Q1 2020 Earnings Call
Question answer session will follow the formal presentation.
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No. This conference is being recorded.
At this time I'll turn the conference over to Bill Wilson Senior director of corporate development Mr. Wilson you may begin.
Thank you Rob.
Good morning, everyone welcome to the Matthews International first quarter 2020 earnings call.
This is bill Wilson senior director of corporate development.
With us today, our job Board Alessi, President and Chief Executive Officer, Steve Nicola Chief Financial Officer.
Before we start I want to remind you that our earnings release was posted on our website www Dot M- T. W. Dot com and Investor section last night.
The presentation for call can also be accessed any investor 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 Reform Act of 1995.
Factors that could cause the company's results to differ from those discussed today.
Fortunately copies annual report on Form 10-K , and other periodic filings with the S E C.
In addition, we'll be discussing non-GAAP financial metrics and encourage you treat 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 material located on our website.
Now I'll turn the call over to Steve.
Thank you Bill good morning, Oh, let's start at slide four.
For the fiscal 2021st quarter. The company reported consolidated sales of $365 million compared to $374 million a year ago, the fiscal 2021st quarter reflected higher sales for the memorial innovation and industrial technology segments compared to a year ago offset by lower.
In the S.T.K. brand solutions segment.
Higher cremation equipment sales and improved price realization on caskets, a memorial products, where the principal factors a memorial innovation sales increased.
And the sales improvement in the industrial Tech knowledge. He segment was primarily driven by higher product identification sales.
First UK brand solutions segment, consistent what's the last fiscal year year over year sales compare ability was affected by the loss of a significant client account, which occurred during the first fiscal quarter last year.
In addition, lower sales of cylinder surfaces in engineered products in Europe , and unfavorable currency changes contributed to the decline.
On a GAAP basis, the company reported a loss per share of 34 cents for the current quarter compared to income of 10 cents per share last year.
The loss on a GAAP basis for the current quarter, primarily resulted from noncash intangible amortization.
$17.9 million for 43 cents per share. In addition, the current quarter included costs of $10.3 million or 24 cents per share related to strategic initiatives, most of which related to our cost reduction program.
On a non-GAAP basis adjusted earnings were 47 cents per share for the fiscal 2021st quarter compared to 50 cents last year. The decline primarily reflected the decrease in consolidated sales and lower operating income for the current quarter.
Adjusted EBITDA for the fiscal 2021st quarter was $40 million compared to $46 million a year ago.
Investment income for the fiscal 2021st quarter was $1.3 million compared to a loss of $1.4 million a year ago investment income primarily reflects the performance of investments held and trust for certain of the company's benefit plans.
Interest expense for the fiscal 2021st quarter was $9.2 million compared to $10.3 million, a year ago, reflecting lower average debt and a decline in average interest rates for the current quarter relative to the first quarter last year.
Other income and deductions not for the quarter ended December 31, 2019 represented a decrease in pre tax income of $2.8 million compared to $924000 for the same quarter last year.
Other income and deductions include the non service portion of pension and post retirement costs.
For the quarter ended December 31, 2019, the non service portion of pension and post retirement cost was $2.2 million compared to $931000 last year.
Consolidated income taxes for the three months ended December 31, 2019 were a benefit of $5.4 million compared to an expense of $605000 for the same quarter last year.
The income tax benefit for the current quarter, primarily reflected the companys pre tax loss on a GAAP basis.
Both periods reflected the impact of certain tax items discrete to their respective periods.
Excluding these impacts the company currently estimates its consolidated effective tax rate at approximately 25% for fiscal 2020 compared to 23% for fiscal 2019.
Please turn to slide five to begin a review of our segment results.
For the S.U.K. brand solutions segment sales were $174.9 million for the current quarter compared to $185.3 million a year ago.
The decrease primarily reflected the impacts of the previously reported loss of a significant U.S. brand client account, which occurred in the first fiscal quarter It last year.
Lower cylinder sales to the European tobacco market and a decrease in sales of surfaces and engineered products in Europe .
These declines were partially offset by higher sales in the Asia Pacific market and increased sales of merchandising solutions in the U.S.
Changes in foreign currency exchange rates had an unfavorable impact of $1.9 million on the segment sales compared with the same quarter last year.
Fiscal 2021st quarter adjusted EBITDA for the STK brand solutions segment was $18.7 million compared to $27.4 million a year ago. The decline primarily reflected the impact of lower sales combined with an unfavorable product mix shift.
Among the various factors impacting product mix, the incremental margins margin percentages associated with the tobacco sales decline and the brand client account losses were higher than the margin percentages on the increase in merchandising sales.
Please turn to slide six.
[noise] Memorial Innovation segment sales for the current quarter were $154.4 million compared to $153.9 million for the same quarter a year ago.
Higher cremation equipment sales, particularly in the UK market and improved price realization for caskets, a memorial products were partially offset by the impact of lower unit sales volumes for caskets and memorial products U.S. Casketed deaths were estimated to have declined from the same quarter last year.
