Q2 2024 Matthews International Corporation Earnings Call
Operator: Greetings and welcome to the Matthews International second quarter fiscal 2024 financial results conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. 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.
Greetings and welcome to the Matthews International second quarter fiscal 2024 financial results Conference call.
At this time all participants are in a listen only mode.
A brief question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Bill Wilson Senior director of corner corporate development. Thank you Sir you may begin.
William D. Wilson: Thank you, Christine. Good morning, everyone, and welcome to the Matthews International second quarter fiscal year 2024 conference call. This is Bill Wilson, Senior Director of Corporate Development. With me today are Joe Bartolacci, President and Chief Executive Officer, and Steven Nicola, our Chief Financial Officer.
Thank you Christine good morning, everyone and welcome to the Matthews International second quarter fiscal year 2024 Conference call. This is Bill Wilson Senior director of corporate development with me today are Joe Gorder, Lacy, President and Chief Executive Officer, Steve Nicola Chief Financial Officer.
William D. Wilson: Before we start, I would like to remind you that our earnings release was posted on our website, www.matw.com, in the investor section last night. The presentation for our call can also be accessed on the investor 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.
Before we start I would like to remind you that our earnings release was posted on our website www Dot M. A T. W. Dot com in the investors section last night so.
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 companys 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 S E T.
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.
William D. Wilson: 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. Now, we'll turn the call over to Joe.
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 will turn the call over to Joe.
Joseph C. Bartolacci: Thank you, Bill. Good morning.
Joseph C. Bartolacci: Thank you Bill good morning.
Joseph C. Bartolacci: We are generally pleased with our fiscal 24 second-quarter results given the transitory challenges that we face in several of our businesses, sales, and adjusted EBIT that were relatively consistent, declining only slightly during the quarter due to macro trends impacting several of our businesses while other businesses performed very well. Memorialization continues to maintain strong sales and EBITDA post-COVID, while SGK's digital initiatives and restructuring efforts are showing promise. As for our industrial technology segment... Energy solution sales were higher, but we continued to see delays in customer installation.
Joseph C. Bartolacci: We are generally pleased with our fiscal 'twenty for second quarter results given the transitory challenges that we faced in several of our businesses.
Joseph C. Bartolacci: Sales and adjusted EBITDA were relatively consistent declining only slightly during the quarter due to macro trends impacting several of our businesses, while other businesses performed very well.
Joseph C. Bartolacci: Memorials Asian continues to maintain strong sales and EBITDA post COVID-19 well educated digital initiatives and restructuring efforts are showing promise.
Joseph C. Bartolacci: As for our industrial technologies segment.
Joseph C. Bartolacci: Any solution sales were higher but we continue to see delays in customer installations.
Joseph C. Bartolacci: Additionally, the warehouse automation business reported lower sales consistent with the overall market, which has seen a moderation in new warehouse development. Despite these near-term events, however, we see both businesses continuing to offer strong long-term growth opportunities. Sales for the memorialization business remained relatively consistent with the prior year despite lower death rates.
Joseph C. Bartolacci: Additionally, the warehouse automation business reported lower sales consistent with the overall market, which has seen a moderation in new warehouse development recently.
Joseph C. Bartolacci: Despite these near term events. However, we see both businesses continuing to offer strong long term growth opportunities.
Joseph C. Bartolacci: Sales for the memorials Asian business remained relatively consistent with the prior year. Despite lower death rates. We're pleased with the trends in this business as the segment continues to outperform with sales and adjusted EBITDA run rate significantly exceeding pre COVID-19 levels.
Joseph C. Bartolacci: We're pleased with the trends in this business as the segment continues to outperform with sales and adjusted EBITDA run rates significantly exceeding pre-COVID levels. In addition, I'm pleased to add that we recently won another significant cemetery account which we hope will afford us continued opportunity for growth as we offer our extensive portfolio of solutions. We continue to be encouraged by the performance of SGK as a segment reporting sales growth in the second quarter, despite continued challenges in the European market.
Additionally, I'm pleased to add that we recently won another significant cemetery account, which we hope will afford us continued opportunity for growth as we offer our extensive portfolio of solutions.
Joseph C. Bartolacci: We continue to be encouraged by the performance of S. G. K as this segment reported sales growth in the second quarter. Despite continued challenges in the European market.
Joseph C. Bartolacci: Thanks to pricing and cost actions taken over the past 12 months, we also saw a significant increase in the segments' adjusted EBITDA and margin improvement. The team at SGK continues to outperform and win new accountants despite the challenges they have faced over the last year.
Joseph C. Bartolacci: Thanks to pricing and cost actions taken over the past 12 months. We also saw a significant increase in the segment's adjusted EBITDA and margin improvement.
Joseph C. Bartolacci: The team at S. G K continue to outperform and win new accounts. Despite the challenges they have faced over the last year.
Joseph C. Bartolacci: They also continue to execute on the e-commerce digital initiative we mentioned last quarter. We expect this program to hit the $40 million sales target we set for the current year as our clients look for ways to consolidate their e-marketing spend more efficiently. With respect to our industrial technology segment, total sales were lower for the quarter, primarily driven by market conditions that impacted our warehouse automation business.
Joseph C. Bartolacci: They also continue to execute on the E. Commerce Digital initiative, we mentioned last quarter. We expect this program to hit the $40 million sales target, we set for the current year as our clients look for ways to consolidate their your marketing spend more efficiently.
Joseph C. Bartolacci: With respect to our industrial technologies segment total sales were lower for the quarter, primarily driven by market conditions that impacted our warehouse automation business, but offset by higher energy storage sales.
Joseph C. Bartolacci: But offset by higher energy storage sales, as I mentioned on our earlier calls, we and other industry peers experienced a pullback dating back to the middle of last year as customers evaluated the prevailing economic conditions highlighted by continued high interest rates and concerns about consumer confidence. We still see some softness in larger warehouse projects, but they continue to be brought in on customer upgrades, and we have seen a pickup in quoting activity. Our confidence in the growth opportunity for this business is supported by recently published industry research that indicated more than 75% of respondents expected an increase in their investment in robotic systems in the next few years.
Joseph C. Bartolacci: I mentioned on our earlier calls, we and other industry peers experienced a pullback dating back to the mid last year as customers evaluated the prevailing economic conditions highlighted by continued high interest rates and concerns about consumer confidence.
Joseph C. Bartolacci: We still see some softness in larger warehouse projects, but continue to be brought in on customer upgrades and we have seen a pickup in quoting activity.
Joseph C. Bartolacci: Our confidence in the growth opportunities for this business is supported by recently published industry Research excuse me.
