) | | Basic EPS | $0.28 | $0.09 | $0.70 | $(0.60) | | Diluted EPS | $0.28 | $0.09 | $0.69 | $(0.60) | - Sales increased by $50,189 thousand (11.9%) for the three months ended June 30, 2023, and by $95,452 thousand (7.3%) for the nine months ended June 30, 2023, compared to the respective prior year periods[13] - Net income attributable to Matthews shareholders significantly improved, turning from a loss of $18,815 thousand in the nine months ended June 30, 2022, to a profit of $21,568 thousand in the same period of 2023. Basic EPS also improved from $(0.60) to $0.70[13] Consolidated Statements of Comprehensive Income (Loss) (Unaudited) Consolidated Comprehensive Income (Loss) Highlights (Amounts in thousands) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Nine Months Ended June 30, 2023 | Nine Months Ended June 30, 2022 | | :-------------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Net income (loss) attributable to Matthews | $8,738 | $2,893 | $21,568 | $(18,815) | | Other comprehensive income (loss) (OCI), net of tax: | | | | | | Foreign currency translation adjustment | $923 | $(19,293) | $25,915 | $(27,463) | | Net change in unrecognized gain on cash flow hedges | $2,507 | $1,576 | $(139) | $7,149 | | Total OCI, net of tax | $3,220 | $(17,700) | $26,335 | $13,832 | | Comprehensive income (loss) | $11,958 | $(14,807) | $47,903 | $(5,006) | - Comprehensive income for Matthews shareholders significantly improved, reaching $11,958 thousand for the three months ended June 30, 2023, compared to a loss of $14,807 thousand in the prior year. For the nine-month period, it swung from a loss of $5,006 thousand to a gain of $47,903 thousand[14] - Foreign currency translation adjustment showed a positive impact of $923 thousand for the three months and $25,915 thousand for the nine months ended June 30, 2023, a significant reversal from losses in the prior year periods[14] Consolidated Statements of Shareholders' Equity (Unaudited) Shareholders' Equity Changes (Amounts in thousands) | Metric | Balance, September 30, 2022 | Balance, June 30, 2023 | | :-------------------------------------- | :-------------------------- | :--------------------- | | Common Stock | $36,334 | $36,334 | | Additional Paid-in Capital | $160,255 | $164,640 | | Retained Earnings | $706,749 | $704,366 | | Accumulated Other Comprehensive (Loss) Income | $(190,191) | $(163,856) | | Treasury Stock, at cost | $(225,795) | $(219,263) | | Total Shareholders' Equity - Matthews | $487,352 | $522,221 | - Total shareholders' equity attributable to Matthews increased from $487,076 thousand at September 30, 2022, to $521,821 thousand at June 30, 2023[16][18] - Accumulated Other Comprehensive Loss improved significantly from $(190,191) thousand to $(163,856) thousand, primarily due to positive foreign currency translation adjustments[16][18] - The company paid dividends of $8,794 thousand, $7,683 thousand, and $7,474 thousand in the quarters ending December 31, 2022, March 31, 2023, and June 30, 2023, respectively[16] Consolidated Statements of Cash Flows (Unaudited) Consolidated Cash Flow Highlights (Amounts in thousands) | Metric | Nine Months Ended June 30, 2023 | Nine Months Ended June 30, 2022 | | :-------------------------------------- | :------------------------------ | :------------------------------ | | Net cash provided by operating activities | $76,906 | $84,367 | | Net cash used in investing activities | $(53,717) | $(38,929) | | Net cash used in financing activities | $(56,357) | $(43,776) | | Net change in cash, cash equivalents and restricted cash | $(32,119) | $(2,200) | | Cash, cash equivalents and restricted cash at end of period | $39,295 | $66,143 | - Net cash provided by operating activities decreased by $7,461 thousand (8.8%) for the nine months ended June 30, 2023, compared to the prior year, primarily due to changes in working capital items and pension settlement payments, partially offset by proceeds from cash flow hedges[20][112] - Net cash used in investing activities increased by $14,788 thousand (38.0%) for the nine months ended June 30, 2023, mainly due to higher capital expenditures and acquisitions[20][113] - Net cash used in financing activities increased by $12,581 thousand (28.7%) for the nine months ended June 30, 2023, driven by net repayments on long-term debt and dividends[20][115] Notes to Consolidated Financial Statements (Unaudited) Note 1. Nature of Operations - Matthews International Corporation, founded in 1850, is a global provider of memorialization