Greetings, and welcome to the Matthews International Corporation Second Quarter Fiscal 2021 Earnings Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Bill Wilson. Thank you, Bill. You may begin.

Thank you, Paul. Good morning, everyone, and welcome to the Matthews International Second Quarter Fiscal Year 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.

Thank you, Bill. Good morning. Please turn to Slide 4. As provided in our earnings release yesterday, the company reported consolidated sales of $417.2 million and net income on a GAAP basis of $5 million, or $0.16 per share for the quarter ended March 31, 2021 compared to sales of $374.8 million and a GAAP net loss of $86.4 million, or $2.77 per share for the same quarter last year. On a year-to-date basis, the company reported consolidated sales of $803.8 million and net income on a GAAP basis of $3.2 million, or $0.10 per share as of March 31, 2021 compared to sales of $739.7 million and a GAAP net loss of $96.8 million, or $3.11 per share last year. Key financial highlights for the fiscal 2021 second quarter included, first, the company's consolidated sales of $417.2 million, a new quarterly record for the company, represented an increase of $42.4 million, or 11.3% compared to the same quarter last year. Second, consolidated adjusted EBITDA for the quarter ended March 31, 2021, was $60.9 million compared to $49.4 million last year, representing a year-over-year increase of 23%. Third, adjusted earnings per share for the fiscal 2021 second quarter was $0.89 per share compared with $0.63 for the fiscal 2020 second quarter, representing 41% growth. Fourth, the company again reported strong operating cash flow as we continued to emphasize cash generation in this challenging environment. As a result, for the 6 months ended March 31, 2021, the company generated cash flow from operations of $92.2 million compared to $66 million last year. Lastly, during the recent quarter, the company again reduced its outstanding debt and leverage ratio. During the current quarter, the company lowered its outstanding debt by $42.1 million. On a net of cash basis, our net debt declined $48 million. As a result, our net leverage ratio declined to 3.2 at March 31, 2021 compared to 3.9 at September 30, 2020 and 4.3 a year ago. Since March 31, 2020, the company has reduced its outstanding debt by $183.3 million.

Thank you, Steve. Good morning. Again, this quarter, we are very pleased with our results. Consistent with prior quarters, our memorialization segment delivered very strong results, driven by exceptional performance from our Funeral Home Products business and our Environmental Solutions business, while the balance of the businesses continued to deliver steady results.

Our first question comes from Daniel Moore with CJS Securities.

Start with warehouse automation. When do you expect to be able to get back into your customers' facilities? Just curious if we should see any meaningful revenue ahead of this year's holiday peak shipping season, or is that benefit likely to get pushed out to calendar '22?

I think it's a combination of both. We're expecting strong results compared to last year, but we don't expect to get every last dollar out during the next 6 months. The fact of the matter is places like Canada haven't opened up their borders. We have some foreign installations that we'd like to get to, as well, that we're not able to get to yet. Frankly, there's going to be a capacity issue for us trying to get the quantity of orders, and they're significant for us, out during this fiscal year. But that bodes well, Dan. I mean, it goes into our forecasting. It helps us understand what we expect to deliver for the next several months, and should build well into 2022 as we go forward.

And then, I was going to ask, and you commented on it already, but the pickup in higher-margin product ID sales, we're hearing a fair bit of increased optimism in the general industrial front. So maybe if you can just provide any additional color there?

Sure. We saw a pretty good intake of , the largest consumable part of our product identification business, which bodes well and is reflective of what's going on in the economy. That is very, very helpful to our bottom line, but is indicative of the general economy that we see. PID, the product identification product, the actual printers and solutions that we sell, are also ramping up, not at the same rate that we are seeing, . As you might expect, you're seeing consumables get ramped up first, and then people begin to add additional product and release capital expenditures. That's more of a capital expenditure. We expect that also to be contributory to a better year for them during the balance of this year and beyond.

And then, energy storage obviously seeing momentum building. Can you just maybe update us on how the market's evolving and remind us who you're competing with in that arena?

So the market is evolving very, very, very rapidly. Our position in the market is somewhat unique today. I mean, we don't expect to remain the only unique solution that's out there. But I would tell you that we have years of head start in a lot of these opportunities that we're dealing with. The process really begins with an NDA, and you go from an NDA to what we would call a lab machine. A lab machine is a testing machine through which our potential customers and clients evaluate their mix of formulation for lithium to determine whether or not they've got a viable solution. We have sold quite a few lab machines, and we've signed quite a few NDAs on top of our ongoing revenue that was being produced for what we call production machines. So we're pretty confident that we're going to start to see some significant change for us, going forward. And our position will only get better, I think.

Last one for me, memorialization. Just can you talk about your expectations for funeral home products volumes for the quarter relative to what you experienced in March? Just kind of want to make sure we are sizing it correctly.

Yes. That is probably the biggest unknown. I mean, as you know, Dan, we have a lot of forecasting ability when it comes to large contracts in PID or warehouse or energy or SGK. We've got some visibility. But when it comes to caskets, it's almost a 2-day backlog. So it's not like you have a lot of visibility. Our predictions are significant reductions, but those reductions are back to a more normal rate at this point in time that we've seen historically. We don't expect a precipitous fall-off. But that's best right now, I guess. We don't know for sure. Our guidance, looking forward, anticipates a decline. And when I said $220 million is what we expect, at least, as you can tell from our trailing 12 months, we're anticipating a decline from that. It could be less, it could be more, but we have enough orders elsewhere to hopefully make up a lot of that shortfall. Dan, one last thing for you. We're also seeing, as heard in my commentary, we did not see much of the increase from the death rates that occurred over the last 12 months in cemetery products throughout the pandemic. We are seeing that increase right now.

Our next question comes from Liam Burke with B. Riley.

Joe, I mean, it's pretty clear that your casket sales will start normalizing sometime this year. Could you give us a sense as to the margin trade-off with, call it, deferred marker or memorialization product sales and the pickup in cremation?

Well, let me make sure I understand. You're asking me what is the margin differential between the incremental memorialization sales derived from the pandemic? Is that the question?

No. What I was suggesting is you've generated very nice EBITDA margins in the second quarter. That's driven by higher volumes of caskets. Now, as those casket sales begin to normalize, we're seeing a pickup in deferred cemetery product sales, and you're starting to build revenue on the cremation systems side. So, I mean, just generally, the margin trade-off as that product mix shifts?

Yes. The interesting thing, Liam, is that, when we take a look at the 2 businesses, with our heavy fixed cost businesses; so on the funeral home side of the business, we had nice margins on the incremental values that we're running through the P&L because of that fixed cost structure. We have the same dynamics that occur in our cemetery products business. More so on bronze than we will on stone; but, at the end of the day, even stone and cremation equipment with higher volumes are going to see much better margins. I'm not going to suggest to you that our margin dollars are going to be the same because, generally, a casket's going to sell for a higher price than a cemetery marker will, but margin percentages should be fairly similar. Commodities are going to hit us, going forward, though. I mean, just so you're aware, Liam, we are, as you might expect, seeing commodities coming through everybody's talking about. So we're no different than anybody else.

And if I look at the deferred cemetery product sales, are you still looking at as much as a 2-year backlog there? Or you're reporting good sales numbers recently. Is that timeframe coming in less than the 2 years that you originally talked about?

So we have an estimate that our total revenue that has been deferred, or the incremental revenue associated with it, could be better than $40 million worth of cemetery-related products. We're seeing some of that starting to ramp up now. Generally, this is a pretty good quarter for us in that business because of Memorial Day, but summers, in general, are a better period of times because markers get set. I would hope a large part of that, but not all of it will get set before the winter sets in, but I can tell you that it's all going to be there. I would expect, within 2 years, most, if not all, will be reflected in our P&L.

And just one more on SGK. You said that the CPG, or the consumer packaging business, is stable. You're adding accounts. Could you give us a sense of, A, if you're expecting growth out of that business now looking into the second half of the year? And do you expect any contribution from private brands?

So that's a 2-part question. The first part of that, on the CPG side, what we're seeing out of CPGs today is let's wait and see what happens to retail to understand what they have to do. They've gone through a fair amount of innovation during the pandemic. I mean, as you look across the shelves, sanitation products and COVID-related protection and things of that nature has generated a lot of revenue for us around the world. As they roll out to what they hope to see is a different retail environment, we expect CPGs to also pick up, as well. But really, where we have seen the downtrodden part of our business is retail. And when I say retail, I'm talking about the in-store display work as well as our private label business. In the private label business, we have won some significant new accounts that are helping us to get started into that. But our larger accounts, many of the names that you all would recognize if I said them on the phone, have still started to be slow in ramping up their initiatives. Their biggest issue has been supply chain. It's not just changing a package. If they're going to come out with a new private label, supplier's got to be in line. Packaging's got to be in line. Right now, for the last 12 months, all they've done is focus on keeping product on the shelf. Difficult trying to get a whole new product onto the shelf. So we expect it to be additive.

Our next question comes from Austin Nelson with AIG.

I just had a relatively simple capital structure question. You've paid down a lot of debt over the past 12 months. And you have, at this point, relatively high coupon for where you sit on that steps down towards the end of the year. Are you considering options there? And since you seem to be looking to continue to pay down debt, would you prefer to have a fully pre-payable cap structure?

So Austin, yes, so when you say the high coupon, you're referencing our bonds, correct?

Yes, the bond is callable. I mean, everything else is on the revolver, right?

Understood. Yes. So right now, we're not looking at the bond in terms of calling it anytime soon. I do know that our bonds are trading above par today. It does carry a higher interest rate, but it is a form of permanent debt on our balance sheet, as well. We do have pre-payable debt. It's certainly lower rate debt. But to us, it's an equation that includes not only the interest rate, but also balancing risk, a balanced debt structure that includes some portion of permit. But the short answer to your question is, right now, we continue to pay attention to that, certainly with the rate where it is. But at the same time, it's not something that we're looking to call soon.

There are no further questions at this time. I would like to turn the floor back over to Bill Wilson for closing comments.

Thank you, Paul, and 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.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Have a wonderful day.