Joseph C. Bartolacci: Boarded by recently published industry research.
Joseph C. Bartolacci: Indicates more than 75% of respondents expected an increase in their investment in robotics systems in the next few years.
Joseph C. Bartolacci: We believe that advances in warehouse automation, like autonomous robots, which we manage, will drive demand for our warehouse execution systems software as we continue to enhance the platform through cloud and AI technology improvements. Turning to our new printhead solution, we made significant progress during the quarter.
Joseph C. Bartolacci: We believe that advances warehouse automation like autonomous robots, which we manage will drive demand for warehouse execution system software as we continue to enhance the platform through coal through cloud and AI technology improvements.
Joseph C. Bartolacci: Turning to our new Printhead solution, we made significant progress during the quarter all milestones related to launching the product were met and we remain on schedule to launch the solution by calendar year end as previously stated.
Joseph C. Bartolacci: All milestones related to launching the product were met, and we remain on schedule to launch the solution by calendar year-end, as previously stated. We will continue to update you on our progress with this product. As for our energy solutions business, we reported sequential growth, reflecting the benefit of orders from multiple customers, though we continued to experience the previously discussed and anticipated customer installation delays from our largest customer, which are out of our control.
Joseph C. Bartolacci: We will continue to update you on our progress for this product.
Joseph C. Bartolacci: As for our energy solutions business, we reported sequential growth, reflecting the benefit of orders from multiple customers, though we continue to experience. The previously discussed and anticipated customer installation delays from our largest customer which are out of our control.
Joseph C. Bartolacci: Let me reiterate our strategic focus in this business segment as we believe that we have a unique opportunity. We've had no shortage of interest in our dry battery electrode solutions, and we hope to have significant announcements to share before our fiscal year ends. Interest in dry battery electrodes across the globe remains very high. In the second quarter, we had good order entry, including two battery OEMs. But, as we mentioned before, however, the dry battery electrode development cycle within the industry can be lengthened.
Speaker Change: Let me reiterate our strategic focus in this business segment as we believe that we have a unique opportunity.
Speaker Change: We've had no shortage of interest in our dry battery electrode solutions, and we hope to have significant announcements to share before our fiscal year end.
Speaker Change: Interest in battery dry battery electrode across the globe remains very high.
Speaker Change: In the second quarter, we had good order entry, including two battery Oems, but as we mentioned before however, the battery electric dry battery electrode development cycle within the industry can be lengthy.
Joseph C. Bartolacci: Therefore, we are laser-focused on leveraging our technology advantage and assisting our customers in their development processes. With that in mind, our hope is to accelerate the adoption of dry battery electrodes as the definitive solution for battery production. We intend to build a production-scale system that will allow our clients to run their formulations at speed, thus significantly shortening the adoption cycle. Our total addressable market of over $8 billion remains unchanged, but our timeline is extended due to the current EV market cooldown.
Speaker Change: Therefore, we are laser focused on leveraging our technology advantage.
Speaker Change: And assisting our customers in their development of their development process.
Speaker Change: With that in mind, our hope is to accelerate adoption of dry battery electrode as the definitive solution for battery production, we intend to build a production scale system, which will allow our clients to run their formulation at speed, thus significantly shortening the adoption cycle.
Speaker Change: Our total addressable market of over $8 billion remains unchanged, but our timeline has extended due to the current EV market cooled down.
Joseph C. Bartolacci: Demand remains in place, and we expect the market to move toward our dry battery electrode solution given the inherent advantages it offers, including lower required investment, lower op-ex, faster build-out, and improved battery performance in a solvent-free process. In the end, it offers a cheaper and better battery. Secondly, on the hydrogen fuel cell side, we are focused on creating a solution that significantly reduces the cost for components of the fuel cell stack via throughput increases utilizing our proprietary know-how.
Demand remains in place and we expect the market to move toward our dry battery electrode solution given the inherent advantages it offers including lowered required investment lower opex faster build out and improve battery performance and a solvent free process and the yen it off.
Speaker Change: Or is it cheaper and better battery.
Speaker Change: Secondly, on the hydrogen and fuel cell side.
Speaker Change: We are focused on creating a solution that significantly reduces the cost for components of the fuel cell stack via throughput increases utilizing our proprietary knowhow.
Joseph C. Bartolacci: We hope to announce a significant partnership for this development, as well, by year-end. Finally, with respect to our balance sheet, we will continue to emphasize debt reduction in our capital allocation and expect to further improve our leverage ratio by the end of the fiscal year. As we progress through fiscal 24, we anticipate continued demand in our energy storage solutions business, as evidenced by the recent flow of orders from multiple customers in the second quarter.
Speaker Change: We hope to announce a significant partnership for this development as well by our year end.
Speaker Change: Finally, with respect to our balance sheet, we will continue to emphasize debt reduction and our capital allocation and expect to further improve our leverage ratio by the end of the fiscal year.
Speaker Change: As we progress through fiscal 'twenty four we anticipate continued demand in our energy storage solutions business as evidenced by the recent global orders from multiple customers in the second quarter.
Joseph C. Bartolacci: We caution that customer delays within the energy business outside of our control have and may continue to impact our forecasted results. With that said, we expect to start deliveries of some of the orders soon. We expect further reductions in working capital in the latter half of the fiscal year and well into next year as those orders are delivered. As a result, we project adjusted EBITDA for fiscal 24 to be around $220 million. I'll now turn it over to Steve for more insight on our financial results. Thank you, Joe.
Speaker Change: We caution that customer delays within the energy.
Customer delays within the energy business outside of our control have and May continue to impact our forecasted results with that said, we expect to start deliveries of some of the orders soon we expect further reductions in working capital in the latter half of the fiscal year and well into next year as those orders are delivered as a result, we.
Speaker Change: Project adjusted EBITDA for fiscal 'twenty for it to be around $220 million.
Now I'll turn it over to Steve for more insight on our financial results Steve. Thank.
Steven F. Nicola: Thank you, Joe. Good morning.
Steven F. Nicola: Thank you Joe Good morning, let's begin with slide seven.
Steven F. Nicola: Let's begin with slide 7. For the fiscal 2024 second quarter, net income attributable to the company was $9 million, or $0.29 per share, compared to $9.1 million, or $0.29 per share a year ago. On a non-GAAP-adjusted basis, earnings for the current quarter were $0.69 per share compared to $0.65 per share last year. Income tax benefits for the current quarter generally offset the impact of slightly lower consolidated adjusted EBITDA and higher interest expense.
Steven F. Nicola: For the fiscal 2024 second quarter net income attributable to the company was $9 million or 29 cents per share compared to $9 $1 million or 29 per share a year ago.
