Greetings, and welcome to Matthews International Corporation Second Quarter Fiscal 2019 Financial Results. At this time all participants are in a listen-only mode. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to Karen Howard, IR for Matthews International. Thank you. Please go ahead.

Thank you, Brenda, and good morning, everyone. Thank you for joining us to discuss the Matthews International fiscal 2019 second quarter and first half year results for the period ended March 31, 2019. We certainly appreciate your time today. You should have a copy of the news release across the wire yesterday afternoon detailing Matthews' results. We also have slides associated with the commentary that we're providing here today. If you don't have the release or the slides, you can find them on the company's website at www.matw.com on the Investor Overview page. On the call with me today are Joe Bartolacci, our President and Chief Executive Officer; and Steve Nicola, our Chief Financial Officer. Steve will review the financial results for the quarter and the first half of the year and Joe will review the business progress as well as our outlook for the remainder of fiscal 2019. We will then open the lines for Q&A. But before we do, I would like to highlight our safe harbor statement, which is on Slide two of our presentation as well as within our release. As you are aware, we may make some forward-looking statements during this discussion as well as during the Q&A. These statements apply to future events and are subject to risks and uncertainties as well as other factors, which could cause actual results to differ materially from what is stated on this call. These risks and uncertainties and other factors are provided in the earnings release and in the slide deck as well as with other documents filed by the company with the Securities and Exchange Commission. These documents can be found on our website at www.sec.gov. I also want to point out that during today's call, we will discuss some non-GAAP financial measures, which we believe are useful in evaluating our performance. You should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP. We've provided reconciliations of comparable GAAP to non-GAAP measures in the tables accompanying today's earnings release. And with that, it's my pleasure to turn the call over to Steve to begin. Please go ahead, Steve.

Thank you, Karen, and good morning. As noted in our press release yesterday and evaluating our fiscal 2019 second quarter operating results, there were several significant factors that affected our consolidated sales comparability. These included; unfavorable changes in foreign currency exchange rates relative to the U.S. dollar, a decline in U.S. casketed deaths relative to the same quarter a year ago, and the loss of a significant client account in our U.S. brand business. For the fiscal 2019 second quarter we reported consolidated sales of $391 million, representing a decrease of approximately $23 million compared to the same quarter last year. However, these three factors had a year-over-year unfavorable impact of approximately $26 million on consolidated sales. With respect to earnings per share on a GAAP basis the company reported earnings per share of $0.48 for the current quarter compared to $0.57 last year primarily reflecting the decrease in consolidated sales. In addition, interest expense was higher for the quarter which was offset by higher investment income and lower income taxes. On a non-GAAP basis adjusted earnings per share were $0.90 for the current quarter compared to $0.93 last year representing a decrease of $0.03 per share. The year-over-year unfavorable impact of currency changes which included both translation and transactional impacts approximated $0.06 per share. Please turn to slide five. On a year to-date basis our consolidated sales were approximately $766 million compared to $784 million last year representing a decrease of almost $18 million. The year to-date unfavorable impact of those same factors total approximately $36 million. The currency portion of this total was $18.6 million. Year to-date earnings per share on a GAAP basis for the current year were $0.58 as of March 31, 2019 compared to a $1.68 a year ago. In addition to a consolidated sales…

Thank you, Steve. Good morning. Please turn to slide 16, where I’ll give you insight into our businesses. During our second quarter we faced several significant challenges that we could not overcome. Some of those challenges were of our own making, but the more significant ones were not. As Steve noted, we faced considerable challenges from unfavorable currency exchange rate most of which impacted our SGK brand business, but in total negative currency impacted our overall revenues by $13 million. We also saw a decline in U.S. casketed deaths versus prior year resulting a 6% revenue decline in our funeral home products business, while the balance of our memorialization business saw modest growth. Finally, as we have mentioned in the past, during the quarter our SGK brand business felt the impact from the loss of significant account which transitions their work internally. When considered collectively these items unfavorably impacted our second quarter revenue by approximately $26 million compared to the second quarter 2018, a difficult hurdle to get over. Despite these issues, our business remains strong and we saw positive trends in several of our business units. In our brand business revenues were impacted by $11 million, a negative currency translation this quarter and $16 million year-to-date. For the quarter after considering the negative currency impact and the significant account loss, SGK saw a modest growth. That organic growth was largely in Europe and Asia were our footprint and people continue to be our advantage. Like those of you who follow the CPG market lately, we are beginning to hear the rumbling of increased marketing investment in brand innovation intend to reinvigorate organic growth from some of our largest clients. This is good for our business, but I do not expect that increase spending to benefit us this year. Similarly,…

Thank you. [Operator Instructions]. Our first question comes from line of Daniel Moore with CJS.

Good morning.

Good morning Dan.

