Greetings, and welcome to the Matthews International Third Quarter Fiscal 2023 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Bill Wilson, Senior Director of Corporate Development. Thank you, sir. You may begin.

Thank you, Christine. Good morning, everyone, and welcome to the Matthews International Third Quarter Fiscal Year 2023 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'd 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 will be discussing non-GAAP financial metrics and encourage you to read our disclosures and reconciliation table 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 Joe.

Thank you, Bill. Good morning. Let me first thank all of our employees globally for their continuing contributions to our success last quarter. Again, this quarter, we're quite pleased with our results as all of our businesses performed well on a year-over-year basis. As we expected, we continued to see growth in our Industrial Technologies business, driven by our recent significant orders and the ongoing interest in our Energy Solutions business. We also saw continued growth in our Warehouse Automation and our Product Identification businesses, which were solid contributors to our overall performance. In addition, we had strong results in our Memorialization and improving results in SGK, which showed improvement year-over-year. Consolidated sales for the company increased by almost 12% and adjusted EBITDA improved by 22%. All in all, a very good quarter. As I look at the performance of our individual businesses, the Industrial Technologies segment grew by 66% over prior year, primarily through higher sales for our energy storage Solutions business as well as benefits gained from the acquisitions of Olbrich and R+S Automotive. These acquisitions increased our capacity and provided the additional resources necessary to support our ability to execute on the recent orders and meet the growing demand for our Energy Solutions business. We are continuing to make progress in fulfilling the over $200 million of energy orders announced earlier this year. These orders, together with other orders that we have already received and orders that we anticipate in the near term, will carry over into next fiscal year and provide a very good start for another strong year in our Energy Solutions business. Discussions on additional business opportunities are ongoing, and we will continue to share our progress on new orders as they are finalized. Now that we have much -- now that we have…

Thank you, Joe, and good morning. I'll begin with Slide 7. Consolidated sales for the fiscal 2023 third quarter were $471.9 million compared to $421.7 million a year ago, representing an increase of $50.2 million or 11.9%. The increase primarily reflected higher sales for the Industrial Technologies segment. The Industrial Technologies segment reported a sales increase of $52.1 million or 66.4% 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 increased $5.6 million for the current quarter, and sales for the SGK Brand Solutions segment were $7.5 million lower than a year ago. On a consolidated basis, changes in currency rates had an unfavorable impact of $1.7 million on current quarter sales compared to a year ago. On a GAAP basis, the company's net income was $8.7 million or $0.28 per share for the current quarter compared to $2.9 million or $0.09 per share for the same quarter last year. The increase primarily reflected higher operating income and an income tax benefit for the current quarter, offset partially by higher interest expense. 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 third quarter was $56.2 million compared to $46 million a year ago, representing an increase of $10.2 million or 22.1%. The increase reflected higher adjusted EBITDA for all 3 of the company's reporting segments. Changes in currency exchange rates had an unfavorable impact of approximately $600,000 on current quarter consolidated adjusted EBITDA compared to a year ago. Adjusted earnings per share for the current quarter was $0.74 compared to $0.58 for the same quarter a year ago. Similar to…

[Operator Instructions] Our first question comes from the line of Dan Moore with CJS Securities.

It's Pete Lukas for Dan. I guess just touching on Warehouse Automation. You touched on it in the prepared remarks, you mentioned you saw some softening in Q3 and early strength in Q4. Can you give us any more color in terms of activity and what growth is likely to look like as we look into fiscal year '24?

Pete, that's actually the challenge we're facing here. We saw some slowing in quoting. Quoting Is generally the starting point. for order intake. It's early for us. Fortunately, as we look into '24, the first quarter is generally the slower of the quarters -- of the 4 that we have given that nobody wants you in their warehouses. So it's too early for us to begin to look at the impact on '24.

Fair enough. And then in terms of Memorialization, what are your expectations for the trajectory of revenue as we look to '24? And also EBITDA margins have recovered nicely, now back above 20% for the past 2 quarters. How do you think about margins in terms of leveling off? And what is sustainable, do you think, for the midterm outlook of, say, 3 to 5 years?

Top line is difficult to project. I mean, death rates are something that, obviously, we don't have control of. But I would tell you that it's a modest grower for us. We're not expecting multiple double-digit growth in the Memorialization segment. From a margin standpoint, I would say that we were pretty close to stable at this point in time. You're going to have quarters where you're going to be up and down a little bit. But at the end of the day, we have stabilized at around that -- our historic rates. We think that's where we should be.