Steven F. Nicola: On a non-GAAP adjusted basis earnings for the current quarter was <unk> 69 per share compared to <unk> 65 per share last year income tax benefits for the current quarter generally offset the impact of slightly lower consolidated adjusted EBITDA and higher interest expense.
Steven F. Nicola: Consolidated sales for the quarter ended March 31, 2024 were $471.2 million, compared to $479.6 million a year ago. Sales for the SGK brand solution segment increased for the current quarter, and memorialization sales remained relatively stable compared to last year. The industrial technology segment reported lower sales than the same quarter a year ago, with energy storage solution sales offset by lower warehouse automation sales.
Steven F. Nicola: Consolidated sales for the quarter ended March 31, 2024, or $471 $2 million compared to $479 $6 million a year ago sale.
Steven F. Nicola: Sales for the S. G. K brand solutions segment increased for the current quarter and memorialize Asian sales remained relatively stable compared to last year. The industrial technology segment reported lower sales than the same quarter, a year ago with energy storage solution sales offset by lower warehouse automation sales changes in <unk>.
Steven F. Nicola: Changes in currency rates were estimated to have a favorable impact of $4.8 million on fiscal 2024 consolidated sales compared to a year ago. Consolidated adjusted EBITDA for the fiscal 2024 second quarter was $56.8 million compared to $58.4 million. The SGK brand solution segment reported higher adjusted EBITDA for the current quarter, which was offset by lower adjusted EBITDA in the memorialization and industrial technology segments. Please see the Reconciliations of Adjusted EBITDA and Non-Gap Adjusted Earnings per Share provided in our earnings release. Please move to slide 8 to review our segment.
Currency rates are estimated to have a favorable impact of $4 $8 million on fiscal 2024 consolidated sales compared to a year ago.
Steven F. Nicola: Consolidated adjusted EBITDA for the fiscal 2024 second quarter was $56 8 million compared to $58 $4 million a year ago. The SDK brand solutions segment reported higher adjusted EBITDA for the current quarter, which was offset by lower adjusted EBITDA in the memorial ovation in industrial technology.
Steven F. Nicola: <unk> <unk>.
Steven F. Nicola: Please see the reconciliations of adjusted EBITDA and non-GAAP adjusted earnings per share are provided in our earnings release.
Steven F. Nicola: Please move to slide eight to review our segment results.
Steven F. Nicola: Sales for the memorialization segment for the fiscal 2024 second quarter were $222.2 million, which was relatively consistent with sales of $222.9 million for the same quarter a year ago. The recent acquisitions of a granite business in February 2023 and a casket distributor in January 2024, combined with the benefit of improved price realization, generally offset declines in sales volumes for cemetery memorials and caskets resulting from lower U.S. deaths post-COVI Memorialization segment adjusted EBITDA for the current quarter was $46.6 million, compared to $48 million for the same quarter last year.
Steven F. Nicola: Sales for the Memorial Ovation segment for the fiscal 2024 second quarter were $222 $2 million, which was relatively consistent with sales of $222 9 million for the same quarter a year ago.
Steven F. Nicola: The recent acquisitions of our granite business in February 2023, and the casket distributor in January 2024, combined with the benefit of improved price realization generally offset declines in sales volumes for cemetery memorials and caskets, resulting from lower U S des post COVID-19.
Steven F. Nicola: Sure.
Steven F. Nicola: Memorial <unk> segment adjusted EBITDA for the current quarter was $46 6 million compared to $48 million for the same quarter last year. The increase primarily resulted from the impact of lower memorial sales volumes and increased labor and material costs. These increases were partially offset by the.
Steven F. Nicola: The increase primarily resulted from the impact of lower memorial sales volumes and increased labor and material costs. However, these increases were partially offset by the favorable impact of recent acquisitions, improved pricing, and benefits from cost-savings initiatives. Please move to slide nine.
Steven F. Nicola: Favorable favorable impact of recent acquisitions improved pricing and benefits from cost savings initiatives.
Speaker Change: Please move to slide nine.
Speaker Change: Sales for the industrial technologies segment for the fiscal 2024 second quarter were $116 1 million compared to $125 $5 million a year ago. The.
Steven F. Nicola: Sales for the industrial technology segment for the fiscal 2024 second quarter were $116.1 million compared to $125.5 million a year ago. The decline primarily resulted from lower sales for the segment's warehouse automation and automotive engineering businesses. However, these decreases were partially offset by higher sales for energy storage solutions.
Speaker Change: The decline primarily resulted from lower sales for the segments warehouse automation and automotive engineering businesses.
The decreases were partially offset by higher sales for the energy storage solutions business.
Steven F. Nicola: Currency rate changes had a favorable impact of $944,000 on the segment's current quarter sales compared to a year ago. Adjusted EBITDA for the industrial technology segment for the current quarter was $10 million, compared to $15.6 million a year ago. The decrease primarily reflected the impact of lower warehouse automation sales, higher labor costs, and lower margins for the engineering business compared to a year ago. The reduction in engineering margins primarily reflected project timing as the prior period reflected higher-margin engineering design work.
Speaker Change: Currency rate changes had a favorable impact of $944000 on the segment's current quarter sales compared to a year ago.
Speaker Change: Adjusted EBITDA for the industrial technology segment for the current quarter was $10 million compared to $15 $6 million a year ago. The decrease primarily reflected the impact of lower warehouse automation sales higher labor costs and lower margins for the engineering business compared to a year ago.
Speaker Change: A reduction in engineering margins, primarily reflected project timing as the prior period reflected higher margin engineering design work.
Steven F. Nicola: The declines were partially offset by higher margins and improved pricing for product identification. Changes in currency exchange rates had a favorable impact of $103,000 on the segment's current quarter-adjusted EBITDA compared to a year ago. Please move to slide 10. Sales for the SGK brand solutions segment increased to $132.9 million for the quarter ended March 31, 2024, compared to $131.2 million a year ago. The increase primarily reflected higher sales in the U.S. brand market and for the European packaging and private label business, which also continued to benefit from improved prices. Currency rates had an unfavorable impact of $1.3 million on current quarter sales compared to a year ago.
Speaker Change: The declines were partially offset by higher margins and improved pricing for the product identification business changes in currency exchange rates had a favorable impact of $103000 on the segment's current quarter adjusted EBITDA compared to a year ago.
Speaker Change: Please move to slide 10.
Speaker Change: Sales for the SDK brand solutions segment increased to $132 $9 million for the quarter ended March 31, 2024, compared to $131 $2 million a year ago. The increase primarily reflected higher sales in the U S brand market and for the European packaging in private label.