Changes in foreign currency exchange rates had an unfavorable impact of approximately $322000 on the segment sales compared with the same quarter last year.
Memorialization segment adjusted EBITDA for the fiscal 2021st quarter was $30.1 million compared to $30.3 million a year ago.
The current quarter, primarily reflected the benefit of the increase in sales and productivity initiatives offset by higher freight costs and lower margins on equipment, primarily due to cost overruns on several waste incineration project.
Please turn to slide seven.
[noise] industrial technology segment sales for the fiscal 2021st quarter were $35.7 million compared to $35 million a year ago higher product identification sales were partially offset by lower sales of warehouse automation systems and applied technologies products.
The decline in warehouse automation sales, primarily resulted from project delays by customers as backlog and backlog in this business continues to grow.
Changes in foreign currency exchange rates had an unfavorable impact of $322000 on the segment sales compared with the same quarter last year.
The segment's adjusted EBITDA for the current quarter was $4.3 million compared with $3.6 million a year ago. The increase in the segment's adjusted EBITDA for the quarter, primarily reflected the sales change.
Please turn to slide eight.
Cash flow from operating activities for the fiscal 2021st quarter was $5.4 million compared to $8.4 million a year ago. The decline primarily reflected the impact of lower adjusted EBITDA and costs related to the cost reduction program.
At December 31, 2019, consolidated long term debt, including the current portion approximated $967 million compared to $941 million at September 32019.
The increase during the quarter was anticipated as typically the company's first fiscal quarter is seasonally the slowest on an operating income and cash flow basis.
A year ago, the company's consolidated a long term debt at December 31, 2018 was $983 million compared to $961 million at September 32018.
The company intends to focus fiscal 2020 cash flow on reducing debt and consistent with fiscal 2019. The company currently expects to report debt reduction during fiscal 2020.
Additionally, on the company's balance sheet at December 31, 2019. Please note the impact of the adoption of the new lease accounting rules.
This adoption had the impact of increasing other assets and other liabilities by approximately $80 million on October one 2019.
Approximately 31.3 million shares were outstanding at December 31, 2019.
During the recent quarter the company purchased only approximately 52000 shares under its share repurchase program.
Merrily related to fulfilling required holding tax obligations in connection with equity compensation.
Finally, the board last week declared a dividend of 21 cents per share on the company's common stock. The dividend is payable on February 17, 2020 to stockholders of record February three 2020.
This concludes the financial review and Joe will now comment on our company's operations.
Thank you.
Good morning.
Our first quarter results were in line with our expectations several our businesses exceeded our expectations. While several fell short together. However, we met our targets and see some positive trends in several of our businesses.
First as you are aware a year ago. This quarter, we lost a significant SG kick out in North America.
This past quarter was the last quarter, which we had revenue from that account with that in mine relative to our expectations, Yes, GK brand business reported higher sales in North America and in the APAC region during the quarter.
Unfortunately, our German businesses, particularly our cylinders in our surfaces business slowed as tobacco in surface orders, particularly tissues and flooring.
Fell short of expectations of expectations.
Despite these challenges we remain positive on our business as early signs of increased marketing and product innovation at several of our customers should help us meet our expectations for the balance of the year.
Similarly, as we discussed last quarter.
Engineering portion of the business is seeing strong interest in their energy storage solutions for lithium ion batteries and fuel cell production.
Our intellectual property and know how should leave this group to good year over year growth this year and beyond.
As I noted last quarter, we have received a large order from a significant customer in the energy storage business.
Together with our customer we are finalizing the designing capabilities of this equipment that we expect to be delivered in the fourth quarter of this year.
Regarding our memorial innovation business, despite a decline in Casketed death.
This this group delivered solid results.
Better price realization higher cremation equipment sales and growth in ancillary cremation products allow this business to grow.
We continue to expand our business for stone monuments, and especially probably Muslims and cremation solutions.
This market has been a good addition to other <unk> memorialization products as we expect to continue to grow our share.
With respect to our cremation waste incineration equipment business.
We had good sales performance, but cost overruns associated with early waste to energy projects hampered our results for the quarter.
We view these costs as part of the learning process for what we believed to be a significant long term opportunity in incineration.
We have learned from our experiences and improved our project management capability as we prepare for what we hope to be a growing opportunity.
In the industrial technologies segment, our performance exceeded prior year results and the business looks position for a good full year performance specifically.
Our product identification business exceeded our expectations largely due to orders, which were deferred in the prior quarter, but the timing of significant warehouse automation projects, which were deferred last quarter appear to be more likely in the spot in the latter part of our second and into our third quarter.
This business continues to show good opportunity for growth, our new products and our product identification business have received positive market acceptance opening accounts, which were outside of our scope in the past and our warehouse automation business participates in a very hot ecommerce market.
And our warehouse automation business, we're particularly pleased as our backlog continues to grow and the roster clients who have chosen our software continues to grow as well.
