Greetings. Welcome to Matthews International's Fourth Quarter and Year-End Fiscal 2023 Financial Results Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to Steven Nicola, CFO. Thank you. You may begin.

Thank you, Sherry. Good morning. I'm Steve Nicola, Chief Financial Officer of Matthews. And with me on the call this morning is Joe Bartolacci, our company's President and CEO. For your reference in today's call, our earnings release has been posted to the Investors section of our website, www.matw.com, along with the presentation. Before we start, please note that 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. Now I will turn the call over to Joe.

Okay. Thank you, Steve. Good morning. Again, this quarter, we are very pleased with our results as the company has reported higher consolidated sales, while all of our business segments reported higher adjusted EBITDA. Our Industrial Technologies business again reported solid revenue growth in the fourth quarter, driven by the strong and ongoing interest in our Energy Solutions business. This growth enabled the segment to exceed the $500 million revenue target we set for the year. Industrial Technologies revenue for the full year increased by over 50% in fiscal '23 from last year's sales of $335 million. Our Memorialization business also performed well for the full year with stable revenues despite a continued decline in debt. Our sharp focus on improving productivity in the business, coupled with improved price realization led to an 8% increase in adjusted EBITDA for the full year. At SGK, as expected, cost reduction actions resulted in higher adjusted EBITDA for the quarter and improved margins despite market conditions in Europe that still continue to be challenging. Based on the strength of our operating results, we exceeded our target, reduced our net leverage ratio and also lowered our total debt outstanding as of year-end. We expect further debt reduction in the coming year as we convert our increased working capital results from our growing Industrial Technologies segment to cash. Consolidated sales for the company increased by 6.7% and adjusted EBITDA by 7% in fiscal 2023. Impressive results despite the sense of uncertainty hovering around the global markets fueled by geopolitical events and the interest rate concerns. We are poised to drive continued growth in sales and adjusted EBITDA from fiscal 2024, buoyed by the long-term opportunities being created by several of our businesses with special mention to our Industrial Technologies segment. On a constant currency basis…

Thank you, Joe. I'll begin with Slide 7. Consolidated sales for the fiscal 2023 fourth quarter were $480 million compared to $457 million a year ago, representing an increase of $23 million or 5%. The increase primarily reflected higher sales for the Industrial Technologies segment. The Industrial Technologies segment reported a sales increase of $36 million or 34% compared to a year ago, primarily reflecting higher engineering energy storage sales and the impact of the acquisitions of OLBRICH GMBH and R+S Automotive GMBH in August last year. Memorialization segment sales were $204.9 million for the current quarter, which was relatively consistent compared with $206.3 million a year ago. And sales for the SGK Brand Solutions segment were $11.5 million lower than a year ago. On a consolidated basis, changes in currency rates had a favorable impact of $5 million on current quarter sales compared to a year ago. On a GAAP basis, the company's net income was $17.7 million or $0.56 per share for the current quarter compared to a loss of $81 million or $2.63 per share for the same quarter last year. The prior year loss on a GAAP basis reflected a goodwill impairment charge related to the SGK Brand Solutions segment. 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 fourth quarter was $61.9 million, compared to $55.9 million a year ago, representing an increase of $6 million or 10.7%. The increase reflected higher adjusted EBITDA for all 3 of the company's reporting segments. Changes in currency rates had a favorable impact of approximately $422,000 on current quarter consolidated adjusted EBITDA compared to a year ago. Adjusted earnings per share for the current quarter was $0.96 compared to $0.82 for…

[Operator Instructions] Our first question is from Daniel Moore with CJS Securities.

I will start with energy storage. Obviously, the big influx of orders last fiscal Q1 and appreciate the color, Joe. Just talk about the pipeline, what it looks like, and what your expectations for order intake would look like over the next maybe 4 quarters? I know that getting the exact timing is difficult, but what are you hearing from both your bigger customers and newer opportunity?

So our largest customer has pushed up, and that's more issues as it relates to them than as it relates to us. You can see by the working capital build that we have on our balance sheet. It's more the question of timing of delivery and hitting the milestones that will allow us to reduce that while there being ready for the equipment is the critical issue. They obviously -- we are aware of other projects that they are working on. I know they are substantially behind in those developments. But they -- we expect to hear something over the course of this year. Others, however, are moving forward. As I've said before, where we stand today with respect to our largest customers, our other customers are probably 2 to 3 years behind. So what we will expect to see this year are the first orders for production equipment and I would say we have at least 2, maybe 3 significant customers that will be -- we're in the midst of working on, what we call, specifications for those production pieces of equipment. But they will not be multi-hundred million dollar orders at this time. They will lead to multi-hundred million dollar orders over time. But today, the types of orders we're talking about are more in the line of $25 million to $50 million. And we will announce those as they go forward. We are also working on some very interesting things with some U.S. manufacturers on joint developments in the United States. So we'll see -- we'll have some announcements, I'm sure, over the coming months. But at this point in time, timing of that is our biggest issue.

