Greetings. Welcome to the Matthews International Second Quarter Fiscal 2023 Financial Results. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host, Bill Wilson, Senior Director of Corporate Development. You may begin.

Thank you Shimon. Good morning, everyone, and welcome to the Matthews International second quarter fiscal year 2023 earnings conference call. This is Bill Wilson, Senior Director of Corporate Development. With me 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. 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'll be discussing non-GAAP financial metrics and encourage you to read our disclosures and reconciliation tables carefully before 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 Joe.

Thank you, Bill. Good morning. Let me first thank all of employees globally for the contributions to our continuing success last quarter. We are very pleased with our results for the fiscal 2023 second quarter as we continued to see momentum and interest in our energy solutions business, growth in our warehouse automation business and strong results in our Memorialization segment despite a significant decline in COVID related deaths. We are on target to meet our financial guidance for the current year. And we remain focused on continuing to evolve our businesses to meet the opportunities before us. Consolidated sales increased by almost 8% and adjusted EBITDA improved by 6% in the second quarter of fiscal 2023 on a year-over-year basis. Importantly, on a constant currency basis, compared to prior year, our sales increased 10% and our EBITDA increased almost 9% a strong performance in a challenging environment. Looking at our businesses, industrial technologies grew by over 60% year-over year, primarily through higher sales from our energy storage solutions business as well as the acquisitions of Olbrich and R+S automotive. The interest in our energy storage offerings remains strong as we engage with many industry leaders in the battery space, including most of the Asia Pacific based battery manufacturers. As well as OEMs around the world, we stay in position to continue to grow this business. Progress on the over $200 million of energy orders we announced last quarter is on track and going well. We look forward to sharing additional information in detail on new orders over the next few quarters, as several our discussions are approaching the final phase of negotiations. Although Olbrich has yet to be a contributed to our bottom line, the acquisition was a clear message to the EV market, that we now have the…

Thank you, Joe and good morning. I'll begin with slide seven. Consolidated sales for the fiscal 2023 second quarter were $479.6 million, compared to $445 million a year ago, representing an increase of $34.6 million or 7.8%. On a constant currency basis, sales were 10% higher than the same quarter last year. The increase primarily reflected higher sales for the Industrial Technology segment. The Industrial Technology segment reported a sales increase of $47.4 million or 60.6% compared to a year ago, primarily reflecting higher engineering, energy storage solution sales and the impact of the acquisitions of Olbrich GmbH and R+S Automotive GmbH in August of last year. Memorialisation segment sales also increased modestly for the current quarter. Sales for the SGK brand solution segment were lower than a year ago. On a consolidated basis, changes in currency rates had an unfavorable impact of $9.9 million on current quarter sales compared to a year ago. On a GAAP basis, the company's net income was $9.1 million, or $0.29 per share for the current quarter, compared to a loss of $1.9 million or $0.06 per share for the same quarter last year. The second quarter last year included asset writedowns of approximately $10.3 million or $0.33 per share related to the Russia Ukraine war. On a non-GAAP basis, consolidated adjusted EBITDA, which represents net income before interest expense, income taxes, depreciation and amortization and other adjustments for the fiscal 2023 second quarter was $58.4 million, compared to $55.2 million a year ago, representing an increase of $3.2 million or 5.9%. Year-over-year change primarily reflected increases for the Memorialization and industrial technology segments offset partially by lower adjusted EBITDA for the SGK brand solution segment. Changes in currency rates had an unfavorable impact of $1.5 million on current quarter consolidated adjusted EBITDA compared…

[Operator Instructions] Our first question comes from the line of Daniel Moore with CJS Securities. Please proceed with your question.

Thank you. Good morning, Joe, Bill, Steve, thanks for taking the questions.

Morning, Dan.

Start with the industrial piece and specifically energy storage, how much if assuming revenue does approach 500 million? How much of that is represented by energy storage, and maybe just talk about what you're seeing in terms of the pipeline of new opportunities. Beyond that, 200 million of new orders that we took in?