And last one for me, jump into the SGK Brand Solutions. Do you anticipate revenue declines slowing or perhaps even reversing over the next few quarters? And in terms of margins, what needs to happen to get margins back up to the low to mid-teens? And is that still achievable and sustainable there? I know you have made some improvements there, but just wondering the outlook. A –Joe Bartolacci: Yes. The story with respect to top line and to the margins is Europe, Europe, Europe. It’s completely there. Today, our – the balance of our business in the North America and the APAC region are operating at historic rates or better. So we’re – the team has done a great job in the markets in which we have operated in for a long, long time. The challenge we’re facing is things that are somewhat out of our control. I don’t have a good feel for the European market as to when or if it will recover to a profitability that is similar to the balance of the business. But we are going to take actions to shrink that size of that footprint over there. Not an easy task to do as we move forward. But that’s the only way we see right now in getting that part of the world back to a more palatable margin rate.

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

On the Memorialization, you talked about market share gains. Specifically, that's both in Memorialization products and with caskets? Or is this across the board of all the product lines, including cremation?

I would tell you that we picked up market share in just about every one of the businesses that we operate in North America, but they're small. These are incremental. But as you know, that incremental drop-through is positive. The bigger issue, Liam, I think is -- and I think The Street may have keep missing this. I mean if you look at where our business was just 3 years ago, it's materially higher at this point in time. So that is a period of time that's both through margin -- excuse me, both through pricing and as well as with market share pickup. This is a different business than it was just 3 years ago.

Great. And you have talked about, I mean, primarily Olbrich, but these acquisitions and your ability now to take a look at costs in those businesses, will you see any benefit in 2023? Or is this all a '24 event?

So as we begin to deliver the more revenue recognition, I would say, the orders that we've talked about in the Energy side, you'll start to see the utilization of some of the Olbrich capacity. So that will improve margins, but they have been negative throughout the course of the year. I would tell you the impact should reverse into second, third quarter of next year.

Got it. Great. And Steve, real quickly, you did highlight increased working capital needs and its effect on operating cash flow for the year. Is there any specific business that you need to increase inventories at Energy Solutions? Or are there other businesses that require additional working capital investment?

So the 2 businesses where we saw that the inventory increase for the year were that granite business, and that was addressing some of the built-up backlog in that business. And some of that increase you see on the balance sheet relates to our acquisition of Eagle Granite. And then the second business as the business has grown, is our Energy business. As you would expect, as our revenues have increased, the working capital related to that business has increased. So those are the 2 areas that were impacted.

Our next question comes from the line of Justin Bergner with Gabelli.

First question would be on energy storage. I mean, you mentioned that half of the $200 million or so of orders announced early in the year are likely to be recognized in fiscal year '24. Beyond that $200 million, are there additional drivers that should cause energy storage to meaningfully step up from '23 levels in '24? Or is that the next leg up, more of a '25 event?

So we have -- if you assume around $100 million would carry, as you might expect, we've been receiving orders throughout the last couple of quarters since the announcements that we made. Obviously, not to the magnitude that we announced, otherwise, we would have put that announcement out. But yes, we have -- we'll start the year with a very strong backlog ready to move forward. But we are also in discussions with multiple players for the beginning of what I would call production lines. So that could change dramatically. But I would expect it to be a good year next year from a revenue standpoint, the bigger year will probably be in '25.

Okay. That's helpful. And that bigger year in 2025 would hopefully relate to some of these production line discussions translating to material chunks of revenue. Okay.

Yes.

Second question would be just on SGK Brand Solutions, nice quarter, nice pickup. I mean given that the margins are improving, are you in a position where you might be closer to considering sales of noncore businesses in the distant future? Or do you think you'd still like to see improvement over a 12- to 24-month or longer period before you're ready to consider those actions?

The bigger driver, I think, Justin, is where we stand on the Energy side and the development of the whole Industrial Tech. As you heard Steve earlier talk about the additional capital that we consumed, we'll need more capital. And as these companies -- as those businesses get to scale, we would look to portfolio management. Will that be next year, would it be the year after, it is a difficult answer for me to say at this point in time. But we are still very pleased with where the direction of SGK is moving. And for that matter, the performance on Memorialization segment as well.

Got it. And then are you sort of targeting normalized margins or sort of recovery margins for SGK at sort of the mid-teens or the low to mid-teens? Like I'm just trying to get a sense --

Low to mid-teens on a blended basis across all markets.

Okay. So you're not too far away from that based on this quarter.

No.

Okay. And then lastly, I mean, memorialization, great performance, great margins. It's great to see the margins sort of at or close to 20%. Is there anything that gives you concern that margins could step back down over the next couple of years? I mean I realize there are all sorts of unpredictable things that can happen. But is there -- do you think that outside of anything unpredictable, you can just sort of hold the margins at these levels for the next couple of years?

Look, what we have proven is that rapid spikes in commodity costs are things that we take a long-term look at from a business standpoint. We don't necessarily recover every last nickel of it all in one period. So yes, we could have a period of time where if we had rapid escalation of commodity costs, we could have a period of time where our margins are impaired. But over the course of a normal business cycle, we will return to these kind of margins.

Thank you. We have reached the end of the question-and-answer session. I would now like to turn the floor back over to Mr. Wilson for closing comments.

Thank you, Christine, 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.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.