Greetings. Welcome to Matthews International Corporation Fourth Quarter and Year-End Fiscal 2021 Financial Results. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. Please note, this conference is being recorded. At this time, I’ll turn the conference over to Bill Wilson, Senior Director of Finance Corporate Development. Bill, you may now begin.

Thank you, Rob. Good morning, everyone, and welcome to the Matthews International fourth quarter and fiscal year-end 2021 earnings conference call. This is Bill Wilson, Senior Director of Corporate Development. With us today are Joe Bartolacci, President and Chief Executive Officer; and Steve Nicola, our Chief Financial Officer. Before we start, I would like to remind you that our earnings release was posted on our website, www.matw.com, in the Investors section last night. The presentation for our call can also be accessed in the Investors section of the website. As a reminder, any forward-looking statements in connection with this discussion are being made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Factors that could cause the Company’s results to differ from those discussed today are set forth in the Company’s annual report on Form 10-K and other periodic filings with the SEC. In addition, we will be discussing non-GAAP financial metrics and encourage you to read our disclosures and reconciliation tables carefully as you consider these metrics. In connection with any forward-looking statements and non-GAAP financial information, please read the disclaimer included in today’s presentation materials located on our website. And now, I’ll turn the call over to Steve.

Thank you, Bill, and good morning. We’re going to start with slide 4. To start the review today, some of the key financial highlights from the fiscal 2021 fourth quarter included, first, our consolidated sales of $438.8 million for the current quarter, established another new quarterly record for the Company and represented an increase of $39.7 million or 9.9% compared to a year ago. Each of our business segments reported sales growth for the fiscal 2021 fourth quarter. Second, during the recent quarter, the Company generated operating cash flow of $56 million and further strengthened the balance sheet through additional outstanding debt reduction of $28.8 million. Since the first quarter of the pandemic, March 2020, the Company has reduced its outstanding debt by over $200 million. Lastly, regarding the balance sheet, the Company is in the process of terminating and settling its principal domestic defined benefit retirement plans. During the current fiscal year, our pension accrual declined from $149.8 million at September 30, 2020 to $84.8 million at September 30, 2021, representing a reduction of $65 million in this liability. As we continue this process in fiscal 2022, we expect a further significant reduction in this liability by December 31, 2021. For the year ended September 30, 2021, some of the key financial highlights included, first, our consolidated sales were $1.67 billion, representing an increase of $172.7 million or 11.5% growth over fiscal 2020. Second, the Company reported adjusted EBITDA of $227.8 million, representing growth of $24.7 million or 12.1% over last year. Third, our cash flow from operations was $162.8 million, representing another year of strong cash flow generation. And fourth, as a result of the continued strong cash flow, the Company reduced outstanding debt by $70.8 million since September 30 last year or $78.7 million on a net…

Thank you, Steve. Good morning. Again, this quarter, we performed very well on many levels. Each of our segments reported higher sales for the quarter, allowing us to report record sales for the quarter and the full year. During the quarter, we continued to see strong demand in our Memorialization segment, driven by the impact of the pandemic. We also saw strong performance in SGK as our European businesses saw the benefits of recent cost restructuring initiatives, increased energy storage revenues and general volume increases versus prior years. But, what we’re most pleased with is the performance of our Industrial Technologies business, which saw an almost 30% increase in revenues, thanks to very strong performance in our warehouse automation business and improved performance in our product identification business. From an EBITDA perspective, we saw the impact of the inflationary pressures and supply chain challenges throughout our business. That pressure was particularly felt by our Memorialization segment, where despite strong revenues, our EBITDA was lower due to higher commodity, transportation and labor costs. Similarly, although SGK Brand Solutions reported higher year-over-year sales for the quarter, changes in our product mix resulted in lower margin projects, providing a more significant part of the revenue increase. Again, however, I want to call out for you the performance of our Industrial Technologies business, which generated a 50% increase in EBITDA on a year-over-year basis. All-in-all, we are very satisfied with our performance for the quarter, for the full year and throughout the pandemic. We’ve accomplished a lot during the pandemic. Let me give you some idea. As stated above, we’ve had record sales for fiscal ‘21. We reported record operating cash flow, having generated $343 million over the past two years. We had market share gains in many of our businesses. We significantly reduced…

And our first question will be coming from the line of Daniel Moore with CJS Securities.