There's no better reflection of the quality of a business Im looking at the company's with which it does business.
As we have noted in the past now that we have substantially completed our ERP implementation, we have kicked off and initiative to capitalize on our investment by better aligning our cost base, where the revenue levels.
We expect this initiative to largely benefit our brand business, but also to reduce our overall back office costs as we centralized more the back office functions and capitalize on the automation facilitated by our ERP.
We expect this initially to deliver an annual savings run rate of over $25 million. When the next couple of years and contribute modestly to this year's full year results.
Regarding our investment in the new product of our new product for our industrial technologies segment.
We remain confident with our development process into our strategy as we enter what we believed to be the final phase of our development.
As previously discussed our full launch will remain delayed most likely into next year. We remain we have validated the effectiveness of the product, but we have yet to get to a consistent production level, allowing us to feel comfortable with the launch.
We will continue to work through some of these early production issues and I hope to report more information throughout the year.
As we look at our full year expectations, we remain positive about our businesses and the opportunities for growth.
And our guidance, we're making several assumptions that are critical we expect modest sales that are memorialization segment, largely driven by our new waste to energy Incineration project. Similarly, we expect our industrial technology segment to continue to grow driven by the new account wins and product identification and continued growth in our warehouse.
Sales automation business.
Finally, we also expect our brand business have modest sales growth driven by the energy storage equipment opportunities that I referenced above.
Given these expectations, we are maintaining our guidance for fiscal 2020, a mid single digit non-GAAP EPS and EBITDA growth.
Finally.
Despite the usual seasonal increase in debt that we saw this quarter.
We remain focused on debt repayment and expect to utilize our current your cash flow and other cash initiatives to reduce our debt.
Remain confident we will finish the year with significantly lower debt as about.
With that let's open it up for questions.
Thank you at this time will be conducting a question answer session. If you like to ask a question. Please press star one on your telephone keypad and a confirmation tell indicate your line is in the question Q.
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One moment. Please so we poll for questions.
Thank you when I first question is from the line of Dan Moore with CJS Securities. Please proceed with your question.
Good morning, Stefano, it's Chris calling for Dan.
Good morning, most good morning.
Do you give us some more detail on the 25 million dollar annual cost savings, maybe where we'll see that on the income statement.
So over the course of time Youre going to see it as a reduction in our overall corporate costs, what we call our back office functions.
And I would tell you out of the 25 million $5 million to $10 million that most would come out of that the balance is going to come out of as Teekays operating costs.
Got it.
And can you go into a little more detail around the energy storage.
Maybe the potential size initial orders going forward.
So the initial order is upwards of $20 million are more or as we finalize our pricing I can tell you a of that our backlog continues to grow and we continue to quote extensively.
For projects ranging from two or 3 million upwards of 10 to 15 million as well.
We've been doing this work for a couple of years, it's not something that is new to us.
It, but I would tell you the industry as a whole has been more in the test phase rather than in the production phase now that we're moving more towards production phase, we expect to see a more consistent.
Revenue stream here, although choppy from though from a quarterly basis, and we expect larger and more production related equipment as we go forward.
Thank you so much I'll jump back into queue.
Thank you.
You May press star one to ask a question.
Our next question is from the line of Liam Burke with B. Riley FBR. Please proceed with your question.
Thanks, Good morning, Joe Good morning, Steve.
Good morning, Liam morning live.
So Asia Pacific had us an influence on the STK business.
How does the Corona virus factor into what you expect out of that business, an SDK for the rest of the year.
Frankly, the and that's one of the areas. We are watching you know right now as as many of you know.
We do a lot of work in the Asiapac region that is the source of a lot of our production. We're very proud of that we operate in principally a four or five locations one of those locations as China and trying to today is small but it is shut down for us it's been shut down all week.
We're we're cautiously both looking at what the impact it is to our PNM was going forward, but also taking steps to prepare for any other shutdowns, we might have having to force work moved to other parts of the world to be able to produce and so we're cautious.
As everybody else in the World is it is unfortunate but it is a part of our focus today.
Okay, and how to private label due this quarter and how do you want kinda outlook do you have for that business. In 2020. So we continue to gain accounts, what we mean private labels continues to be a significant part of our business in growing although in the quarter. This is a seasonal business, you're not having a lot of new product launch.
In the quarter. So we don't our revenue there is not what you would say stellar but our expectations on a full year basis is that this business will continue to grow as we take share and frankly as where the leading provider of private label services for packaging in the in the globe today. So.
We're we're bullish on this part of the market.
Great. Thank you Joe.
[music].
Thank you.
There are no additional questions at this time I'll turn the floor back to Bill Wilson for any further remarks.
Thank you Rob.
Again, thank you for joining us today and thank you for your interest in Matthijs for additional information about the company and our financial results. Please visit our website. Thank you and enjoy the rest of your day.
Thank you everyone.
Today's conference you may disconnect your lines at this time, thank you for your participation.