Speaker Change: Mrs.
Speaker Change: The segment also continued to benefit from improved pricing.
Currency rates had an unfavorable impact of $1 $3 million on current quarter sales compared to a year ago.
Steven F. Nicola: Adjusted EBITDA for the SGK brand solution segment was $15.4 million for the current quarter compared to $11 million a year ago. The increase primarily reflected the benefits of higher sales, improved pricing, and the segment's recent cost reduction actions, offset partially by the impacts of higher labor-related costs and bonuses. Please move to slide 11. The company's consolidated cash flow from operations for the quarter ended March 31, 2024, was $57.1 million, compared to $80.9 million a year ago.
Speaker Change: Adjusted EBITDA for the SDK brand solutions segment was $15 $4 million for the current quarter compared to $11 million a year ago. The increase primarily reflected the benefits of higher sales improved pricing and the segment's recent cost reduction actions.
Speaker Change: Set partially by the impacts of higher labor related costs and bonus expense.
Speaker Change: Please move to slide 11.
Speaker Change: The company's consolidated cash flow from operations for the quarter ended March 31, 2024 was $57 $1 million compared to $89 million a year ago.
Steven F. Nicola: Operating cash flow for the current quarter primarily reflected the benefits of the company's consolidated adjusted EBITDA and working capital reduction. Operating cash flow last year reflected the benefits of the new UK Receivables Financing Facility and cash received from the settlement of several interest rate swaps in addition to working hours.
Speaker Change: Operating cash flow for the current quarter, primarily reflected the benefits of the company's consolidated adjusted EBITDA and working capital reduction.
Speaker Change: Operating cash flow last year reflected the benefits of the new U K receivables financing facility and cash received from the settlement of several interest rate swaps. In addition to working capital reductions.
Steven F. Nicola: Out of cash, the company had $843 million at March 31, 2024, compared to $862 million at December 31, 2023, representing a reduction of $19.6 million during the second quarter. Net debt, which represents outstanding debt less cash, was $797 million at March 31, 2024, compared to $824 million at December 31, 2023, representing a reduction of $27.2 million during the second quarter. At March 31, 2024, the company's leverage ratio based on net debt and trailing 12 months adjusted EBITDA was reduced to 3.62 compared to 3.71 at the end of the last quarter.
Speaker Change: Outstanding debt was $843 million at March 31, 2024, compared to $862 million at December 31, 2023, representing a reduction of $19 $6 million during the second quarter net.
Speaker Change: Net debt, which represents outstanding debt less cash was $797 million at March 31, 2024, compared to $824 million at December 31, 2023, representing a reduction of $27 2 million during.
Speaker Change: During the second quarter.
Speaker Change: At March 31, 2024, the company's leverage ratio based on net debt and trailing 12 months adjusted EBITDA was reduced to 362 compared to $3 seven one at the end of last quarter.
Steven F. Nicola: Additionally, we renewed our $750 million domestic revolving credit facility during the fiscal 2024 second quarter and are now focused on refinancing our bonds, which do not mature until December 2025. We fully expect this refinancing to be completed before the end of this fiscal year. For the fiscal 2024 second quarter, the company purchased only 1029 shares under its stock repurchase program, primarily reflecting our focus on debt reduction. While we will remain focused on debt reduction through the end of the fiscal year, we may also increase repurchase activity in light of current stock price levels and forecasted cash flow.
Speaker Change: Additionally, we renewed our $750 million domestic revolving credit facility during the fiscal 2020 for second quarter and are now focused on refinancing of our bonds, which do not mature until December 2025.
Speaker Change: We fully expect this refinancing to be completed before the end of this fiscal year.
Speaker Change: For the fiscal 2024 second quarter. The company purchased only 1029 shares under its stock repurchase program, primarily reflecting our focus on debt reduction.
Speaker Change: While we will remain focused on debt reduction through the end of the fiscal year. We may also increase the repurchase activity in light of current stock price levels and forecasted cash flow.
Steven F. Nicola: Approximately 30.7 million shares were outstanding at the end of the fiscal 2024 second quarter. Finally, the board last week declared a quarterly dividend of $0.24 per share on the company's common stock. The dividend is payable on May 20, 2024, to stockholders of record on May 6, 2024. This concludes the financial review, and we will now open the call for any questions. Christine.
Speaker Change: Approximately 37 million shares were outstanding at the end of the fiscal 2020 for second quarter.
Speaker Change: Finally, the board last week declared a quarterly dividend of 24 per share on the company's common stock.
Dividend is payable may 22024 to stockholders of record May six 2024.
Speaker Change: This concludes the financial review and we will now open the call for any questions Chris.
Speaker Change: Christine.
Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Christine: Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
Speaker Change: A confirmation tone will indicate your line is my question queue.
Christine: You May press Star two if you would like to remove your question from the queue.
Christine: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Operator: One moment, please, while we poll for questions. Thank you. Our first question comes from the line of Daniel Moore with CJS Securities. Please proceed with your question.
Christine: Thank you. Our first question comes from the line of Daniel Moore with CJS Securities. Please proceed with your question.
Thank you good morning, Joe Good morning, Steve.
Daniel Joseph Moore: Thank you. Good morning, Joe. Good morning, Steve. I appreciate the time. Good morning, Dan.
Daniel Joseph Moore: Good morning, Dan.
Joseph C. Bartolacci: Let me start with energy storage. Obviously, you know, the end market slowdown in EV is very well documented, so absolutely no surprise there. Just looking beyond the next few quarters, you know, you talked about it in your prepared remarks, Joe, but elaborate on what you're seeing and hearing from your customers as it relates to the longer-term transition to dry battery, to DBE production. Do you still expect that transition and the opportunity to be on par with what you would have thought maybe four to six quarters ago?
Daniel Joseph Moore: Start with the energy storage.
Daniel Joseph Moore: Yeah, obviously, you know the end market slowdown in E. V is very well documented so absolutely no surprise there just looking beyond the next few quarters.
Daniel Joseph Moore: You know you talked about it in your prepared remarks, Joe but elaborate on what youre seeing and hearing from your customers as it relates to the longer term transition to.
Daniel Joseph Moore: Dry battery to D. B production do you still expect that transition and the opportunity to be on par with what you would've thought you know maybe you know four to six quarters ago.
Joseph C. Bartolacci: I would tell you the transition is in place. I think the issue is timing. As you mentioned, Dan, it is slowing down a little, but our interest level has never been higher. The reality is the cost benefits, the efficiency, the productivity that comes out of our system, and the better battery will ultimately be the winner, we believe, and it's just slowed down the timing of when that will occur. We hope to have more discussions about this over the coming quarters, but nothing has changed from our perspective.