products, industrial technologies, and brand solutions[22] - Memorialization: Bronze and granite memorials, caskets, cremation products, and equipment for cemetery and funeral home industries - Industrial Technologies: High-tech custom energy storage solutions, product identification, and warehouse automation technologies - SGK Brand Solutions: Brand management, pre-media services, printing plates, imaging, digital asset management, merchandising, marketing, and design services for consumer goods and retail - The Company operates globally with facilities in North America, Europe, Asia, Australia, and Central and South America[23] Note 2. Basis of Presentation - The unaudited consolidated financial statements are prepared in accordance with GAAP for interim financial information and Form 10-Q instructions, not including all disclosures required for complete annual financial statements[24] - Effective April 1, 2022, the Company applies highly inflationary accounting to its Turkish subsidiaries, remeasuring financial statements into USD and reflecting exchange gains/losses from monetary assets/liabilities in current earnings[25] Exchange Losses from Highly Inflationary Accounting (Amounts in thousands) | Period | Exchange Losses | | :-------------------------------------- | :-------------- | | Three months ended June 30, 2023 | $1,826 | | Nine months ended June 30, 2023 | $3,074 | | Three months ended June 30, 2022 | $1,245 | | Nine months ended June 30, 2022 | $1,245 | - ASU No. 2021-08 (Business Combinations): Effective fiscal 2024, not expected to have a significant impact - ASU No. 2022-04 (Supplier Finance Programs): Effective Q1 fiscal 2024 (rollforward in fiscal 2025), not expected to have a material impact Note 3. Revenue Recognition - Revenue is disaggregated by geography and segment, as these factors best reflect how economic conditions affect revenue and cash flows[30] Consolidated Sales by Segment and Region (Amounts in thousands) | Segment/Region | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Nine Months Ended June 30, 2023 | Nine Months Ended June 30, 2022 | | :---------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Memorialization | $208,728 | $203,158 | $638,119 | $633,868 | | North America | $197,309 | $191,495 | $604,386 | $593,901 | | Europe | $8,468 | $9,175 | $25,293 | $32,613 | | Australia | $2,951 | $2,488 | $8,440 | $7,354 | | Industrial Technologies | $130,533 | $78,443 | $365,190 | $230,928 | | North America | $43,924 | $39,736 | $121,900 | $110,869 | | Europe | $84,577 | $37,119 | $237,847 | $115,285 | | Asia | $2,032 | $1,588 | $5,443 | $4,774 | | SGK Brand Solutions | $132,647 | $140,118 | $397,419 | $440,480 | | North America | $63,000 | $68,008 | $192,904 | $211,278 | | Europe | $51,532 | $54,046 | $152,990 | $175,900 | | Asia | $14,753 | $13,795 | $41,316 | $41,335 | | Total Sales | $471,908 | $421,719 | $1,400,728 | $1,305,276 | - Industrial Technologies segment sales significantly increased by 66.4% for the three months and 58.1% for the nine months ended June 30, 2023, primarily driven by growth in Europe[30][32] - SGK Brand Solutions sales decreased by 5.3% for the three months and 9.8% for the nine months ended June 30, 2023, with declines observed across North America and Europe[30][32] - Revenue from products or services provided over time increased to approximately 17% and 14% of total revenue for the three and nine months ended June 30, 2023, respectively, up from 13% and 11% in the prior year[32] Note 4. Fair Value Measurements - Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between market participants[33] - Level 1: Unadjusted quoted prices for identical assets/liabilities in active markets - Level 2: Observable inputs other than Level 1 quoted prices, directly or indirectly - Level 3: Unobservable inputs for the asset/liability Fair Value of Assets and Liabilities (Amounts in thousands) | Category | June 30, 2023 (Level 2) | September 30, 2022 (Level 2) | | :---------------------- | :---------------------- | :--------------------------- | | Assets: | | | | Derivatives | $1,734 | $14,421 | | Equity and fixed income mutual funds | $693 | — | | Life insurance policies | $5,234 | $4,439 | | Total assets at fair value | $7,661 | $18,860 | | Liabilities: | | | | Derivatives | $4,931 | — | | Total liabilities at fair value | $4,931 | — | - Derivatives (interest rate swaps and cross currency swaps) are valued based on observable market swap rates and classified within Level 2 of the fair value hierarchy[33] Note 5. Inventories