Joe, Steve, good morning. Thanks for the color and taking questions. So, maybe to start, I wanted to make sure I heard correctly in the last few comments. Energy storage, $50 million of revenue going to over $100 million, very consistent and great progress, and then you threw out a number, energy storage and surfaces, I think, $350 million and $60 million in EBITDA. So, what was the time frame and just maybe level set that second part of…

Sure, Dan. I’m sorry if I wasn’t clear. So, what we are saying is we intend to move the reporting of our energy storage business and services to Industrial Technologies. Together next year, that entire segment should have $350 million of revenue, $60 million of EBITDA, plus or minus. And this will represent our growth businesses. And as evidence, what I also said earlier was, just three years ago, these businesses reported materially less revenue and EBITDA, and we expect that kind of continued exposure on the top line and bottom line for the years to come. We positioned some of the fastest-growing businesses in one segment.

Makes perfect sense. Okay. Thank you. I apologize. And then, maybe talk about the cadence of revenue growth as well as probably even more critically margins starting with Q1 and H1. I assume, we feel additional margin pressure, reflecting the timing of price increases to match all of that inflation in the early part of the year as well as a tough comp in memorials. So, should we think about EBITDA being down more in H1 versus H2? Steve, any comments there would be helpful.

So Dan, let me speak to the year, because you put your finger on it with respect to adjusted EBITDA next year. And that specifically relates for the most part to the commodity cost challenges we’re seeing, particularly in Memorialization, steel, lumber, copper, copper being the main constituent and bronze. So, that’s going to impact us throughout the year, not just the first quarter, just primarily because the comparables from a year ago when those prices were lower. But again, as we start to exit the year because we saw the impact here in this -- start in this -- well, not start in this fourth quarter, it actually started before this fourth quarter, but you see the impact of it this fourth quarter, you should actually start to see the comparability of those costs, the comparability challenge start to wane in the fourth quarter. And depending on your view on what your view of these commodities are going forward and the cyclicality of them hopefully. And as we see those start to decline, it at least at a minimum, ceases to become a comparability challenge as we exit and may become somewhat of a tailwind if we see those commodities revert back to their traditional prices.

The only color I’ll add to that, Dan, is timing of pricing. You know how that works. We generally raised our prices in our funeral products business on the 1st of October. So, the impact we saw from commodities in that part of the business, will be somewhat mitigated by the price increase. We did not get a sufficient price increase to cover all our costs. We are analyzing whether or not we will -- we intend to and we expect to raise prices earlier than that next year. These commodity prices remain where they are. In our Memorialization segment, when it relates to cemetery products and others, the timing of their price increases is starting generally after the first of the year.

Got it. And I realize we’re in a very fluid environment. But, I have to take a stab at it. Any comments in terms of the degree of magnitude of kind of a modest decline, maybe relative to where current consensus expectations are, Steve, are we in the right ballpark? If you don’t want to go further, I understand.

Yes. We haven’t quantified that, Dan. So, I probably shouldn’t comment beyond that. But, I think that the term Joe used was modest. So, I think that’s a fair assessment.

Yes. It’s difficult to kind of put a full picture up right now because we don’t know. I mean as I said earlier, for example, funeral home products into operate at higher than expected rates at this time. So that might mitigate some of that as well. How long that goes, will be questionable. All those things are still fluid and we just don’t know.

Yes. And the reason for the assessment as modest is we do have growth in our other businesses that are generating margins. We have our cost reduction initiatives that certainly continue to favorably impact the cost line. So, those are the things that are working to mitigate to a meaningful degree, the impact of commodity costs.

