Greetings, and welcome to the Matthews International Corporation Second Quarter Fiscal 2021 Earnings Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. 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 2nd 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. As a reminder, any forward looking statements in connection with this discussion are being made pursuant to the Safe Harbor Provisions of the Private Securities Litigation 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 ks 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.
And now I'll turn the call over to Steve.
Thank you, Bill. Good morning. Please turn to Slide 4. As provided in our earnings release yesterday, the company Consolidated sales of $417,200,000 and net income on a GAAP basis of $5,000,000 or $0.16 per share For the quarter ended March 31, 2021 compared to sales of $374,800,000 and a GAAP net loss of $86,400,000 or $2.77 per share for the same quarter last year. On a year to date basis, the company reported consolidated sales of $803,800,000 And net income on a GAAP basis of $3,200,000 or $0.10 per share as of March 31, 2021 compared to sales of $739,700,000 and a GAAP net loss of $96,800,000 or $3.11 per share last year.
Key financial highlights for the fiscal 2021 Q2 included: First, the company's consolidated sales of $417,200,000 a new quarterly record for the company, represented an increase of $42,400,000 or 11.3% compared to the same quarter last year. 2nd, consolidated adjusted EBITDA for the quarter ended March 31, 2021 was $60,900,000 compared to $49,400,000 last year, representing a year over year increase of 23%. 3rd, adjusted earnings per share for the fiscal 2021 Q2 was $0.89 per share compared with $0.63 for the fiscal 20 22nd quarter, representing 41% growth. 4th, 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 point $2,000,000 compared to $66,000,000 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 $42,100,000 On a net of cash basis, our net debt declined $48,000,000 As a result, Our net leverage ratio declined to 3.2 at March 31, 2021 compared to 3.9 at September 30, 2020 $4,300,000 a year ago. Since March 31, 2020, The company has reduced its outstanding debt by $183,300,000 With respect to COVID-nineteen, all segments continue to experience some level of varying commercial impacts during the Q2. These impacts remained difficult to project and as the pandemic has continued into calendar 2021, We expect ongoing impacts in the remainder of our 2021 fiscal year. As I noted earlier, on a GAAP basis, The company reported earnings per share of $0.16 for the current quarter compared to a loss of $2.77 per share last year.
The net loss a year ago included a goodwill charge of $2.63 per share. Earnings per share on a GAAP basis Both quarters included the impact of intangible amortization, primarily from the acceleration of the amortization of certain intangible assets in the GK Brand Solutions segment and charges in connection with our cost reduction initiatives and COVID-nineteen related costs. Consolidated intangible amortization expense was $22,900,000 or $0.52 per share for the fiscal 2021 Q2 compared to $17,900,000 or $0.43 per share a year ago. Intangible amortization expense for the 6 months ended March 31, 2021 was $38,200,000 or $0.88 per share compared to $35,800,000 or $0.86 per share last year. On a non GAAP adjusted basis, earnings for the fiscal 2021 Q2 were $0.89 per share compared to $0.63 per share a year ago.
Our non GAAP earnings for the 6 months ended March 31, 2021 were $1.57 per share compared to $1.10 per share a year ago. The increase is primarily reflected higher adjusted EBITDA and lower interest expense. Adjusted EBITDA, which represents net income before interest expense, income taxes, Depreciation and amortization and other adjustments was $60,900,000 for the fiscal 2021 Q2 compared to $49,400,000 a year ago, representing an increase of 23%. For the 6 months ended March 31, 2021, Adjusted EBITDA was $115,700,000 compared to $89,600,000 a year ago, representing an increase of 29%. The improvements primarily reflected the impacts of higher consolidated sales, particularly in the Memorialization segment, in addition to realized savings from the company's cost reduction program and lower travel related expenses.
Please see the reconciliations of adjusted EBITDA and non GAAP adjusted earnings per share in our earnings release. Investment income for the 3 months ended March 31, 2021 was $969,000 compared to a loss of $1,100,000 for the same quarter a year ago. For the 6 months ended March 31, 2021, Investment income was $2,000,000 compared to $191,000 last year. Investment Income at March 31 a year ago reflected the initial market impacts of COVID-nineteen. Investment income primarily reflects The changes in the value of investments held in trust for certain of the company's benefit plans.
Interest expense for the quarter 6 months ended March 31, 2021 were $7,200,000 $15,000,000 respectively, compared to $9,600,000 18 $900,000 respectively, for the same periods a year ago, primarily reflecting lower average debt levels for the current year. Other income and deductions net for the quarter 6 months ended March 31, 2021, represented reductions to pre Tax income of $2,600,000 $4,300,000 respectively, compared to $1,800,000 $4,700,000 respectively for the same periods a year ago. Other income and deductions include the non service portion of pension and post retirement cost. For the current quarter year to date periods, the non service portion of pension and post retirement cost was $1,900,000 $3,800,000 respectively, compared to $2,200,000 $4,500,000 respectively, for the same periods last year. Other income deductions also include banking related fees and the impact of currency gains and losses on certain intercompany debt and foreign denominated cash balances.