Inventories Breakdown (Amounts in thousands) | Category | June 30, 2023 | September 30, 2022 | | :-------------- | :------------ | :----------------- | | Raw materials | $69,674 | $52,586 | | Work in process | $118,968 | $94,804 | | Finished goods | $79,957 | $78,050 | | Total Inventories | $268,599 | $225,440 | - Total inventories increased by $43,159 thousand (19.1%) from September 30, 2022, to June 30, 2023, with significant increases in raw materials and work in process[34] Note 6. Investments Non-Current Investments (Amounts in thousands) | Category | June 30, 2023 | September 30, 2022 | | :------------------------------ | :------------ | :----------------- | | Equity and fixed income mutual funds | $693 | — | | Life insurance policies | $5,234 | $4,439 | | Equity-method investments | $326 | $2,729 | | Other (primarily cost-method) investments | $18,975 | $18,808 | | Total Investments | $25,228 | $25,976 | - Total non-current investments slightly decreased from $25,976 thousand to $25,228 thousand. A notable change was the decrease in equity-method investments from $2,729 thousand to $326 thousand, as the Company purchased the remaining ownership interest in a small Industrial Technologies business during fiscal 2023[35] Note 7. Debt and Financing Arrangements Long-Term Debt (Amounts in thousands) | Category | June 30, 2023 | September 30, 2022 | | :------------------------ | :------------ | :----------------- | | Revolving credit facilities | $452,691 | $480,107 | | 2025 Senior Notes | $298,365 | $297,961 | | Other borrowings | $17,345 | $13,434 | | Finance lease obligations | $6,596 | $7,066 | | Total debt | $774,997 | $798,568 | | Less current maturities | $(2,941) | $(3,277) | | Long-term debt | $772,056 | $795,291 | - Total debt decreased by $23,571 thousand (2.9%) from September 30, 2022, to June 30, 2023, primarily due to a reduction in revolving credit facilities[36] - The domestic credit facility's benchmark interest rate transitioned from LIBOR to SOFR in March 2023, with the weighted-average interest rate on outstanding borrowings increasing from 1.92% (June 30, 2022) to 5.59% (June 30, 2023)[36][37] - The Company utilizes a receivables purchase agreement (RPA) and a non-recourse factoring arrangement to sell trade receivables, generating net cash proceeds of $16,610 thousand from RPA and $36,045 thousand from factoring for the nine months ended June 30, 2023[39][40][41] - The Company was in compliance with all debt covenants as of June 30, 2023[44] Note 8. Derivatives and Hedging Instruments - The Company uses derivative financial instruments (interest rate swaps and cross currency swaps) to manage foreign currency, debt, and interest rate exposures[45] Interest Rate Swaps Designated as Cash Flow Hedges (Amounts in thousands) | Metric | June 30, 2023 | September 30, 2022 | | :---------------------------- | :------------ | :----------------- | | Notional amount | $175,000 | $125,000 | | Weighted-average maturity (years) | 4.4 | 3.1 | | Weighted-average received rate | 5.14% | 3.14% | | Weighted-average pay rate | 3.83% | 1.04% | - LIBOR-based interest rate swaps were settled in Q2 fiscal 2023, yielding $10,474 thousand in cash proceeds, and new SOFR-based swaps with a notional amount of $175,000 thousand were entered into[45] - The fair value of interest rate swaps showed a net unrealized gain of $1,171 thousand ($876 thousand after tax) at June 30, 2023, included in AOCI. Unrecognized gains of $9,263 thousand ($6,922 thousand after tax) from terminated LIBOR-based swaps also remain in AOCI[46] - A U.S. Dollar/Euro cross currency swap with a notional amount of $81,392 thousand is designated as a net investment hedge, resulting in a loss of $3,265 thousand (net of tax) reported in AOCI at June 30, 2023[47] Note 9. Share-Based Payments - The 2017 Equity Incentive Plan allows for grants of stock options, restricted shares, restricted share units, and performance units, with 3,450,000 shares available for grants[49] Stock-Based Compensation Cost (Amounts in thousands) | Period | Stock-Based Compensation Cost | | :-------------------------------------- | :---------------------------- | | Three months ended June 30, 2023 | $5,023 | | Three months ended June 30, 2022 | $5,197 | | Nine months ended June 30, 2023 | $13,635 | | Nine months ended June 30, 2022 | $14,128 | - As of June 30, 2023, total unrecognized compensation cost for unvested stock-based awards was $21,695 thousand, expected to be recognized over a weighted average period of 2.1 years[53] - The