Daniel Joseph Moore: I would tell you the transition is in place I think the issue is timing I will view as you mentioned, Dan It is slowing a little but our interest level has never been higher.
Daniel Joseph Moore: The reality is the cost benefits and the efficiency and the productivity that comes out of our system and the better battery.
Will ultimately be the winner we believe and.
Daniel Joseph Moore: It just slowed and the timing of when that will occur. So we hope to have more discussion about this over the coming quarters.
Daniel Joseph Moore: But nothing has changed from our perspective.
Joseph C. Bartolacci: All right. And in the prepared remarks, you mentioned that platform is not the right word. I wasn't typing fast enough, but you plan to build out a platform to enable faster production. Just elaborate on that. And is there any incremental expense or capex associated with it?
Alright, and in the prepared remarks, you mentioned that the platform is not the right word I wasn't typing fast enough, but now you plan to build out a platform for to enable faster production just elaborate on that and is there any incremental expense or capex associated with it yeah.
Joseph C. Bartolacci: Yeah, so the reality is that the cycle for adoption in the auto industry is lengthy, especially when something is as innovative and new as our technology. The process of going through from development to full production could take multiple years. A lot of that has to do with the fact that the development cycle is currently being done in-house at a lot of these locations, whether it be battery manufacturers or other OEMs. We believe that we have enough know-how and the ability to build what I would call a production-like facility just for dry battery electrodes, allowing our customers to come in-house with their formulations and accelerate the adoption, so they can basically produce their own batteries with their own formulations, do the testing that is necessary, and already know what a production-like machine will look like.
Daniel Joseph Moore: Yeah. So the reality is that the cycle for adoption in the <unk>.
Daniel Joseph Moore: Auto industry is language, especially when something was as innovative and new is because our technology the process of going through from development to full production could take multiple years.
Daniel Joseph Moore: Well a lot of that has to do with the fact that the development cycle is currently being done in house at a lot of these locations, whether it would be battery manufacturers or other Oems.
Daniel Joseph Moore: We believe that we have enough knowhow and the ability to build a.
Daniel Joseph Moore: What I would call a production like facility just for dry battery electrode, allowing our customers to come in house with their formulation and accelerating the adoption. So they can basically produce their own batteries with their own formulations do the testing that is necessary and already know what a production like machine.
Daniel Joseph Moore: It looked like so I would call it the cereal serialization of manufacturing equipment and at least eliminating a lot of the customization and testing that is done in advance that's going to require probably $40 million worth of Capex over the next 12 to 18 months, but well within our.
Joseph C. Bartolacci: So I would call it the serialization of manufacturing equipment and at least eliminating a lot of the customization and testing that is done in advance. That's going to require probably $40 million worth of CapEx over the next 12 to 18 months, but well within our ability to fund.
Daniel Joseph Moore: Our our ability to fund.
Got it very helpful. And then on the Printhead solution product I D. Just update us on the transition to the new chip provider and your confidence in ramping that product as we think about 25 do you have orders in hand, and it's just a matter of getting the technology buttoned up or.
Joseph C. Bartolacci: Got it, very helpful. And then on the printhead solution product ID, just update us on the transition to the new chip provider and your confidence in ramping that product, as we think about 25. Do you have orders in hand, and it's just a matter of getting the technology buttoned up, or do we need to kind of go out and test again as that new chip is implemented and integrated and functioning?
Daniel Joseph Moore: Or do we need to kind of go out and test again as that new chip is implemented in an integrated and functioning smoothly. So we are having we've had great success I'm very happy with and provide a new provider out of Sweden.
Joseph C. Bartolacci: So, we've had great success and are very happy with a new provider out of Sweden that is helping us with the new chip. The current batch of wafers that have come in are exceptional. We've had, so far, no issues with respect to that.
Daniel Joseph Moore: This is helping us with that with the new chip. The current batch of wafers that have come in are exceptional we've had so.
Daniel Joseph Moore: So far no issues with respect to that.
Joseph C. Bartolacci: We expect, as we described before, we are in line with our expectation to be in the market early calendar 25. So, by January, end of December, January, we should start to be out there. Do we have customers? These are not multimillion-dollar projects. Dan, these are $10,000 to $15,000 each, but there are a lot of them sold.
Daniel Joseph Moore: We expect.
As we described before we are in line with our expectation to be in market early early calendar 'twenty five so by January and December January we should start to be out there do we have customers. These are not.
Multimillion dollar projects Dan These are 10 to $15000, each but theres a lot of them are sold.
Joseph C. Bartolacci: With the people we've already spoken to about what's coming, there's a lot of interest. Obviously, we're not going to start with the largest CPGs that are out there on day one, just to make sure that what we believe is a new and novel approach is functional and working well, so we don't burn it. But, at the same time, we'll be in the market here at the beginning of next year with a lot of upside to go. It's a very significant market out there that we don't participate in.
Daniel Joseph Moore: With the people we've already spoken to you about what's coming there's a lot of interest obviously, we're not going to start with the largest C. P genes that are out there day one.
Daniel Joseph Moore: Just to make sure that what we believe is correct.
Daniel Joseph Moore: Is and what we believe is a new and novel approach.
Daniel Joseph Moore: Is functional and working well so we don't burn it but at the same time, we will be in market here at the beginning of next year with a lot of upside to go.
Daniel Joseph Moore: A very significant market out there that we don't participate in.
Perfect.
Daniel Joseph Moore: And then I guess, just one more I'll jump back in queue and on an S. G can shock.
Joseph C. Bartolacci: And then, I guess just one more question, I'll jump back in line. On the SGK, on the SGK Brand Solutions, how much of the improvement in revenue is, you know, kind of easier comps, and how much is a more sustained commitment to spending that you're seeing or hearing from your customers? Thanks again.
Speaker Change: I missed you keep rent solutions, how much of the improvement in revenue as you know kind of easier comps and how much is more sustained commitment to spending that you're seeing or hearing from your customers. Thanks again.
Joseph C. Bartolacci: I guess the best way to describe it is that you've heard us speak about it, and you've read about it in the newspapers over the last several quarters. As CPGs have exhausted their ability to raise prices, they're having to reinvest in their brands through innovation and new product development. We believe this is sustainable. Most of the increase in top line came from North America. So you can see what's driving the markets, and we hope to be the leader as an industry in that spend. So I would tell you it's much more sustainable, and hopefully, more to come.
I guess, the best way to describe it as you've heard me speak about and you read about it in the newspapers over the last several quarters as Cpg's.
