Greetings and welcome to today's conference titled Matthews International Corporation First Quarter Fiscal 2021 Financial Results Conference Call. At this time, all participants are in a listen-only mode. As a reminder, this conference is being recorded. I would now like to turn this conference over to your host, Mr. Bill Wilson, Senior Director of Corporate Development. Please go ahead, sir.

Good morning. Thank you, Laura. Good morning, everyone. Welcome to the Matthews International First Quarter Fiscal Year 2021 Financial Results 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.

Thank you, Bill, and good morning. Please start with slide four. As provided in our earnings release yesterday, the company reported consolidated sales of $386.7 million and a net loss on a GAAP basis of $1.8 million or $0.06 per share for the quarter ended December 31, 2020 compared to sales of $364.9 million and a GAAP net loss of $10.5 million or $0.34 per share for the same quarter last year. The main financial highlights for the fiscal 2021 first quarter were as follows: first, the company's consolidated sales increased by $21.8 million compared to the same quarter last year, representing growth of 5.9%. Second, consolidated adjusted EBITDA for the quarter ended December 31, 2020 was $54.8 million compared to $40.2 million last year, representing a year-over-year increase of 36%. Third, adjusted earnings per share for the fiscal 2021 first quarter was $0.68 per share compared with $0.47 for the fiscal 2020 first quarter, representing 45% growth. Fourth, the company, again, reported strong operating cash flow as we continue to emphasize cash generation in this challenging environment. For the fiscal 2021 first quarter, the company generated cash flow from operations of $35.3 million compared to $5.4 million for the same quarter a year ago. Lastly, during the recent quarter, the company again reduced its outstanding debt and leverage ratio. Although our fiscal first quarter tends to be our slowest quarter seasonally, our cash flow this year allowed us to further reduce outstanding debt by almost $10 million compared to the first quarter a year ago, where our outstanding debt increased by $26 million. As a result, our leverage ratio fell to 3.6 at December 31, 2020 compared to 3.9 at September 30, 2020. With respect to COVID-19, all segments continued to experience some level of varying commercial impacts from COVID-19 during the first quarter. These impacts remain difficult to project. And as the pandemic has continued into calendar 2021, we expect ongoing impact in our fiscal 2021 year.

Thank you, Steve. Good morning. As you might expect, we are very pleased with our results and we are off to a strong start to what we hope will be a good year. As expected, our Memorialization business delivered very strong results, driven by exceptional performance from our Funeral Home Products business, while the balance of the businesses remained steady despite the challenging environment. Overall, the company's total consolidated revenues were higher than prior year by about $22 million while adjusted EBITDA was up almost $15 million, a 66% incremental margin reflecting the operating leverage in our business, the excellent operating performance in our Funeral Home Products business and the ongoing cost reduction programs that we've previously discussed. While we are grateful for the hard work of our Funeral Home Products team, just about every business reported higher operating margins when compared to prior year.

Our first question comes from the line of Daniel Moore with CJS Securities. You may proceed with your question.

Joe, Steve, good morning. Thanks for taking question.

Good morning, Dan.

Good morning, Dan.

I'll start with a quick clarification. I think I heard you right, Joe. It sounds like in terms of expectations for the remainder of the year, we should sort of be thinking about the back -- the last three quarters EBITDA being relatively flat with the last three quarters EBITDA of fiscal '20. Is that the right way to think about it?

In total, yes. I mean the quarters might switch in terms of value, but we expect our total EBITDA to be consistent for the next three quarters.

Understood. Okay. That's helpful. And then in terms of Memorialization, what are your expectations for Funeral Home Products volumes for the current quarter relative to what we experienced in the December quarter?

So I mean, I don't have to tell you, I mean, there's plenty of literature out there and a lot of people reporting on it. Our month of January is probably our highest in the entire pandemic period. The question will depend on how quickly that declines. There is an expected decline. I would tell you that today we will have similar results, if not better, in our Funeral Home Products for the quarter.

Helpful. And as it relates to the pent-up demand on the memorial side, are you seeing orders now, but placement later? Or do you expect both orders and revenue to pick up as restrictions ease? Just trying to understand the visibility there.

Sure. Our orders are relatively flat. I mean, modestly up, which is not seeing -- we're not seeing those orders. What we are hearing, anecdotally, however, is we have situations across the country. We have one -- I'll give you just one location, which is sitting on 1,100 deceased to be buried, waiting to be marked and waiting to be buried and waiting to go forward. So our expectation, those will be marked at some point in time. So although we don't have the orders yet, we know they're out there.