Really helpful, Joe. I'm bouncing around a little bit here, but in Memorialization, you had the initial bump in casket sales from the pandemic, followed by delayed bump in memorials. Have we now essentially fully pass those more difficult comps? And what should sort of the organic rate look like in your mind over the next 3 to 5 years?

Yes, I would tell you that when it comes to Memorialization, the team has done an exceptional job and, what I would call, casketed deaths or the death rates are down materially from the peaks. Still had a few of those kind of off-normal kind of months throughout that period. But I would tell you, we're substantially back. As I look forward, I think the key to this story as it relates to Memorialization is we've picked up some share, we've picked up some pricing, and we've improved our productivity. And the last part of this, we've made several smaller acquisitions that have become extremely accretive to that overall business, and we have some strategies that we're looking at, which we hope will continue to build on that. So I -- again, I don't think this is a business that's going to grow double-digit top line or double-digit bottom line into the future, but we expect it to be a modest grower going into the future over the next 5 years.

Helpful. One more, and I'll jump back around cash flow and capital allocation. Maybe Steve, what are we looking at for CapEx for next year? If I missed it, forgive me. How much do you think we can pull out of working capital? And Joe, I heard acquisitions a couple of times, just talk about the -- your priorities delevering versus maybe some of that M&A, and what kind of size we might be looking at?

Yes. So Dan, I'll start with the first part of your question. So with CapEx, I think this year, we landed just a little bit over $50 million for the year. I do expect that to be a little bit higher next year. So just with some of the investments that we're making in our Industrial Technology segment, I expect that to be higher. And then with respect to working capital, although I think you heard Joe referenced a strong cash flow -- that we're expecting a strong cash flow year next year. And I do think an important piece of that is going to come from working capital reduction we had to build this year that we just talked about. I expect that to be realized to some degree in fiscal 2024, but again, the caution there is timing on that, Dan, just simply because of the project nature of the business.

Yes, Dan, and I'll take the second half of your question. As it relates to acquisitions, you're right, I have been very consistent with couple of comments with respect to acquisitions. Let me put it by segment, that's a better way to do it. We expect to do a few things in our -- on our Memorialization business, but those are relatively small with big impacts potential to the bottom line. That's leveraging our -- what we're doing really is leveraging our platform, salesman across the United States, distribution centers across the United States, and we're in the cemeteries and funeral homes and literally every part of the country. So we'll continue to expand that, but those are relatively small. What I think is what is important to hear in his commentary is that we're now focused on growing our Industrial Technologies segment as a whole. There are a couple of pieces of that puzzle that we have been working on. I'm not prepared today to kind of speak to them, but they're not insignificant acquisitions. One of the keys to the fact that we know based on what the working capital build and what we expect to collect this year, we're going to have a pretty significant difference in working capital over the course of the year. Timing of that really is not so much in our control because they've got to be willing to accept delivery. Just for purposes of those on the phone, revenue recognition is not necessarily the same as the timing of collections and billings. Revenue recognition is done as work is performed versus billings and collections are based on the milestones in the contracts that are usually set around delivery timetables. So we know that's coming, and we expect that to be a fairly significant contributor to the overall. We will pay down debt as well as do some acquisitions in the process. So we're pretty -- we're working on some things. Hopefully, some of them come to fruition. Not prepared to talk about what they are.

Our next question is from Liam Burke with B. Riley Securities.

Joe, on Industrial Technologies, specifically energy, you talked about $190 million in backlog, that's for energy...

No, hold on, Liam. Just to be clear, that $190 million increase over prior year between OLBRICH and energy, of which $80 million of that was energy.

Okay. What is the cadence on shorter cycle orders? Are you having a lot of activity on research level types of systems?

We're receiving orders every day. I mean, some smaller, some larger, but not to this materiality that we would call them out. But as evidenced by the fact that our overall backlog between OLBRICH and energy, which is blended because of how they're managed, is about over $330 million today. We're getting orders all the time. So it's just we called out the magnitude of the $200 million order in early calendar '23 because of its magnitude, but we continue to receive orders as we speak.

Great. And on the Memorialization, you have the readjustment of mortality rates. How did cremation do during the quarter?