Just in terms of death rates, one of your competitors earlier this week implied that they expect death rates normalized to some degree over the next couple of quarters. Sounds like you're taking a more maybe slightly more conservative approach regarding your assumptions. What are your assumptions in terms of death rates that are embedded in your revised guide?

Our revised guidance would expect to have a modest pickup, but not significant, not bringing it back to a full year normal. We're still expecting to have a modest decline for the balance for the whole year. If we're surprised they'd be great. But as we said we're taking a conservative approach on our guidance, but given the surprise that we had this quarter and if it comes back it'd be better for everybody.

Got it. And within memorials bronze and granite obviously held up pretty well in the light of the lower death rates. Was it share gains? Was it timing? Maybe any color you might have there Joe?

Both, I mean the reality is we are -- when you look at the cemetery market across United States there's both large opportunities and small. I would tell you on the bronze side given our market share we -- the opportunities are generally smaller and we're picking up some modest share around the country. On the granite side, we still have some larger opportunities that are represented in geographies that we are beginning to penetrate with. So, it's going to be share gain as well, but different percentages in each one of those business.

Got it. And Steve, you pointed out FX has been $0.11 headwind year to-date I believe. If rates stayed where they are today what would be the full year impact and what's the full year impact relative to your prior guide? In other words of the guidance reduction how much of that is really truly affects?

So, Dan, I would tell you the full year impact is going to be close, at least in our projections right now is close to double that. So, call it in the $0.20 range compared to last year. And I don't have the number with respect to how that different from our earlier guidance, but probably at least $0.05 to $0.07.

Got it. And just maybe shifting gears for one more. Joe, legacy marking products in a couple of quarters ago you started to see a slowdown. Sounds like a little bit more constructive and that tend to be a little bit of a harbinger of economic activity. What do you seeing there especially as we get into the June quarter?

Frankly Dan when we had our call in January we were a little concerned. We saw a pretty significant decline in our order rates. And we called that out as a little bit of canary in the coal mine because as you know it's a harbinger of other economics for us and for the rest of the economy. That has returned to normal. And in fact we're starting to see pretty good return to volumes both in ink and in equipment. So I would tell you that our expectation on a full year basis is exactly where we anticipated at the beginning of the year at this time.

All right. Appreciate the color. I will jump back in queue to any follow ups. Thanks.

Our next question comes from the line of Liam Burke with FBR.

Yes. Thank you. Good morning Joe. Good morning, Steve.

Good morning, Liam.

Joe, could you give us a sense on the synergies especially on the Aurora if there's any spillover in the calendar 2019 and how that was influencing the margins this quarter or this quarter and well for the rest of the year?

So, as we've called out in the past we had one significant remaining action item to take on capturing the synergies on Aurora which was the closure of one of our manufacturing facilities. We had that modestly delayed due to some things outside of our control. The opportunities are still outside there, but we did capture about a $1 million worth of synergies in the second quarter. We still have more to come, and when that plant closure occurs. But I would tell you that we have some duplicative costs in our in our margins right now. We expect our casket business to operate in the low 20s of EBITDA as it is right now going forward, and maybe a little bit more when we start to see commodities go the other way.

Great. Then you talked about on the SGK side, the strength in private brands and that's been for several quarters now. Are the national brands I mean you touched on it looking like they're starting show some signs of life?

Well, first on the private brands, we continue to pick up share frankly, I mean, both share and converting people from not being centralized, too centralized. I mean that we picked up some literally global markets that we are not servicing at this point in time. That business has turned out to be a bit of a gem. It has a different model than that are existing -- our current business, our traditional business, we think it is a future opportunity for all of our business as we move forward, so, a lot of positive things to say about that and we think that we had a little bit of a tailwind in there. The rest of the brands we're hearing rumors, I mean we're hearing rumors of finally starting to break loose and spending on marketing. And importantly, when they talk about reinvesting in their brand that usually means brand SKU proliferation and new products which all means new packaging that are associated with that. We think that is going to bode well for years to come. I don't think that happens overnight. You all saw what happened with Kraft Heinz in their announcement where they said that cost cutting has come to an end. It's time to continue -- to begin to invest. I think that is a bit of an opportunity for everybody in the industry.

Great. And on the new printer platform that's in beta. Do you have any sense as to when you're actually going to get firm orders and actually be able to generate revenue from that product?

We actually have orders now. I mean I wouldn't call them material. We have orders in place given what we have already produced in beta, people have seen. I mean they're not huge orders but they are right now based on who we have shared the product with and they've tested, placed enough orders to kind of give us confidence that it's both priced properly and giving us the opportunity as we expect. We expect this probably to hit full rate in the fiscal year of 2020, but start to see some more significant orders towards the end of this quarter.

Great. Thank you, Jeff.

Yep.

Thank you. [Operator Instructions] Our next question comes from the line of Jamie Clement with Buckingham.

Joe, Steve, good morning.

Good morning, Jamie.