Speaker Change: Exhausted their ability to raise prices theyre, having to reinvest in their brands through innovation and new product development. We believe this is sustainable most of the increase in topline came from North America. So you can see where that what's driving the markets and we hope to be the leader as an industry are into that.
Speaker Change: Spend so I would tell you it's much more sustainable and more hopefully more to come.
Speaker Change: Yeah.
Speaker Change: Okay.
Liam Dalton Burke: Our next question comes from the line of Liam Burke with B. Reilly Securities. Please proceed with your question.
Speaker Change: Our next question comes from the line of Liam Burke with B Riley Securities. Please proceed with your question. Thank.
Liam Dalton Burke: Thank you. Good morning, Joe. Good morning, Steve. Hello, Liam. Good morning, Liam. Joe, on memorialization, cremation is still an important part of the business mix. How did that perform this quarter, and what's the outlook for the rest of the year?
Liam Dalton Burke: Thank you good morning, Joe Good morning, Steve.
Liam Dalton Burke: Hello, Good morning Liam.
Liam Dalton Burke: Joe I'm memorialized nation.
Liam Dalton Burke: Cremation is still an important part of the business mix, how did that perform this quarter and what's the outlook for the rest of the year.
Joseph C. Bartolacci: So, as we've said publicly before, we do about $125 million in product and services in the cremation segment. It performed well. I would tell you that we still have some opportunities to improve performance out of our cremation equipment manufacturing business that the team is looking at right now, which should give us a good tailwind from that business going into next year, Liam.
Liam Dalton Burke: So as we've said publicly before we do about $125 million in products and services in the.
Liam Dalton Burke: In the cremation segment.
Speaker Change: It performed well I would tell you that the.
Speaker Change: Still have some opportunities to improve performance out of our cremation.
Speaker Change: Equipment manufacturing business that the team is looking at right now, which should give us a good tailwind from that business going into next year Liam.
Liam Dalton Burke: Okay, great. Getting back to SGK, you did in your prepared statements talk about Europe branding, I guess, being up, but generally, you said that Europe remains a challenge. Are you just looking at easy comps, or are you looking at sort of a fragile recovery there?
Liam Dalton Burke: Okay great.
Liam Dalton Burke: Getting back to as T. K you did on your prepared statements talk about Europe branding I guess being up.
Liam Dalton Burke: But generally you said that Europe remains a challenge.
Liam Dalton Burke: Looking at easy comps or are you looking at sort of a fragile recovery there.
Joseph C. Bartolacci: I would say easy comps. I mean, I wouldn't say we've seen a recovery in Europe. The performance of the business still remains North America, with some help out of the APAC region. Europe has a while to go yet.
Liam Dalton Burke: I would say easy comps I mean, it's I wouldn't say, we've seen a recovery in Europe. The performance of the business still remains North America.
Liam Dalton Burke: And in some help out of the APAC region Europe as a while to go yet.
Joseph C. Bartolacci: and how did AIPAC do this? This quarter was okay.
Liam Dalton Burke: And had APAC there this year.
Liam Dalton Burke: This quarter was okay, with North America being the driver for the quarter. Super. Thank you, Joe.
Liam Dalton Burke: This quarter was okay.
Liam Dalton Burke: North America being the driver for the quarter.
Speaker Change: Super Thank you Joe.
Speaker Change: Our next question comes from the line of Justin Bergner with Gabelli. Please proceed with your question.
Justin Laurence Bergner: Our next question comes from the line of Justin Bergner with Gabelli. Please proceed with your question.
Justin Laurence Bergner: Good morning, Joe Good morning, Steve.
Justin Laurence Bergner: Good morning, Joe. Good morning, Steve.
Justin Laurence Bergner: Good morning, Justin. Good morning.
Justin Laurence Bergner: Good morning, Justin Good morning.
Justin Laurence Bergner: As you think about the revised EBITDA guidance for the current fiscal year.
Joseph C. Bartolacci: As you think about the revised EBITDA guidance for the current fiscal year, beyond the delays from your major energy storage customer, what are the other puts and takes to think about?
Justin Laurence Bergner: Beyond the.
Justin Laurence Bergner: Delays from your major energy storage customer what are the other puts and takes to think about.
Justin Laurence Bergner: In terms of how comfortable we are, Justin, could you help me understand the question a little bit better?
Speaker Change: In terms of how comfortable we are adjusting help me understand the question a little better just you know parts of the business, they're looking a little bit better than they were at the start of the fiscal year in parts of the business that we're looking at looking a little bit more challenged outside of Italy.
Joseph C. Bartolacci: Just, you know, parts of the business that are looking a little bit better than they were at the start of the fiscal year and parts of the business that were looking a little bit more challenged outside of the, you know, delays from the major energy storage customer. I would tell you, my summary comments are pretty consistent with that.
Speaker Change: From the major energy storage customer I would tell you that my my my summary.
Joseph C. Bartolacci: Memorialization is performing much better than we had maybe initially expected for the year. There's a lot of unknowns when you start a year, especially on the demand side of that business, and we obviously think we picked up some markets here, and that's performing well. And the new recent wind should help us as well.
Speaker Change: Comments are pretty consistent with that Memorial Division is performing much better than we had maybe initially expected for the year. There's a lot of unknowns. When you started years, especially when the demand side.
That business and we obviously think we picked up some market share and that's performing well and the new recent wins should help us as well S. G K as well.
Joseph C. Bartolacci: SGK as well is performing well, and we expect that to continue to be the case. You could have a quarter that's going to change, but at the end of the day, we think that is a sustainable business that this year will be a contributor to our results. Product identification is also performing very well.
Speaker Change: Our performance is performing well, we expect that to continue to be the case you could have a quarter, that's going to change, but at the end of the day, we think that that.
Speaker Change: That is a sustainable business that this year will be a contributor to our results product identification as well performing very well that there's a new team in place over there.
Joseph C. Bartolacci: There's a new team in place over there, and they are performing very well, and getting ready for the new launch should only make that business a bigger contributor as we go forward. Warehouse is being challenged I mean, it's making money. This is not a question of whether it's profitable or not. It's a question of what we would have expected going into the year. If you look into the automated warehouse marketplace, you'll see our competitors, who are much more public about it, struggling as well. We're consistent with that, but we think that turns out differently.
Speaker Change: And they are performing very well.
Speaker Change: Getting ready for the new launch would only make that business a bigger contributor as we go forward warehouses challenged I mean, it's not a I mean.
Speaker Change: It's making money. This is not a question of whether it's profitable or not it's a question of what we would've expected going into the year. If you look into the automated warehouse marketplace, you'll see at our competitors.
Speaker Change: Who are much more public about it are struggling as well I mean these numbers to be off 20, 30% on the top line, we're consistent with that but.