Company also maintains Director Fee Plans, under which non-employee directors receive annual retainer fees (cash or Class A Common Stock) and annual stock-based grants[54] Note 10. Earnings Per Share Attributable to Matthews' Shareholders Earnings Per Share (EPS) Data | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Nine Months Ended June 30, 2023 | Nine Months Ended June 30, 2022 | | :-------------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Net income (loss) attributable to Matthews shareholders | $8,738 | $2,893 | $21,568 | $(18,815) | | Basic shares (in thousands) | 30,795 | 31,244 | 30,758 | 31,531 | | Diluted shares (in thousands) | 31,244 | 31,552 | 31,129 | 31,531 | | Basic EPS | $0.28 | $0.09 | $0.70 | $(0.60) | | Diluted EPS | $0.28 | $0.09 | $0.69 | $(0.60) | | Dividends declared per common share | $0.23 | $0.22 | $0.69 | $0.66 | - Basic and diluted EPS significantly improved for both the three and nine months ended June 30, 2023, compared to the prior year, reflecting the turnaround from a net loss to net income[56] - Weighted-average shares outstanding (basic and diluted) slightly decreased for the nine months ended June 30, 2023, compared to the prior year[56] Note 11. Pension and Other Postretirement Benefit Plans Net Periodic Pension and Other Postretirement Benefit Cost (Amounts in thousands) | Metric | Nine Months Ended June 30, 2023 (Pension) | Nine Months Ended June 30, 2022 (Pension) | Nine Months Ended June 30, 2023 (Other Postretirement) | Nine Months Ended June 30, 2022 (Other Postretirement) | | :-------------------------------------- | :---------------------------------------- | :---------------------------------------- | :----------------------------------------------------- | :----------------------------------------------------- | | Service cost | $119 | $389 | $57 | $124 | | Interest cost | $354 | $1,086 | $483 | $308 | | Settlement losses | $1,271 | $30,856 | — | — | | Net benefit cost | $1,723 | $31,584 | $(265) | $159 | - In Q1 fiscal 2023, the Company made lump sum payments of $24,242 thousand to fully settle supplemental retirement plan (SERP) and officers retirement restoration plan (ORRP) obligations, resulting in a $1,271 thousand non-cash charge[59] - In Q1 fiscal 2022, the Company terminated its principal defined benefit retirement plan (DB Plan), making $35,706 thousand in contributions and $185,958 thousand in lump sum distributions, resulting in a $30,856 thousand non-cash charge[60] Note 12. Accumulated Other Comprehensive Income (AOCI) Changes in AOCI by Component (Attributable to Matthews, Amounts in thousands) | Component | Balance, Sep 30, 2022 | Net current-period OCI (9M FY23) | Balance, Jun 30, 2023 | | :------------------------------ | :-------------------- | :------------------------------- | :-------------------- | | Post-retirement benefit plans | $5,182 | $559 | $5,741 | | Currency translation adjustment | $(203,310) | $25,915 | $(177,395) | | Cash Flow Hedges | $7,937 | $(139) | $7,798 | | Total | $(190,191) | $26,335 | $(163,856) | - AOCI attributable to Matthews improved from a loss of $190,191 thousand at September 30, 2022, to a loss of $163,856 thousand at June 30, 2023, primarily driven by a positive currency translation adjustment of $25,915 thousand for the nine-month period[62] Reclassifications out of AOCI (Nine Months Ended June 30, 2023, Amounts in thousands) | AOCI Component | Amount Reclassified | Affected Line Item in Statement of Income | | :---------------------- | :------------------ | :---------------------------------------- | | Postretirement benefit plans | $(333) | Net income (Other income (deductions), net) | | Derivatives (Cash flow hedges) | $2,152 | Net income (Interest expense) | Note 13. Income Taxes - Consolidated income taxes for the first nine months of fiscal 2023 were an expense of $4,136 thousand, a significant change from a benefit of $2,311 thousand in the prior year, primarily due to consolidated pre-tax income in fiscal 2023 versus a pre-tax loss in fiscal 2022[66] - The fiscal 2023 nine-month effective tax rate varied from the U.S. statutory rate of 21.0% due to state taxes, foreign statutory rate differentials, tax credits, and non-tax benefited foreign losses[66] - Unrecognized tax benefits (excluding penalties and interest) were $4,582 thousand at June 30, 2023, with a potential decrease of approximately $3,213 thousand in the next 12 months due to audit completions and statute of limitations expirations[67] - Total penalties and interest accrued on tax