Steve, if I could start with you and then I’ll -- Joe, I’ll switch back to you on bigger picture stuff. Steve, two things; what's the right level of corporate spending to be expecting kind of on a quarter-to-quarter basis? And what was the main driver of the year-over-year decline?

So a couple of things, Jamie. You're looking at the corporate portion of adjusted EBITDA also, so a couple of things. One I'll call it the normal level of corporate spend, we'll start there. Is in the neighborhood of -- and this is on an adjusted EBITDA basis in the neighborhood of about 4% of sales. What impacted the quarter-over-quarter and year-over-year over year are two things. One, performance based compensation, and the second is adjusted EBITDA also captures a couple of below the line items particularly the investment income pickup this past quarter, the recovery from the first quarter.

Okay. Got it. Also I -- copper market, very volatile of late. Where do you all kind of stand in terms of your supply agreements and kind of what that's looking like whether it's more of a headwind, less of a headwind kind of where we at there?

Not material to this year. We'll see how that impacts next year. And we were pretty well locked down for several, I’d say, at least a quarter, quarter and a half. But going into next year we'll have to evaluate it again at that time and how much we can lock down there. So, we've baked that assumption into our forecast Jamie and don't consider an issue.

Okay, great. So, Joe, in terms of the guidance the revision kind of where you were and where you're at now; it just -- it sort of seems to be like maybe it's a brand solutions, but was there business that your thought might be there that didn't quite pan out just in terms of talking about death rates and currency kind of added up some numbers around there. I feel like there's a little something missing?

Yes. Well, I would tell you Jamie that if you just take into consideration 6% decline in our casketed deaths rates, I mean we've got millions of losses in that revenue recognition.

Right.

So that's one. Second, we had anticipated recoveries from some of the businesses that -- some of the business that we lost. And frankly that has not occurred. And as I mean, we always have a hit list of business and contracts that are out there. It's taking time, but it’s not ramping up as fast as we would like. And that mean, that just not in our control. So when we gave that guidance at the beginning of the year, three principal things; death rates, currency and we thought we get a faster ramp on number of these accounts we did not get.

Okay, okay. And as you look out, more like kind of 12 to 24 months based on the commentary of the CPGs that are out there, many of whom are large customers or yours, are you starting to see signs that brand extensions, new brand launches, those kinds of things which are historically more lucrative for you all, are you starting to see at least some signs of planning?

Well, we’re seeing that but we’re also seeing – one of the key initiatives of this team has been to expand beyond the pack and we have a number of proposals out there to talk about outsourcing a lot of marketing content in general. That is an avenue of growth for this business as we take over functions for brands that are everything extending beyond the CPG from banks to TV companies and so forth. There’s a lot marketing content that requires management and we are venturing into that space to couple with our existing packaging business. We do a fair amount of that business right now probably close to 75 million or so and we think that opportunity continues to be one that we’re going to chase.

And are you also talking about more of a multichannel approach to traditional kind of packaging customers?

No, question. So, we’re looking to pickup more space. When we talk about our packaging customers, I mean the words we use internally and I won’t say, it mission critical, but it's an essential service. We are the vehicle through which they get that pack to. So how do we extend beyond the pack using what we know we do well and extended to other functions that they need. It may probably less essential but frankly more value focused for them when they think about what we can do for.

Okay. Thank you very much as always for your time.

Our next question comes from the line of Daniel Moore with CJS.

Just housekeeping, Steve, what was the revenue contribution from Frost? And small, but any incrementally year-over-year contribution from Star Granite?

Well, the contribution from Star Granite would have only with only been a month, so maybe $2 million worth of revenue. And then with respect to Frost, Frost might be 1.5 million, but we also need to remind you, Dan, offsetting that when sold pet. It was another $2 million that came down. So the net contributions from those were nominal.

Yes. Thank you. And then Joe, little bit of sort of unfortunate, but little bit of capacity came out of the industry on the casket side recently; any comments on opportunity to pick up share as well as any measurable impact in terms of rationalizing capacity pricing et cetera?

No. Relatively, If you’re speaking about New England casket, as many people may know, there was a fire unfortunately that the family loss their factory outside of Boston. It was a small player that service, largely service the distributor network. As you might expect those distributors prefer not to deal with people they compete with. So we’ll pick up some share, but it will usually be direct pickups at the funeral home. Our quality – they made a very good product and then our quality mirrored their quality. So we think there’s opportunity to pick that up now that they're no longer in the space at the funeral home, but is not significant.

Got it. Thank you.

Thank you. This concludes our question and answer session. I’d like to turn the floor back to Karen Howard for closing comments.

Thank you, Brenda. We appreciate everyone's participation this morning. As always thank you for interest in Matthews. We look forward to seeing many of you at our Investor and Analyst Day in New York in June and then updating you on our third quarter fiscal 2019 results in August. Thanks again and have a great day.

This concludes today's teleconference. You may disconnect your lines at this time. And thank you for your participation.