I think I heard two questions there. So I'll try to get it to two. So if we're approaching $200 million or $500 million worth of revenue, the timing of our recognition of revenue is going to be determined at about how much of that is made up of energy. We're expecting that $200 million worth of orders to be recognized about half in this particular fiscal year. And we have other revenues that we're going be recognized. So if we were to achieve half, I would expect it to be about 140 million to 150 million total of energy orders this this year. Now recognize, and Dan that about half includes the impact of the acquisitions of Olbrich and R+S Automotive.

No, no, no, no, no, not really.

Not that they half of the 500.

Oh, half of the 500. Yes. Okay.

Now, I was saying, okay, half of the orders were recognized Dan. So out of the 200 million, about half, if we hit that, if we hit that to 150% of those orders this fiscal year, we should have somewhere around $140 million to $150 million of energy orders for the fiscal year. Timing of that is dependent on revenue recognition, which is not necessarily in our control. In terms of what else is happening. You heard in my commentary, the ramp up of inquiries is significant. We are in final stages of negotiations, or fairly significant orders from several of the OEMs. We've mentioned before, like ACC and Ola. But we are also in more relationship negotiations with a lot of the APAC related battery manufacturers that could result in significant orders, as well. So we're pretty bullish, as we have always been in this innovative technology that we have and where it's going.

Very helpful. And obviously you've discussed this before margins and Olbrich and R+S lower than average. And that's why margins are a little lower this quarter. Just talk about the path to getting kind of overall segment margins back to maybe double digits or and maybe even mid-teens ultimately

We expect for the full year to be in double digits from an EBITDA margin standpoint. We are starting to take actions at the latter part of this fiscal year, this fiscal quarter, the third fiscal quarter, as it relates to Olbrich and R+S. And those actions are both costs as well as pricing actions that should continue to improve that business for the quarters to come. So we're confident that they're going to be a contributor to the organization in their traditional business. But mind you we would probably not be able to do some of the orders that we're talking about today on the energy side without them. So it's it was a good move in our, on our behalf, I believe in where we think this business will go.

Certainly. And then well, we'll stick with industrial just you mentioned warehouse automation. And sounds like you got some incremental progress on the new printhead solution. That's that's one and two, just overall kind of, we're activity in Warehouse Solutions, and they'll jump that. So you fix…

Warehouses is full for the year. So we're not expecting any significant. Now you've been with us for a while Dan, you understand. And when economic crises sometimes it people pause projects, we don't lose those projects, they get pause, we in our guidance, we're not anticipating a pause any of those projects. The order activity is a little bit slower than we would like at this time of the year. But we've watched this business change pretty rapidly when it comes to order intakes. And it's given the size of some of these contracts. It can change very, very rapidly in terms of where we see going in the next year. On the new product development we're calling that out specifically because one of the things that we have done is an external third party validation of our business propositions, that external party validation reconfirms and adds to our confidence, frankly. We are moving our production, we are moving to a new Fab Lab for production purposes. And that is ramping up as we expect as we speak. We expect to be in market in 2024. And the opportunities get bigger every day. So we're pretty confident right now with all three of those businesses in our industrial technologies. We've been building these little businesses into something fairly significant. We think next year could be another stellar year for us. But clearly the balance of this year will should remain strong.

Very helpful. Joe, I'll jump back and do the follow up. Thanks.

Our next question comes from the line of Liam Burke with B. Riley. Please proceed with your question.

Thank you. Good morning, Joe Steve and Bill. Steve, in your prepared comments, you you highlighted lower year-over-year operating cash from operations and specifically talked about higher inventories. Could you give us some color? Is it just timing or what's in that number?

Business driven, Liam. So our operating cash flow in the second quarter was still very good. It was $80.9 million. But it was a little bit lower than last year's number. And that had to do partly with inventory build. And the two areas that I'd point to our energy related businesses, those inventories were higher. And as you would expect, driven by increased, increased revenues, increased demand, increased work. And similarly, our granted inventories on the memorialization side of the business because that business has been growing. And we've seen volume increases there as well. So inventory growth to support growth in those two businesses.

Great. Thanks, Steve. And just sticking with the Granite, it seems like a consistent or the cemetery products seems to be a consistent contributor to revenue growth. Is there something in the business has changed, it used to be rather variable on a quarter-to-quarter? This seems to be a consistent contributor now.