uncertainties were $959 thousand at June 30, 2023[68] Note 14. Segment Information - The Company operates under three segments: Memorialization, Industrial Technologies, and SGK Brand Solutions[70] - Adjusted EBITDA is the primary measure of segment profitability, defined as earnings before interest, income taxes, depreciation, amortization, and certain non-cash/non-recurring items[71] Segment Sales and Adjusted EBITDA (Amounts in thousands) | Segment | Three Months Ended June 30, 2023 (Sales) | Three Months Ended June 30, 2022 (Sales) | Nine Months Ended June 30, 2023 (Sales) | Nine Months Ended June 30, 2022 (Sales) | | :------------------------ | :--------------------------------------- | :--------------------------------------- | :-------------------------------------- | :-------------------------------------- | | Memorialization | $208,728 | $203,158 | $638,119 | $633,868 | | Industrial Technologies | $130,533 | $78,443 | $365,190 | $230,928 | | SGK Brand Solutions | $132,647 | $140,118 | $397,419 | $440,480 | | Consolidated Sales | $471,908 | $421,719 | $1,400,728 | $1,305,276 | | | Three Months Ended June 30, 2023 (Adj. EBITDA) | Three Months Ended June 30, 2022 (Adj. EBITDA) | Nine Months Ended June 30, 2023 (Adj. EBITDA) | Nine Months Ended June 30, 2022 (Adj. EBITDA) | | Memorialization | $39,929 | $32,090 | $127,096 | $118,404 | | Industrial Technologies | $15,041 | $11,809 | $42,808 | $33,377 | | SGK Brand Solutions | $16,364 | $14,546 | $39,616 | $43,422 | | Corporate and Non-Operating | $(15,146) | $(12,421) | $(45,594) | $(40,656) | | Total Adjusted EBITDA | $56,188 | $46,024 | $163,926 | $154,547 | - Industrial Technologies segment showed significant sales growth (66.4% for Q3, 58.1% for 9M) and Adjusted EBITDA growth (27.4% for Q3, 28.2% for 9M) year-over-year[74] - SGK Brand Solutions experienced sales declines (5.3% for Q3, 9.8% for 9M) and a decrease in Adjusted EBITDA (1.8% for Q3, 8.8% for 9M) year-over-year[74] Note 15. Acquisitions - March 2023: Purchased remaining ownership in an Industrial Technologies subsidiary for $4,759 thousand - February 2023: Acquired Eagle Granite Company (Memorialization segment) for $18,384 thousand, including cash and deferred purchase price, plus potential contingent consideration of $1,030 thousand - Q1 Fiscal 2023: Completed small acquisitions in SGK Brand Solutions for a combined $1,932 thousand - Preliminary purchase price allocations for all fiscal 2023 acquisitions were not finalized as of June 30, 2023[78][79][80] - August 2022: Acquired German engineering firms OLBRICH and R+S Automotive (Industrial Technologies segment) for approximately €43,700 thousand ($44,469 thousand), significantly contributing to Industrial Technologies sales growth[81] Note 16. Goodwill and Other Intangible Assets Goodwill by Segment (Amounts in thousands) | Segment | Net Goodwill at Sep 30, 2022 | Additions during period | Translation and other adjustments | Net Goodwill at Jun 30, 2023 | | :------------------------ | :--------------------------- | :---------------------- | :-------------------------------- | :--------------------------- | | Memorialization | $361,782 | $2,682 | $2,739 | $367,203 | | Industrial Technologies | $107,022 | $6,756 | $795 | $114,573 | | SGK Brand Solutions | $206,617 | $1,924 | $12,599 | $221,140 | | Consolidated | $675,421 | $11,362 | $16,133 | $702,916 | - Consolidated goodwill increased by $27,495 thousand (4.1%) from September 30, 2022, to June 30, 2023, primarily due to additions from acquisitions and translation adjustments[82] - The annual impairment review in Q2 fiscal 2023 found no impairment charges necessary, with the SGK Brand Solutions reporting unit's fair value exceeding its carrying value by approximately 9%[83] Intangible Assets, Net (Amounts in thousands) | Category | June 30, 2023 | September 30, 2022 | | :------------------------ | :------------ | :----------------- | | Indefinite-lived trade names | $30,540 | $30,540 | | Definite-lived trade names | $30,242 | $32,956 | | Customer relationships | $107,972 | $132,129 | | Copyrights/patents/other | $6,200 | $6,529 | | Total Intangible Assets, Net | $174,954 | $202,154 | - Net intangible assets decreased by $27,200 thousand (13.5%) from September 30, 2022, to June 30, 2023, mainly due to amortization and foreign currency fluctuations, partially offset by additions from the Eagle acquisition[86] - Amortization expense on intangible assets was $31,499 thousand for the nine months ended June 30, 2023, down from $45,303 thousand in the prior