Our next question is from the line of Chris McGinnis with Sidoti & Company.

I guess, just maybe starting with the -- is it the Salesforce announcement that you mentioned in your prepared remarks?

Yes.

Can you just talk about a little bit about that dynamic? How long you’ve been working with them, and just what you’re providing there?

So, we provide the same type of calendaring solution that we provided for the industry for a while now with our largest customers and others. We worked with Salesforce, and we’re working with many others at this point in time through RFPs and RFQs for the last 12 to 18 months has been a significant ramp. And I would -- as I said in my comments, there are a lot of marquee nameplates that you would all recognize that we’re not at liberty to talk about at this point in time. But this is not a -- these are not fly-by-night operations. These are the players in the hydrogen fuel cell business and the players in the lithium ion battery segment for the automotive sector right now.

Great. I appreciate that. And then just to touch on some other parts of the business, just with retail in SGK. Can you just talk about maybe where you are versus pre-pandemic levels and just kind of the expectation of how that continues to trend as it seems like the economy stabilized a little bit more?

I think, Chris, a fair way to look at it is our revenues are probably down 30% to 35% from pre-pandemic levels. And this is a people-based business. So, you still have some fixed costs associated that you don’t want your business walking away. I would tell you that our profitability is off more than that. So, we would expect -- and our forecast would say that over the course of the year, gradually, we’ll get to more of a normalized rate. There’s conversations going on. There’s a lot of wait-and-see going on with what happens with both, the ongoing pandemic impact as well as what the new retail environment is. Fact is that retail has been underinvested for the last two-plus years. And we expect that that will be a significant uptick for us when that occurs.

Next question is coming from the line of Liam Burke with B. Riley.

On the Memorialization product front, we saw the deferred sales. Are we still seeing that you’d laid out as the effects of COVID are starting to reverse itself.

There’s no question, Liam, that our order rate backlogs, whatever you want to call it, on our cemetery product side are significantly higher than normal. In one part of the business, we’ve got a year’s worth of orders in-house and having difficulty in both getting product and getting it out the door. So, that tells you that not only are we having deferred Memorialization, we are still trying to catch up with what is at need, so the orders are in place. So, we’re expecting a strong year in that part of our business as we move forward. Secondly, in that segment, there’s been probably some underinvestment in facilities when you talk about mausoleums and other kinds of capital-type investments, we’re expecting to see that to come back. Over the last couple of years, things have been a little slower as you might expect. That will continue to come back as well.

Next question will be coming from the line of Bruce Geller from Geller Ventures.

That was some interesting commentary with respect to now combining energy solutions with the Industrial Technologies division. I applaud your move to do that. And I also congratulate you on the incredible success you’ve had in those businesses. As you alluded to, there’s potentially a lot of value in that division, which may not be properly reflected in Matthews stock price. I’m curious if you continue to feel that way over time and these businesses continue to grow at the kind of rate that they are? Is it feasible to potentially spin that business off in order to properly have that value recognized by the market?

That is clearly -- my intent is to try to focus people’s efforts on the value that is embedded in just this business, but frankly, in all three of those businesses. All three of those businesses from energy to our warehouse business to our product identification business with this new product and the opportunities presented there are significantly undervalued relative to the markets they serve. All of -- all options are on the table as we look forward. Our hope and our expectation is the market will begin to start to realize those values as the numbers start to reflect it. Putting $350 million and $60 million of EBITDA from a place that was almost half of that just a couple of years ago or whatever it may have been, starts to show that. And as they continue to land more accounts and we get more legs on to ourselves, if we’re not seeing the price, we’ll have to do what we have to do to kind of realize that value.

Terrific. My next question relates to earnings per share. You alluded to a modest decline in EBITDA in the current year. However, with debt declining, your interest expense is going down, you’ve also reduced the share count, and it sounds like you may continue to do that. Is it possible that the adjusted earnings per share in the current year may be better than down modestly? Is it possible to see those flat -- see the earnings EPS flat on the year or even up?