Got it. And switching gears, maybe for one. Warehouse automation, nice to see, it continues to pick up and it sounds like it's accelerating. Any way to quantify the level of orders? I think you said they doubled. Do you have sort of a backlog figure? Just trying to understand the type of growth we should think about over the next 12 to 14 months -- or 12 to 24 months?

Generally, we're not giving our actual levels. Our reference to double really relates to where we were last year. We were expecting a good year last year in our forecast for that business. We're sitting on twice the level of orders that we had at that -- this same time last year, and we're entering a period where we generally build further backlog. So it's significant for us. I mean, it's -- I'm not going to tell you we're going to knock the socks off the ball because of it, but it is further evidence that whenever we get through this pandemic, we'll come back with the same stronger business that we had before.

Okay. And any visibility or it's just too early to know when you'd be able to sort of get back into the facilities?

No. I mean, look, I'll give you a perfect example. We have a rather significant project in Canada. How do I get into Canada? I can't even cross the border. So it's really in somebody else's control.

Understood. Okay. I'll jump back into queue if any follow-ups. Thank you.

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

Joe, you mentioned good sales -- solid sales in cremation systems, two new orders on incinerators. What does the cremation systems backlog look like when considering you've turned some of that into sales? Is it continuing to grow?

Yes, we still have -- from a pure cremation equipment standpoint, we're still looking at 14 months' worth of backlog. So I mean, it's -- look, we are the largest and the number one provider globally. And that, right now, has served us well. We're -- we continue to deliver, but we continue to add. So I think this pandemic -- all of that has done is emphasize the importance of making sure the equipment that our clients have on-site is functional, is up-to-date and those who don't have it continue to invest.

Okay. And you touched on the new product introduction, but what about the core identification business underneath the Industrial segment? How had, had that do? Or how is it doing?

Modestly better, but I mean it was not significant. It was relatively flat. But I mean, it shows the same consistency we've seen in a lot of our other businesses. It is flat. Our order rates are a bit challenged, but they're coming up as we speak. The big question is going to be consumption. And we sell -- we track our ink sales and ink backlogs as indicative of economic robustness, they're relatively flat. They're not seeing big time increases anywhere we look at them. But we expect that business to do well as well as we finish out the year.

Okay. And lastly, again, on warehouse management. Have you lost any orders based on the fact that you cannot get access to facilities or all those customers that have placed orders just waiting for better conditions for you to install the systems?

To put it in perspective, we lost one $10 million order early in the pandemic period. And that was solely because of their financial situation and their ability to do the work. It was a large retailer that you all would be aware of. We've replaced that and obviously, a lot more in that process, more indicative of how our business has grown during the pandemic to. We've lost $10 million order, replaced that and still more than doubled, is pretty good.

Okay. Thank you, Joe.

Our next question comes from the line of David Niewood with Phoenix Insurance. You may proceed with your question.

Again, another sequentially impressive quarter. Again, I'm going to focus on the area that excites me the most, which is the lithium-ion battery and particularly the dry electrode. Two questions as it relates to that. Can you talk at all in terms of progress in that product being in terms of throughput or further advancement of the product, number one? And number two, given the increasing size and increasing appetite, are there plans at any point to break that out as a separate business line? And I'm going to third in -- but I'm wary. I saw a recent video of someone sell production facility. And I'm wondering if you recognize any of the equipment in that. I'll stop here.

Thank you, David. Well, I will go one by one. With regard to production, as you might expect, we continue to work down the path of increasing our capacity to produce lithium sheet as quickly as possible for the clients that we're serving. Demand continues to grow. We're making progress. We feel comfortable that we can achieve our targets. That will be demonstrated over the course of the year. We're not going to speak about how much that is, how fast that is. But suffice it to say that if you wonder why we're in this business -- well, how we got into this business, lithium is expected to be printed -- to be produced just like printed paper as fast as you can. So that's our speed targets. We'll continue to work towards that. And once we get there, the whole cost of the lithium-ion battery will come down as well as capacity in the space. Remind me, again, what the second question was?

If you plan on breaking this out as a separate line item?

So I mean, the reality is, this is part of our SAUERESSIG Group in Germany. It is integrated today into the group. We are working diligently to find a way to kind of separate out. We do share some competencies and some equipment within the business over there. We'll probably consider some form of a rate breakout once we see some significance to the order rate, which we expect to see. I would expect it maybe to be in a year or two as we kind of see this come into something. So it's hard to tell at this point in time. Suffice it to say, we'll start to call out more as we have in terms of numerics as time goes on. And the last one -- and last one, I can't recognize that video because it doesn't have our name on it.

Fantastic. And the last one…

And last one, I can't recognize that video because it doesn't have our name on it.

Okay. I appreciate you taking the question. Thank you very much.