Joseph C. Bartolacci: I think that's a large capital spend. We've seen a number of our clients pull back on contracts because of the size of the capital spend, and maybe the interest rate environment may be impacting that as well. So warehouse has been a little bit of a challenge going forward. I think I've covered just about all the businesses other than energy at that point. Okay, great. That's very helpful.
Speaker Change: But we think that turns I think that's a large capital spend we've seen a number of our clients pull back on contracts because of the size of the capital spend and maybe the interest rate environment might be impacting that as well. So warehouses has been a little bit of a challenge.
Speaker Change: And going forward I think I've covered just about all of the businesses other than energy at that point.
Justin Laurence Bergner: On the energy side, you mentioned in the press release the benefit of orders from multiple customers, as a broader set of potential customers are able to kind of order production equipment more flexibly looking into, you know, later 2024 and early 2025. Is that kind of really opening up the spigot for orders and is that driving this? and a likely $40 million capex investment to standardize or serialize Hatchery Equipment. Yeah, so.
Speaker Change: Okay, Great. That's very helpful. On the energy side, you mentioned in the press release benefit of orders from multiple customers.
Speaker Change: You know as.
Speaker Change: The broader set of potential customers are able to kind of order production.
Speaker Change: Production equipment more flexibly looking into later 2024 and early 2025 is that kind of really opening up the spigot for orders and is that driving this likely 40 million capex investment too.
Speaker Change: Standardize materialize.
Speaker Change: The manufacturing equipment, yeah, So I would as it relates to the development cycle to help you understand and you go from a what I would call pre production machine to a production prototype to a production machine that is a multi quarter process or at a minimum so what we're doing is is what.
Joseph C. Bartolacci: As it relates to the development cycle, to help you understand, you go from what I would call a pre-production machine to a production prototype to a production machine. That is a multi-quarter process, at a minimum. What we're doing is, with the investment, taking one of those turns out, that prototype machine, as well as a lot of the testing that is done from the product that comes out of the manufacturing. Right now, the orders that we're seeing, I would say, would be on the smaller side. They're beyond just what I would call a lab machine. We're trying to take you from concept directly to production equipment with our investment.
Speaker Change: The investment, making taking one of those turns out that prototype machine as well as a lot of the testing that is done from the product that comes off the manufacturing. So right now the orders that we're seeing I would say it would be on the smaller side are there beyond just a what I would call lab machine, we're trying to take.
Speaker Change: You from concept directly to production equipment.
Speaker Change: With our investment in that should shorten that cycle significantly.
Justin Laurence Bergner: Okay, fantastic. But I guess the other part of my question was, you know, I think there was some intellectual property issues that might have hindered the ability of some of your potential customers in the energy storage side to, you know, order production equipment. That's probably rolling off. Is that an accelerant for customer interest at the present time?
Speaker Change: Okay fantastic, but I guess the other part of my question was Oh.
Speaker Change: There were some intellectual property I guess.
Speaker Change: Issues that might have hindered.
Speaker Change: Hindered the ability of some of your potential customers the energy storage side to order production equipment, that's probably rolling off is that yes, that's right.
Speaker Change: We're interested in the present time.
Joseph C. Bartolacci: Yes. Now I understand your question.
Speaker Change: Yes, no no I understand your question yes.
Speaker Change: There is a there are patents that are held on dry battery electrode products.
Joseph C. Bartolacci: Yes, there are patents that are held on dry battery electrode products that expire here in July, so the acceleration of interest and what I call the interest in investing has accelerated because of that. No question about that. And we're trying to facilitate that with our investors.
Speaker Change: That expires here in July so the acceleration of interest and what I would call the interest.
Speaker Change: Interest in investing has accelerated because of that no question about that and we're trying to facilitate that with our investment.
Speaker Change: Great. Thanks, so much.
Speaker Change: Sure.
Speaker Change: Our next question comes from the line of Nick <unk> with NR management. Please proceed with your question.
Nick Ripostello: Our next question comes from the line of Nick Ripostello with NR Management. Please proceed with your question.
Nick Ripostello: Good morning. This is more of a big picture question. You know, all the investments you've made in these other businesses outside of memorialization, how have they really benefited shareholders, you know, if you look at the stock price? So at any point, would you change the strategy and, you know, split up the businesses because, you know, shareholders really have not benefited for a long time from these businesses being together? Yeah.
Nick: Good morning. This is more of a big picture question.
Nick: You know all the investments you've made in these other businesses outside of Memorial nation.
Nick: How have they really benefited shareholders.
Nick: If you look at the stock price so at any point would you change the strategy and.
Nick: You know split up the businesses because shareholders really have not an opinion for a long time for.
Nick: From these businesses.
Nick: Businesses being together.
Joseph C. Bartolacci: Yeah, I understand your question. We have been fairly public with the commentary.
Speaker Change: Yeah I understand your question, we have had we've been fairly public what the what the commentary our hope is to continue to build these smaller businesses to a scale and then to begin to look at the strategy of what the business looks like going forward as they as a couple of these things come to market, whether it be the new new printhead into new product identification.
Joseph C. Bartolacci: Our hope is to continue to build these smaller businesses to a scale and then begin to look at the strategy of what the business looks like going forward. As a couple of these things come to market, whether it be the new printhead and product identification, and as energy starts to get some legs, I think it's fair to say that there will be an evaluation of what the business looks like at that time. At this point, with these three businesses still relatively nascent, I would say that we're probably not at that point yet.
Speaker Change: Asian, and as energy starts to get some legs to it I think it's fair to say that there will be an evaluation.
Speaker Change: Of what.
Speaker Change: The business looks like at that time at this point with these still these three businesses is still being relatively nascent.
Speaker Change: I would say that we're probably not at that point just yet.
Nick Ripostello: Okay, fair enough. Well, I'll just say this, and by the way... Your investor relations contact, you know, apparently, because I'm not an institutional investor, but I'm still a shareholder, a long-term shareholder, you can't get through to anyone to speak to or ask questions.
Speaker Change: Okay fair enough well I'll, just say this and by the way.
Speaker Change: Your Investor Relations contact.
Speaker Change: Currently because I'm, not an institutional and I'm still a shareholder for a long time shareholder.
Speaker Change: You can't get through to anyone to speak to our ask questions I find that a little troubling, but I'm.