year[87] Note 17. Asset Write-Downs - During fiscal 2022, the Company recorded asset write-downs totaling $10,017 thousand (net of recoveries) related to its Russian operations within the SGK Brand Solutions segment, reducing the carrying value of these assets to zero due to regional instability[88] - These write-downs, primarily for property, plant and equipment, were reported within cost of sales ($9,686 thousand) and administrative expense ($331 thousand) for the nine months ended June 30, 2022[88] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, condition, outlook, segment analysis, liquidity, capital, and critical policies Cautionary Statements Regarding Forward-Looking Statements and Non-GAAP Financial Measures - Forward-looking statements are subject to known and unknown risks and uncertainties that may cause actual results to differ materially from expectations, including changes in economic conditions, foreign currency rates, interest rates, material costs, mortality/cremation rates, product demand, competitive pressures, supply chain disruptions, labor issues, acquisitions, cybersecurity, and global conflicts[90] - The Company uses non-GAAP financial measures (e.g., Adjusted EBITDA) to compare performance consistently by removing the impact of certain items not directly reflecting core operations, such as acquisition/divestiture costs, ERP integration costs, strategic initiatives, stock-based compensation, and non-service pension/postretirement expense[91][93] Results of Operations Consolidated Sales and Adjusted EBITDA (Amounts in thousands) | Metric | Nine Months Ended June 30, 2023 | Nine Months Ended June 30, 2022 | | :----------------------- | :------------------------------ | :------------------------------ | | Consolidated Sales | $1,400,728 | $1,305,276 | | Total Adjusted EBITDA | $163,926 | $154,547 | - Consolidated sales increased by $95.5 million (7.3%) for the nine months ended June 30, 2023, driven by Industrial Technologies and Memorialization segments, partially offset by SGK Brand Solutions and an unfavorable foreign currency impact of $28.6 million[96] - Memorialization sales increased due to improved price realization, higher granite memorial/mausoleum/cremation equipment sales, and the Eagle Granite acquisition, partially offset by lower casket/bronze memorial unit sales - Industrial Technologies sales surged due to the OLBRICH and R+S Automotive acquisitions, higher energy storage solutions, product identification, and warehouse automation sales - SGK Brand Solutions sales decreased due to lower brand sales in Europe, decline in cylinder products, and lower U.S./European retail-based sales, partially offset by improved price realization - Gross profit for the nine months ended June 30, 2023, was $426.9 million (30.5% of sales), up from $377.0 million (28.9% of sales) in the prior year, reflecting higher sales, productivity improvements, and cost-reduction initiatives, despite higher material/labor costs[98][99] - Selling and administrative expenses increased to $333.6 million (23.8% of sales) for the nine months ended June 30, 2023, from $302.6 million (23.2% of sales) in the prior year, due to higher salaries, travel, acquisition expenses, and receivables financing fees[100] - Interest expense increased to $33.2 million for the nine months ended June 30, 2023, from $19.4 million in the prior year, primarily due to higher average interest rates[102] - Other income (deductions), net, improved from a $30.9 million decrease in pre-tax income in fiscal 2022 to a $3.0 million decrease in fiscal 2023, mainly due to lower non-service pension and postretirement expenses (which included significant settlement charges in prior year)[102] - Income tax expense was $4.1 million for the nine months ended June 30, 2023, compared to a $2.3 million benefit in the prior year, reflecting the shift from a pre-tax loss to pre-tax income[103] - Asset write-downs of $10.0 million related to Russian operations were recorded in fiscal 2022 within the SGK Brand Solutions segment[105] Non-GAAP Financial Measures - Adjusted EBITDA is a non-GAAP measure used by management to assess business performance by excluding non-core operational items such as acquisition/divestiture costs, ERP integration costs, strategic initiatives, stock-based compensation, and non-service pension/postretirement expense[106][107] Reconciliation of Net Income (Loss) to Adjusted EBITDA (Amounts in thousands) | Metric | Nine Months Ended June 30, 2023 | Nine Months Ended June 30, 2022 | | :-------------------------------------- | :------------------------------ | :------------------------------ | | Net income (loss) | $21,443 | $(18,871) | | Income tax (benefit) provision | $4,136 | $(2,311) | | Interest expense, including RPA and factoring financing fees | $35,944 | $19,426 | | Depreciation and amortization | $71,813 | $80,163 | | Acquisition and divestiture costs | $4,445 | $951 | | Strategic initiatives and other charges | $7,734 | $16,912 | | Highly inflationary accounting losses | $3,074 | — | | Asset write-downs | — | $10,017 | | Stock-based compensation | $13,635 | $14,128 | | Non-service pension and postretirement expense | $1,556 | $31,588 | | Total Adjusted EBITDA | $163,926 | $154,547 | - Total Adjusted EBITDA increased by $9,379 thousand (6.1%) for the nine months ended June 30, 2023, compared to the prior year, indicating improved operational performance before non-core adjustments[109] Liquidity and Capital Resources Cash Flow Summary (Nine Months Ended June 30, Amounts in thousands) | Cash Flow Activity | 2023 | 2022 | | :-------------------------------- | :---------- | :---------- | | Operating activities | $76,906 | $84,367 | | Investing activities | $(53,717) | $(38,929) | | Financing activities | $(56,357) | $(43,776) | | Net change in cash | $(32,119) | $(2,200) | | Cash, cash equivalents and restricted cash at end of period | $39,295 | $66,143 | - Operating cash flow decreased due to working capital changes and pension settlement payments, partially offset by cash flow hedge settlements. Investing cash flow increased due to higher capital expenditures and acquisitions. Financing cash flow increased due to net debt repayments and dividends[112][113][115] - Capital expenditures are estimated at $65 million for fiscal 2023, supporting new production capabilities and efficiencies in Memorialization and Industrial Technologies segments[114] - The Company has a $750.0 million senior secured revolving credit facility maturing in March 2025, with outstanding borrowings of $450.3 million at June 30, 2023, at a weighted-average interest rate of 5.59%[116][117] - The Company has $299.6 million of 5.25% senior unsecured notes due December 1, 2025[118] - Working capital was $239.5 million at June 30, 2023, up from $217.2 million at September 30, 2022, with a current ratio of 1.6[128] Long-Term Contractual Cash Obligations (Amounts in thousands) | Obligation | Total | 2023 Remainder | 2024 to 2025 | 2026 to 2027 | After 2027 | | :-------------------------- | :---------- | :------------- | :----------- | :----------- | :--------- | | Revolving credit facilities | $452,691 | — | $450,329 | — | $2,362 | | 2025 Senior Notes | $337,740 | — | $31,500 | $306,240 | — | | Finance lease obligations | $7,259 | $619 | $3,296 | $2,019 | $1,325 | | Non-cancelable operating leases | $82,438 | $6,642 | $45,455 | $22,735 | $7,606 | | Other | $26,688 | $229 | $11,736 | $5,965 | $8,758 | | Total | $906,816| $7,490 | $542,316 | $336,959 | $20,051| Regulatory Matters - The Company's operations are subject to various federal, state, and local laws and regulations, including environmental protection, with internal compliance programs in place[132] - The Company is actively performing environmental assessments and remediation at certain sites[132] Acquisitions - Details on recent acquisitions are provided in Note 15, 'Acquisitions,' within Item 1 - 'Financial Statements'[133] Forward-Looking Information - The Company's strategy for annual operating growth includes internal growth (organic growth, cost structure/productivity improvements, new product development, market expansion) and acquisitions with related integration activities[134] - Industrial Technologies: Sales growth influenced by economic/industrial market conditions, new product development, and EV/e-commerce trends. Received over $200 million in new orders for energy storage solutions in Q1 fiscal 2023, impacting sales through mid-fiscal 2024 - Memorialization: Sales growth influenced by North America death rates and the increasing trend toward cremation - SGK Brand Solutions: Sales growth influenced by global economic conditions, brand innovation, client marketing spending, and government regulation - Recent labor cost increases, supply chain challenges, and inflation are expected to impact results, with mitigation efforts through price realization and cost-reduction initiatives[137] Critical Accounting Policies - Financial statement preparation requires management estimates and assumptions, which may differ from actual results[138] - The annual impairment review of goodwill and indefinite-lived intangible assets in Q2 fiscal 2023 found no impairment, but future write-downs may be necessary if projections are not met or valuation factors change significantly[140] Recently Issued Accounting Pronouncements - Refer to Note 2, 'Basis of Presentation,' in Item 1 - 'Financial Statements,' for details on recently issued accounting pronouncements[141] Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes in the Company's market risk during the three and nine months ended June 30, 2023 - No material changes in the Company's market risk occurred during the three and nine months ended June 30, 2023[142] Item 4. Controls and Procedures Disclosure controls and procedures were effective, with no material changes in internal controls over financial reporting - The Company's disclosure controls and procedures were evaluated and deemed effective as of June 30, 2023, providing reasonable assurance that material information is accumulated, communicated, recorded, summarized, and reported timely[143][144] - No changes in internal controls over financial reporting occurred during the fiscal quarter ended June 30, 2023, that materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting[145] PART II - OTHER INFORMATION Item 1. Legal Proceedings Ordinary course legal proceedings are not expected to materially affect financial condition or results - The Company is subject to various legal proceedings and claims arising in the ordinary course of business[147] - Management does not expect these legal proceedings to have a material adverse effect on Matthews' financial condition, results of operations, or cash flows[147] Item 1A. Risk Factors No material changes to previously disclosed risk factors, which could adversely affect Company performance - No material changes in risk factors from those disclosed in the Annual Report on Form 10-K for the fiscal year ended September 30, 2022[148] - Existing risk factors, along with other information in this report, could adversely affect the Company's operating performance and financial condition[148] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Outlines the Company's stock repurchase program, purpose, authorization, and fiscal 2023 activity - The Company has a stock repurchase program designed to increase shareholder value, enlarge common stock holdings, and add to earnings per share[149] - As of June 30, 2023, 1,196,143 shares remain available for repurchase under the current authorization[149] Fiscal 2023 Stock Repurchase Activity | Period | Total shares purchased | Weighted average price paid per share | | :------------ | :--------------------- | :------------------------------------ | | October 2022 | — | $— | | November 2022 | 88,042 | $27.54 | | December 2022 | 983 | $27.54 | | January 2023 | — | $— | | February 2023 | 549 | $37.09 | | March 2023 | 7,057 | $37.79 | | April 2023 | — | $— | | May 2023 | — | $— | | June 2023 | 2,068 | $38.86 | | Total | 98,699 | $28.56 | Item 3. Defaults Upon Senior Securities No defaults upon senior securities are reported - Not Applicable[151] Item 4. Mine Safety Disclosures No mine safety disclosures are reported - Not Applicable[152] Item 5. Other Information No directors or officers adopted, modified, or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements - None of the Company's directors or officers adopted, modified, or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the fiscal quarter ended June 30, 2023[153] Item 6. Exhibits and Reports on Form 8-K Lists exhibits filed with Form 10-Q, including corporate documents, officer certifications, and XBRL files - Exhibit 3.1: Restated Articles of Incorporation (incorporated by reference) - Exhibit 3.2: Restated By-laws (incorporated by reference) - Exhibit 31.1 & 31.2: Certifications of Principal Executive Officer and Principal Financial Officer (filed herewith) - Exhibit 32.1 & 32.2: Certifications Pursuant to 18 U.S.C. Section 1350 (furnished herewith) - Exhibits 101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104: XBRL Taxonomy Extension and Cover Page Interactive Data File (filed herewith) SIGNATURES Signatures Contains official signatures of Matthews International Corporation's CEO and CFO, certifying report filing - The report was signed on behalf of Matthews International Corporation by Joseph C. Bartolacci, President and Chief Executive Officer, and Steven F. Nicola, Chief Financial Officer and Secretary, on July 28, 2023[156][157][158]