The company's consolidated income taxes for the 3 months ended March 31, 2021 were an expense of $972,000 compared to a benefit of $11,100,000 a year ago. Consolidated income taxes for the 6 months ended March 31, 2021 were an expense of $5,000,000 compared to a benefit of $16,500,000 last year. The year over year changes principally reflected the company's Pretax income for the current periods versus the pretax losses resulting mainly from the goodwill charge last year. Additionally, fiscal 2021 included discrete tax expenses primarily related to foreign operating losses, while fiscal 2020 included discrete tax benefits from the closure of several tax audits. Please turn to Slide 5 to begin a review of our segment results.
Memorialization segment sales for the fiscal 2021 second quarter were $205,500,000 compared to $161,800,000 a year ago. For the 6 months ended March 31, 2021, Memorialization segment sales were $388,700,000 compared to $316,200,000 a year ago. The quarter and year to date increases resulted mainly from increased sales of caskets due to the impact of the pandemic on death rates. In addition, sales of cremation equipment, cemetery memorial products and mausoleums also increased. The company also completed an acquisition of a small cemetery products business during the quarter.
Changes in foreign currency exchange rates had favorable impacts of $1,500,000 $2,300,000 respectively on current quarter and year to date sales compared to a year ago. Memorialization segment adjusted EBITDA for the 2021 Q2 was $51,600,000 compared to $35,200,000 a year ago. Year to date, Memorialization adjusted EBITDA was $95,700,000 for the current year compared to $65,300,000 last year. The year over year increases primarily reflected the benefits of higher sales, productivity initiatives and lower travel related expenses, offset partially by higher material costs and increased performance based compensation expense. Costs for the segment's main direct materials, bronze, steel and lumber, rose significantly during the recent quarter, which is expected to have an unfavorable impact on the remainder of the year.
Please turn to Slide 6. Sales for the SGK Brand Solutions segment were $171,000,000 for the quarter ended March 31, 2021, compared to $172,900,000 a year ago. For the 1st 6 months of fiscal 2021, the segment Sales were $339,200,000 compared
to $347,700,000
last year. The decrease is primarily resulted from declines in merchandising and other retail based sales, much of which was attributable to the impact of COVID-nineteen. Higher sales of purpose built engineered products partially offset these declines. The increase in engineered product sales was primarily attributable to the energy storage business of our sour Essex subsidiary. Changes in foreign currency exchange rates had favorable impacts of $7,100,000 $10,400,000 respectively, on the segment sales compared with the same quarter year to date periods last year.
Fiscal 2021 second quarter adjusted EBITDA for the SGK Brand Solutions segment was $20,800,000 compared to $22,200,000 a year ago. The decline primarily reflected the impact of lower sales and unfavorable changes in productivity due to the pandemic. The segment's year to date adjusted EBITDA was $42,200,000 for the current fiscal year compared to $41,000,000 last year. Despite lower sales, the segment reported an increase in year to date adjusted EBITDA, primarily as a result of realized savings from the segment's recent cost reduction initiatives and lower travel related expenses. Please turn to Slide 7.
Sales for the Industrial Technology segment were $40,700,000 for the quarter ended March 31, 2021, compared to $40,100,000 a year ago. Year to date, the segment sales were $75,900,000 for fiscal 2021 compared to $75,800,000 last year. The segment's warehouse automation sales were higher for the current quarter compared to a year ago, which were offset by lower product identification sales. Incoming orders for our warehouse automation solutions continued to build during the quarter, And product identification orders also increased recently. Changes in currency rates had favorable impacts of $856,000 1 point Fuel Technology segment for the current quarter was $5,800,000 compared with $6,200,000 a year ago.
The segment's year to date adjusted EBITDA was $9,300,000 compared with $10,500,000 a year ago. The year over year decrease is primarily reflected the impact of lower product identification sales, increased performance based compensation expense and higher product development costs, partially offset by benefits from recent cost reduction initiatives and lower travel related expenses. Please turn to Slide 8. Cash flow from operating activities for the 6 months ended March 31, 2021 was $92,200,000 compared to $66,000,000 last year. The significant increase primarily reflected the company's operating results and continued working capital management efforts.
As a result of this strong cash flow, the company further reduced its outstanding debt during the 2nd quarter by $42,100,000 In the last 12 months, the company reduced its outstanding debt by $183,300,000 Outstanding debt was $782,500,000 at March 31, 2021 with net debt, which represents outstanding debt less cash at $735,500,000 The leverage ratio covenant in our domestic credit facility is based on net debt. Our net debt leverage ratio declined 3.2 at March 31, 2021 compared to 3.9 at September 30, 2020 and 4.3 at March 31, 2020. Approximately 31,700,000 shares were outstanding at March 31, 2021. During the recent quarter, the company purchased only 6,000 shares under its share repurchase program As we remain focused primarily on debt reduction, the company has remaining authorization of approximately 370,000 shares under the current program. Finally, the Board this week declared a dividend of $0.215 per share on the company's common stock.
The dividend is payable May 24, 2021 to stockholders of record May 10, 2021. This concludes the financial review and Joe will now comment on our company's operations.