Not a problem.

Our next question comes from the line of Scott Blumenthal with Emerald Advisors. You may proceed with your question.

Great quarter. Joe, can you talk about the mix in Memorialization? It looks like you may be over-earning a bit in casket and obviously, under earning in memorialization with some strength in cremation there. In normal times, I guess, casket is x and the rest of the segment is y, can you give us an idea as to how that might be skewed a little bit differently now? And what you expect with regard to margins when it goes back to normal?

So the simple -- you can do the math in a lot of different ways. I mean -- but the fact of the matter is we're currently operating at somewhere around $350,000 COVID-related death. You can do that math right off a number of different targets over the course of time. If you're expecting $2.5 million, $2.6 million deaths annually, you're going to see 12% to 13% increases in Memorialization products as a whole. We're seeing better than that in our casket business and far less than that in our Cemetery Products business. So the expectation is that we're going to pick up as the casketed business begins to moderate -- as for society's sake, we hope it does, we still think it's a fairly significant backlog of Memorialization products. I remind you all that we are the largest provider by long shot of bronze products and a leading provider, if not number one, of stone products in the United States. So that should bode well for when -- although, albeit not as quick as -- when you talk about a casket, you're talking about delivery within 12 to 24 hours, a marker can be longer. But we just don't know how quick it's going to be but it's there.

And that's usually -- or is expected to be a six to nine month period between the burial and when things can get marked?

Well, I mean, when it can get marked can be very, very quickly, but we've not been in this kind of an environment before of this significance, so it's hard for us to predict. I think our ferrous statement is we're going to get those marked or those markers in near-term period, is it six, nine, 12, 24 months, I can't tell you that. We'll see.

Sure. Sure. But I guess guidance kind of implies that we're going to be in a similar environment, at least until the end of your fiscal year being...

No. Our actual -- our guidance actually is anticipating a slowdown in our casketed -- that is material from where we are right now. But we have a number of things that I've called out on the call today from our warehouse automation business to our energy storage business to some new account wins on SGK to backlog in our cemetery products, which gives us comfort on the balance of the year, no matter what happens in our Funeral Home Products business. It would have to materially fall off to zero all practical purposes.

Okay, super. That's really helpful. And the -- I'm a little bit surprised that the surfaces business isn't a bit stronger since housing has been very, very strong. I know that some of the surfaces that you guys work on, the flooring, etcetera, that tends to be kind of the last thing installed in a home. Do you expect -- or do you have any visibility into those types of things?

Sure. Yes, the reality is that when we talk about what we call decorative, which is the portion of services that does things like wallpaper and flooring and other things, those are global trade show directed businesses. In other words, you present your solution at the trade shows, you make contacts, you follow-up and you go forward. The decline in trade shows has materially impacted our, what I would call, our stronger expected sales in that business. We are continuing -- it's not as if that portion of the business has gone to zero. It continues to be there, just not as strong as we would like. The other portions of the business continue to be strong. When we talk about non-wovens, for example, the masks and the gowns and things that are related to that, that continues to be strong. We have good backlog in that part of it. It's just not -- the surfaces portion as a whole is still soft but not -- pockets within are still strong and otherwise.

Yes. And Scott, the -- one of the bigger challenges that we continue to face in that portion of the business is really on the packaging side. The cylinders that we do the packaging for, the tobacco market continued to be challenged during the quarter.

Okay. All right, Steve. That's really helpful. And can I squeeze one more in here?

Please do.

Okay. Steve, maybe can you give us some -- as to what you're thinking about CapEx for this year. I know that Joe mentioned, we're going to be investing in the calendar in the lithium business. Any other pressing needs at this point?

Scott, I would say, overall, I think we entered the year with a rough estimate of $40 million. I'd say even considering some of what Joe mentioned, I still think that's a fair estimate for the year. We continue -- we just continue to emphasize cash management. But you've seen the results on our operating cash flow. You've seen the results on our leverage ratio. As the year progresses, that might change. But right now, I would say that's still a reasonable target for modeling.

Yes. I would tell you, Scott, what the most telling part of that conversation when you're trying to get the cash flows. We have a clear focus on our three times debt coverage ratio. It is something we're going to approach maybe by the end of the year, maybe into the first quarter of the year after. And that will tell you what we think our cash flow is going to look like.

Okay, terrific. Great job. Thank you.

Thank you, Scott.

Ladies and gentlemen, we have reached the end of today's question-and-answer session. I would like to turn this call back over to Mr. Bill Wilson for closing remarks.

Thank you, Laura. And thank you, everyone, 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. Thank you and have a good day.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation, and enjoy the rest of your day.