Yes, Liam, we've been calling it out for a while. We've had both market share gains and every one of those businesses as well as strong pricing realization that has allowed us to maintain that. As I said, in my comments, this business has been reset from where we were pre-COVID. Volumes will be back to normal. But the revenues, we anticipate our bottom line to be going forward are materially different than they were before. The steps we're taking to continue to improve it. But if I were to show you images of the automation that we put into businesses, gives us great comments, confidence in our continued ability to generate strong cash flows, improve our margins going forward.

Great, thank you. And real quick on the cemetery highlighted U.S. sales on cremation, excuse me, were higher. How has the margin contribution been there?

I mean, it let's put it this way Liam. On the cremation sales, we sold a little over $125 million of cremation related products and services, and it's growing. I would tell you that the margins over there are consistently in the in the mid-teens and we hope that over time that gets better. We are moving, moving into some new incineration projects and new incineration goals in the UK business that we think will improve our overall margins and our cremation segment as well.

Great. Thanks Steve, thanks Joe.

And our next question comes from the line of Justin Bergner with Gabelli Funds. Please proceed with your question.

Good morning.

Good morning, Justin.

How are you? Joe? How are you, Steve?

We're well, good early morning.

First question relates to the warehouse automation. You mentioned that you're seeing some pausing going on inactivity, but you don't expect that I guess effect the current fiscal year? Can you sort of speak to what that might mean for the first half of the next fiscal year or sort of just looking beyond the next year?

It's difficult to tell. we're not anticipating any impact to the current fiscal year unless there is some significant economic disruption that causes a pause. So right now the orders are in house and our projects are in on time to deliver a strong year. As you might expect, projects of the scale ended up being a bit and one months in advance, we're seeing a slowing probably consistent with what I would say the overall market might be feeling. And I would call it more a cautiousness rather than a pause from the from our customer base, as they try to figure out what's happening with the economic environment we're in. But that changes very, very, very quickly, Justin, some of these projects can be $5 million to $10 million, that you can land relatively quickly that you weren't anticipating necessarily at this time. We still have four or five months before we begin next year, some of the orders we have now will roll in the first quarter at least of next year. So right now, we're not anticipating any major challenges into next year. But we'll keep you up to date over the course of the next quarter or two.

Okay. And secondly, you alluded to some of the new I guess, product and technology initiatives on the warehouse automation side, could you just elaborate a little bit further, in terms of the additional areas you're looking to get into.

So one of the projects that we're working on that I think has some significant opportunities, is a management of what's called AGVs, autonomous guided vehicles. Autonomous guided vehicles are basically robotic moving carts, that will move around a warehouse autonomously and allow the movement of product without the conveyors. And the magic in this whole system is managing multiple page EVs in a warehouse that could be upwards of a million and a half square feet. So we're developing that technology, we've got a test model going out here, hopefully in the next six months or so with a large U.S. customer that I'm not at liberty to speak about. Obviously, if that is successful, we'll be rolling it out over the years to come. The commentary about that is more around, we're not static. And each one of these three businesses we call industrial technology, and for that matter, in all of our businesses, we continue to evolve them. And I think that part of it is lost on a lot of the market. The opportunities that are presented to us, Justin are the things that will allow us to continue to grow these businesses and meet market demands and be innovators in that space.

Got it. And then in terms of the printhead, innovation, any sort of thoughts on timing there?

Yes, we are. In fact, I'm off. We're off to a European fabrication lab here in the coming month or two. Our expectation is we're going to start the production levels of that it takes as you might expect, this is not an overnight production, we have a product we are we have found a partner for the development of that product. And for the production of that product, excuse me, and I will tell you, it is a 24 event.

Okay, and then lastly, I believe you mentioned the relative cash outflows to settle your pension this year. And last could you repeat those I just didn't write…

Sure. So this year we settled our supplemental plans in the first quarter 24 million. Last year, we settled in the first quarter our U.S. pension plan. And that was a little over 35 million.

Right. Thank you so much.

You're welcome Justin. Thank you.

And we have reached the end of our question-and-answer session. I'll now turn the call back over to Bill Wilson for closing remarks.

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

And this concludes today's conference and you may disconnect your line at this time. Thank you for your participation.