I mean, let’s put it this way. I think it’s going to be -- a comparable is going to be easily seen. The issue is going to be taxes and what happens with taxes throughout the year, both in terms of our internal structuring as well as external, what happens at the federal level. So, it’s hard to tell that answer today. But, we’re -- I would expect it to be a…

Yes. Bruce, we’ve had the benefit over the last couple of years, as you’ve probably seen of some really good -- some taxes, some good tax planning and some benefits and credits over the last couple of years, particularly with some international planning. So, those things run their course. So, that’s part of what Joe is referencing in terms of that uncertainty going into next year.

Fair enough. My final question relates to free cash flow generation. It’s been very strong in the past few years, averaging close to $4 a share in free cash flow over the past few years. Is there any reason to believe that that will differ materially in the current year?

No.

Terrific. Thank you very much, gentlemen.

Thank you, Bruce.

Our next question comes from the line of Chris McGinnis with Sidoti & Company.

I guess, just two quick modeling questions, Steve, just around, one, amortization expectation for maybe next year? And then, second, just around with the change in the pension, does that do anything on the income statement or any other impacts throughout the financials? Thanks.

You’re welcome, Chris. Yes, on the intangible amortization, if you’ll recall, a couple of years ago, we accelerated some of the intangible amortization on some of the intangible assets in the SGK Brand Solutions segment. Some of those should actually become fully amortized as we proceed through fiscal 2022. So, I expect that number to decline. And then, your second question, remind me again.

Just on the change in the pension that you mentioned.

Yes. With respect to the pension, there’s a service cost component with respect to the pension that should also be declining as we wind -- as we finally sell these plans.

Great. I was thinking that. Thanks very much. I appreciate it. Good luck in Q3 -- or Q1, sorry.

You’re welcome.

Our next question from the line of David Niewood with Security Fund.

Guys, can you hear me?

Yes, we can, David?

How are you doing? I echo Bruce’s remarks. I think the reporting of the divisions and how you’re structuring is great. I love the extra granularity along the numbers. My sense is that even $100 million, and I understand that it can be -- the timing of shipments can be difficult to predict is still just the tip of the iceberg. And I asked a question like this and hope you can maybe give it some context. If the customers that you’re working with today and that have committed to orders at capacity, i.e., what they’ve ordered in terms of their existing battery plants, were they to reach capacity? Is there a number associated with that that you could say as potential just for existing plants?

Well, I mean, I’m not sure…

…or otherwise?

Well, we’re probably not privy to as much what their plans for the existing plants. But I can give you kind of a market level kind of assessment. Our typical production line for this process generates somewhere between 25 and 50 gigawatts of power. The amount of electrical power necessary to electrify the global fleet is measured in terawatts. So, just do the math, and it’s multiple terawatts. So, I mean, the number of pieces of equipment necessary to electrify the world will be measured a lot bigger than my current revenue today. We don’t expect that we’ll be the only solution in the market. But right now, we are the focus of that effort.

And indulge me one more and I’ll stop there, and also feel free to not answer. Everything that you’re involved with that is new in the battery business, is that related to dry battery electrode, the incremental new sales?

That’s a very good question, because the fact of the matter is, no. There are -- I would tell you those -- we’re playing in both fields, both in the dry cell and in the wet cell. Obviously, our proprietary knowhow on the dry cell is far more cutting edge and far more valuable. But not all players are at that level yet. We expect all of them will be over time. So there’s theoretically, multiple levels of investments that will be needed over the years.

We have reached the end of the question-and-answer session. I’ll now turn the call over to Bill Wilson for closing remarks.

Thank you, Rob. Again, thank you for joining us today, and thank you for your interest in Matthews. For additional information about the Company and our financial results, please visit our website or contact me. Enjoy the rest of your day.

This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.