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 continue to deliver Steady results. From an overall perspective, each of our businesses reported better sales in prior year except for brand where our retail based businesses were again challenged.
More importantly, as we begin our Q3, We believe that we are seeing that pandemic begin to subside in North America. As we have now lapped the start of the pandemic, funeral home product sales in April are tracking below prior year and that will make comparable results in this segment difficult. However, as we have hoped, We are seeing other businesses ramp up order intake at rates that give us confidence in the balance of the year. Cemetery products orders have been very strong recently. Several new incineration projects together with higher cremation equipment orders should be additive.
Warehouse Automation orders continue to be very strong. And as we ended the Q2, we saw increasing orders in our product identification business and related consumables. Finally, as expected, tobacco orders in our European brand business have started to return and are being driven by regulatory changes. In the energy storage business of our Syrah Essex subsidiary, We had very strong order intake as our business begins to take hold of what we hope will be a significant opportunity for us in the years to come. It's important to note, however, that order intake is only half of the story, as we have had extensive discussions occurring with numerous industry partners, which we hope will make this business a more significant contributor to our overall results.
Although our energy storage business has principally focused on supporting lithium based Products, we are beginning to extend our application and know how to rotary processing of bipolar plates, stacks, A critical component of hydrogen fuel cell batteries. Although it is early, we hope to talk more about this innovation in the quarters to come. As you can tell, we've been very busy during the last quarter and throughout the pandemic. Many of our businesses have improved market position during this period, And this has created opportunities for growth. All of this bodes well for the balance of our fiscal year and beyond.
As noted above, the one portion of our business that continues to be challenged is the retail portion of SGK Brand Solutions. Our expectations are that as more of North America returns to normal and as retailers prepare for what will hopefully be More normal back to school and Christmas seasons, investment in retail marketing will return and we are well positioned to capitalize on that opportunity. Nevertheless, again this quarter, our core packaging business remained relatively stable and has gained new accounts during the pandemic. As you have seen, the continued good operating performance and strong cash management have allowed us to again reduce our gross debt this quarter. During the last 12 months, we have reduced gross debt by over $180,000,000 We believe that we have embedded a strong culture Cash conversion into the organization that will make us a better company going forward.
And as we approach our target of 3 times debt coverage, We will soon look for other opportunities to put our capital to work. Regarding the balance of 2021, we are optimistic about situation but remain cautious as events outside of our control can still arise which can impact our results. As you can tell by my earlier comments, We are confident that each of our businesses has the orders to deliver a very strong year. Therefore, given our performance to date and the strength of our order intake, We expect that our full year EBITDA results should be at least $220,000,000 Now let's open it up for questions.
Thank you. We will now be conducting a question and answer session. One moment please while we poll for questions. Thank you. Our first question comes from Daniel Moore with CJS Securities.
Please proceed with your question.
Good morning, Joe. Good morning, Steve. Thanks for taking the questions.
Good morning, Dan. Good morning, Dan.
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 the calendar 2022?
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 are 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. Helpful. 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 on the general industrial front. So maybe if you can just provide any additional color there?
Sure. We saw a pretty good intake of inks, 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, Inc. 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.
Got it. And then, energy storage, obviously seeing momentum building. Can you just maybe update us on how the market's evolving and remind us So 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. 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.
Very helpful. 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, we have enough for 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 at best right now, I guess. We don't know for sure. Our guidance looking forward anticipates a decline and that decline is in When I said $220,000,000 is what we expect at least, as you can tell from our just 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.
Very helpful. I'll jump back on any follow ups.
Yes. Dan, one last thing for you. We're also seeing, as you 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.
Perfect. Very helpful.
Thank you. Our next question comes from Liam Burke with B. Riley. Please proceed with your question.
Thank you. Good morning, Joe. Good morning, Steve.
Hi, Liam.
Good morning.
Joe, I mean, it's pretty clear that your Cascade sales will start normalizing sometime this year. Could you give us a sense as to the margin trade off With deferred, I'll call it deferred marker or memorialization product sales and the pickup in cremation?
So it's a difficult to understand. Well, let me make sure I understand. Are you asking me what is the margin differential Between incremental memorialization sales derived from the pandemic, is that the question?
No, what I'm suggesting is you generated Very nice EBITDA margins in the 2nd 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 System side. Yes.
Give us 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 were running through the P and 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 would 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 is going to sell more for a higher price Then 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.
Sure. I understand that. 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 we 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 $40,000,000 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 time because markets 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't tell you that's all going to be there. I would expect within 2 years, Most, if not all, will be reflected in our P and Ls.
Great. 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 that 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, we think 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. You can expect 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 as 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 that when I say retail, I'm talking about the in store display work as well as our private label business. We're 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 that I said 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. It's if they're going to come out with a new private label, Supplier has got to be in line, packaging is going to be in line. Right now, they 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.
Great. Thanks, Joe.
Thank you. Our next question comes from Austin Nelson with AIG. Please proceed with your question.
Hi, guys. Thanks for taking the question and congrats on the quarter. I just had the relatively simple Capital structure question. You've paid down a lot of debt over the past 12 months And you have the, 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 prepayable cap structure?
So Austin, yes, this is 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 repayable 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.