Matthews International(MATW) - 2024 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements The company's consolidated financial statements for the period ended March 31, 2024, show stable total assets at approximately $1.89 billion, with sales slightly decreasing to $921.2 million from $928.8 million year-over-year for the six months ended March 31, 2024, and net income falling to $6.7 million from $12.8 million, while net cash provided by operating activities decreased to $29.8 million from $44.7 million in the prior-year period Consolidated Balance Sheets | (In thousands) | March 31, 2024 | September 30, 2023 | | :--- | :--- | :--- | | Total current assets | $654,049 | $648,257 | | Total assets | $1,890,477 | $1,887,381 | | Total current liabilities | $358,752 | $394,600 | | Long-term debt | $837,357 | $786,484 | | Total liabilities | $1,381,130 | $1,362,100 | | Total shareholders' equity | $509,347 | $525,281 | Consolidated Statements of Income | (In thousands, except per share) | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 31, 2023 | Six Months Ended Mar 31, 2024 | Six Months Ended Mar 31, 2023 | | :--- | :--- | :--- | :--- | :--- | | Sales | $471,223 | $479,580 | $921,209 | $928,820 | | Gross profit | $148,182 | $149,623 | $280,535 | $288,553 | | Operating profit | $21,328 | $23,051 | $30,755 | $40,279 | | Net income attributable to Matthews | $9,027 | $9,127 | $6,724 | $12,830 | | Diluted EPS | $0.29 | $0.29 | $0.22 | $0.41 | Consolidated Statements of Cash Flows | (In thousands) | Six Months Ended Mar 31, 2024 | Six Months Ended Mar 31, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $29,841 | $44,711 | | Net cash used in investing activities | ($29,763) | ($31,203) | | Net cash provided by (used in) financing activities | $3,018 | ($44,899) | | Net change in cash and cash equivalents | $3,396 | ($29,498) | | Cash and cash equivalents at end of period | $45,497 | $41,916 | Notes to Consolidated Financial Statements - The company operates under three segments: Memorialization (memorials, caskets, cremation equipment), Industrial Technologies (energy storage, product identification, warehouse automation), and SGK Brand Solutions (brand management, pre-media services)[20] - The company applies highly inflationary accounting to its Turkish subsidiaries, with exchange losses of $0.71 million and $1.25 million for the six months ended March 31, 2024 and 2023, respectively, included in other income (deductions)[23] - In January 2024, the company amended and restated its domestic credit facility, which now includes a $750 million senior secured revolving credit facility maturing in January 2029[36] - The annual goodwill impairment review was performed in Q2 2024, and no impairment charges were necessary. However, the estimated fair value of the SGK Brand Solutions reporting unit exceeded its carrying value by a relatively narrow margin of approximately 7%[84] Management's Discussion and Analysis of Financial Condition and Results of Operations For the six months ended March 31, 2024, consolidated sales decreased slightly to $921.2 million from $928.8 million year-over-year, driven by lower sales in the Industrial Technologies and SGK Brand Solutions segments, partially offset by an increase in Memorialization, while Adjusted EBITDA declined to $102.3 million from $107.7 million, primarily due to lower sales, higher costs, and margin pressure in the Industrial Technologies segment, with the company maintaining liquidity through operating cash flow and an amended credit facility, and capital spending focused on new production capabilities and efficiencies Results of Operations Consolidated Sales by Segment (Six Months Ended Mar 31) | Segment | 2024 (in millions) | 2023 (in millions) | Change | | :--- | :--- | :--- | :--- | | Memorialization | $430.2 | $429.4 | +0.2% | | Industrial Technologies | $227.5 | $234.7 | -3.1% | | SGK Brand Solutions | $263.5 | $264.8 | -0.5% | | Total Sales | $921.2 | $928.8 | -0.8% | Adjusted EBITDA by Segment (Six Months Ended Mar 31) | Segment | 2024 (in millions) | 2023 (in millions) | Change | | :--- | :--- | :--- | :--- | | Memorialization | $83.3 | $87.2 | -4.5% | | Industrial Technologies | $19.7 | $27.8 | -29.1% | | SGK Brand Solutions | $28.3 | $23.3 | +21.5% | | Total Adjusted EBITDA | $102.3 | $107.7 | -5.0% | - The decrease in Industrial Technologies sales was driven by reduced demand for warehouse automation and automotive engineering solutions. The decline in Memorialization adjusted EBITDA was due to higher material/labor costs and lower margins on cremation products, reflecting a return to normalized death rates post-pandemic[96][100] - The increase in SGK Brand Solutions adjusted EBITDA was primarily due to benefits from cost-reduction initiatives and improved margins on cylinder (packaging) products[100] Liquidity and Capital Resources - Net cash from operating activities decreased to $29.8 million for the first six months of fiscal 2024 from $44.7 million in the prior year, mainly due to changes in working capital, including incentive compensation payments[110] - In January 2024, the company amended its domestic credit facility, resulting in a $750.0 million senior secured revolving credit facility maturing in January 2029. As of March 31, 2024, total borrowings on this facility were approximately $507.3 million[114][115] - The company utilizes a receivables purchase agreement (RPA) to sell up to $125.0 million of trade receivables. As of March 31, 2024, $109.9 million in receivables were sold and derecognized from the balance sheet. The RPA was extended to March 2026[117][118] - Capital spending for fiscal 2024 is estimated to be approximately $60 million, an increase from the prior three-year average of $48.7 million, to support new production capabilities and efficiencies in the Memorialization and Industrial Technologies segments[112] Quantitative and Qualitative Disclosures About Market Risk The company reports no material changes in its market risk during the three and six months ended March 31, 2024, and refers to its Annual Report on Form 10-K for the fiscal year ended September 30, 2023, for detailed information - There have been no material changes in the Company's market risk during the six months ended March 31, 2024[142] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of March 31, 2024, with no material changes to internal controls over financial reporting during the quarter - The CEO and CFO concluded that as of March 31, 2024, the Company's disclosure controls and procedures were effective[144] - No changes in internal controls over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[145] PART II - OTHER INFORMATION Legal Proceedings The company is involved in various legal proceedings and claims that arise in the ordinary course of business, but management does not anticipate that these proceedings will have a material adverse effect on the company's financial condition, results of operations, or cash flows - Management does not expect that the results of any current legal proceedings will have a material adverse effect on the Company's financial condition, results of operations or cash flows[147] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended September 30, 2023 - No material changes in risk factors have occurred since the company's Annual Report on Form 10-K for the fiscal year ended September 30, 2023[148] Unregistered Sales of Equity Securities and Use of Proceeds The company has an active stock repurchase program, having repurchased 1,029 shares at a weighted average price of $35.15 per share during the second quarter of fiscal 2024, with 728,031 shares remaining available for repurchase under the current authorization as of March 31, 2024 - As of March 31, 2024, 728,031 shares remain available for repurchase under the company's stock repurchase program[149] Stock Repurchase Activity (Q2 FY2024) | Period | Total Shares Purchased | Weighted Average Price Paid per Share | | :--- | :--- | :--- | | January 2024 | 1,029 | $35.15 | | February 2024 | — | — | | March 2024 | — | — |