Our business or cremation rates?

No, the business.

The business did fine. We had some early challenges that we set over in the U.K., principally on some of these incineration works. But we are in the midst of landing 1 to 2 more decent sized incineration project here in the U.K., which should be -- add nicely to the performance for the overall group starting here, I would say, second half of our fiscal '24.

Our next question is from Justin Bergner with Gabelli Funds.

I guess, could you talk a bit about Warehouse Automation, how that performed in the fourth quarter, and how you see that performing over the course of fiscal year 2024?

So Warehouse Automation in the fourth quarter had a decent quarter. I would not say it was a strong quarter, but what was very positive for us in the fourth quarter was the mix of, what I would call, mix of revenue that was reported. The fourth quarter contained a lot of pure software. And as you know, software has better margins in some of the hardware that we sell associated with that. So I would say, it finished up the quarter and the year well. We -- as we said throughout the last 3 to 6 months, we've seen a slowing, and it's not just us, it's also others. We will know more about where that business will finish off the year probably after the holidays. What we're seeing is a lot of customers taking a wait and see how Christmas goes attitude. So we have quoting and we have other things of that activity going on. But finalization of orders are going to be -- are cautious right now, and I think that's economically sensitive today.

Okay. That's helpful. Switching to the M&A -- with respect to M&A, I didn't catch how you saw the size of potential acquisitions on the Industrial Technology side. And what would you say distinguishes between nice to have and need to have assets given healthy leverage -- financial leverage ratio at the company and the high interest rate environment we're in?

So I'll give you some examples of what we're looking at and how we're looking at it. We know that our software business is the linchpin to the automated warehouse. And there's a lot of activity in the marketplace today to be able to expand that portfolio. One of the things we're looking at for example is system integrators that allow us to integrate directly into the WMS or the ERP systems. These are businesses that allow us more access to markets that we're currently not performing, so bringing us along. Secondly, as a practical matter, Justin, everything is nice to have. I mean, we have a complete portfolio. But we would love to have more presence in Europe, frankly. And there are some small opportunities over there that allow us to expand what we do in the warehouse side in Europe. When it comes to energy, I would say, there's nothing that's necessarily and must have. There's a lot of nice to have, but they are extremely complementary as we move forward. So we will be very, very sensitive to our leverage ratio, but given the kind of cash flow that we expect over the course of the year, we should be able to do both.

Our next question is a follow-up from Daniel Moore with CJS Securities.

Yes. I just wanted to drill down a little bit more. Joe, you mentioned the printhead solution, maybe more today than over the last few quarters. So what's changed? Remind us where we are? Is it still beta customers pulling, you're seeing more demand customers pulling, or is it your capabilities? What's getting you more excited right now?

The most exciting part of that is we continue to refine the -- both the economic model and customer desires through discussions. When we opened the [indiscernible] through our customers and let them see what's coming. Their excitement is what's driving our enthusiasm. Where we stand from a timing standpoint, it's right on where we've kind of said the end of this fiscal year -- end of the calendar year, early next year, months are not things that we can control completely, but we're extremely bullish on this. Second, Dan, we've hired a few folks, we've spoken to few folks about, what we call, alternative uses. And we think we have something that is unique. And I mean, when I say alternative uses, I'm not suggesting that we're going to go off into other areas that have nothing to do with what we do. We've got enough different kinds of businesses in our portfolio today, but we clearly can license or produce and sell the chip to alternative uses and give us a great opportunity long term to monetize what we think is a very, very unique solution.

Okay. And last, again, when you talk about M&A on the software side, are these kind of $20 million to $50 million deals, or could it be something more like up into the $100 million because those obviously, can be very powerful, but also tend to be dilutive relative to your current margin structure?

Yes. I mean, from a margin standpoint, it been pushing up into the $100 million, Dan, because they're bringing pretty good margins. So I wouldn't be as much concerned about the margins. We are sensitive to our debt ratio. So our ability to do the size will be dependent on where our cash flows are coming in. We are focused on getting ourselves to under 3, and we will continue to be focused. There's a few things out there that we are aware of and we'll make the right call at the same time. There are a couple of them in the 20s or a couple of them pushing 70, 80. What they will do though is -- our focus is in trying to make our Industrial Technologies segment a more significant part of our overall portfolio.

There are no more questions at this time. I would like to turn the conference back over for closing comments.

All right. Thank you, Sherry, and thank you all for joining us today and your interest in Matthews. Just a reminder for additional information about the company and our financial results, you can feel free to contact me or visit our website. Enjoy the rest of your day.

Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.