Nick Ripostello: I find that a little troubling, but, you know. I'm sorry. I'm sorry to hear that. Well, I left many messages. But anyway, here's the issue. We all want to be long-term investors. And, you know, there is promising technology. I just hope that if this stock ends up under 20 or 19, and you never know what will happen as there are more push-outs and things. I'd like to see, you know, insiders buying a lot of stock. You know, I just hope that's the case for you because you're levered, you have to pay down debt now, and you're in a situation where you really can't take advantage at any dramatic level. But that's it. I just wanted to reflect my opinions and feelings.
Speaker Change: I'm, sorry, I'm, sorry to hear that.
Speaker Change: He left many messages, but anyway, here's the here's the issue we all want to be long term investors and there are promising technologies.
Speaker Change: Just hope that if the stock ends up you know under 2019 O N E.
Speaker Change: Now what will happen is there's more push outs and things.
Speaker Change: I'd like to see insiders buying a lot of stock you know I just I hope that's the case you because youre levered you have to pay down debt now you're in a.
Speaker Change: Situation when you really cant take advantage in any dramatic way, but that said I just wanted to reflect my my opinions my feelings. Thank you.
Joseph C. Bartolacci: Thank you so much. Nick, I'll see to it that somebody can try to reach out to you if we can get your information. I'm sorry about the investor contact.
Speaker Change: We will all see toward that somebody can drive to try to reach out to if we can get your information I'm, sorry about the investor contact.
Okay. Thanks.
Speaker Change: Our next question is a follow up question from Daniel Moore with CJS Securities. Please proceed with your question.
Daniel Joseph Moore: Our next question is a follow-up question from Daniel Moore with CJS Securities. Please proceed with your question.
Daniel Joseph Moore: I'm just kind of to get off mute. Thank you again I'm just looking Steve just kind of looking at that the industrial Tech I think you called out some less engineering work.
Daniel Joseph Moore: Thank you again. Just looking, Steve, just kind of looking at the industrial tech, I think you called out some less engineering work, but just kind of looking at the decrementals, you know, this quarter to Q2 last year, EBITDA margin, you know, the decrementals closer to 60% and a little bit higher than what, you know, we normally think. So anything else going on or weighing on margins that, you know, might be unusual or temporary? Dan Noses on Revenue Decline.
Daniel Joseph Moore: But just kind of looking at the Decrementals you know.
Daniel Joseph Moore: This quarter to Q2 last year.
Daniel Joseph Moore: EBITDA margin decrementals closer to 60%.
Daniel Joseph Moore: I'm, a little bit higher than what we do.
Daniel Joseph Moore: Normally think so anything else going on or weighing on margins that might.
Daniel Joseph Moore: Might be unusual or temporary.
Dan notices revlimid revenue decline.
Steven F. Nicola: Yeah, the two things to mention just to highlight with respect to industrial margins are, one, revenue declines, particularly on the warehouse side, and again, when we look at the engineering business, revenue was higher, but the stage of the phases of the work that we're working on now versus where we were comparable a year ago. Last year was more higher-margin, design-related work, and engineering design-related work. So those are the two major elements in the margin.
Together, the two things I mentioned and just to highlight with respect to the industrial margins are.
Daniel Joseph Moore: One it's the it's the revenue decline, particularly on the warehouse side and again, it's when we look at the engineering business revenue.
Our revenue was higher but the stage of the phases of the work that we're working on now versus where we were.
Daniel Joseph Moore: Comparable to a year ago last year was more of the higher margin design related work engineering design related work. So that's those are the two major elements to the to the margin impact.
Daniel Joseph Moore: Okay, helpful and appreciate the update on the debt. It just gives you a sense of what terms could look like on the refinancing of bonds or you know waiting and seeing given you have yeah at least a reasonable amount of time between now and year-end Yeah, we're we're working actually.
Okay helpful and I appreciate the update on the on the debt.
Speaker Change: Just you know if if you were to go to market today any sense for what terms could look like on the refinancing of bonds or.
Speaker Change: Waiting in a N C. Given you have Ah yeah.
Speaker Change: At least a reasonable amount of time between now and year end.
Steven F. Nicola: Yeah, we're working through that now and just starting to get and understand some of those market indicators.
Yes, we're work actually were working through that now and just starting to get and understand some of those market indications.
Speaker Change: Alright, Thank you again.
Speaker Change: Our next question is a follow up question from Justin Bergner with Gabelli. Please proceed with your question.
Justin Laurence Bergner: Our next question is a follow-up question from Justin Bergner on Gabelli. Please proceed with your question. Thanks.
Justin Laurence Bergner: Thanks. Two quick follow-ups here. You mentioned that as you deliver more equipment on the energy storage side, that will release working capital. Is there any way for you to frame sort of how much working capital is tied up? sort of released.
Justin Laurence Bergner: Thanks, two quick follow ups here, you mentioned as you deliver more equipment on the energy storage side that will release working capital is there any way for you to frame sort of how much working capital is tied up and can be sort of the least.
Justin Laurence Bergner: In that business.
Speaker Change: See about I'm looking at Steve, let's see whether we can give you.
Justin Laurence Bergner: I'm looking at Steve, let's see what we can give you, a perspective on it. I would tell you that it is a significant amount of working capital, but closer to $80 to $90 million, I would say.
Speaker Change: Perspective on it I would tell you that it is a significant amount of working capital, but closer to $80 million to $90 million I would say, Steve Yeah, Justin I'd say the.
Steven F. Nicola: Yeah, Justin, I'd say if, you know, when we release our 10-Q today, you'll see our balance sheet, but the areas, you know, the biggest area where you notice the working capital and the opportunity is going to be in an area called, the line item called contract assets, contract liabilities, because those are the line items of working capital that really reflect the work that we've done based on, not necessarily what we've built because that the revenue recognized versus when we've reached the milestones for billing purposes.
Steven F. Nicola: If when we release, our 10-Q today youll see our balance sheet, but the areas. The biggest area, where you notice the working capital and the opportunity is going to be in an area called the line item called contract assets contract liabilities because those are the line items of working capital that really reflect the work that we have.
Steven F. Nicola: Done based on not necessarily what we build because that would sit in accounts receivable, but the work that we've done.
And the difference between.
Steven F. Nicola: The revenue recognized versus when we've reached the milestones for billing purposes.
Speaker Change: Gotcha, Okay. So it would be a contract.
Justin Laurence Bergner: Gotcha. Okay, so it would be a contract... acid reliability, in this case.
Speaker Change: Asset or liability in this case.
Steven F. Nicola: It could be both, depending on where we stand with milestone payments on a particular aspect of a project.
Speaker Change: We'd actually be it could it could be both depending on where we sit with milestone payments on particular on a particular aspect of a project.
Speaker Change: Okay. So you'll see you should see both line items.
Justin Laurence Bergner: Gotcha. And then the other quick question was about the auto engineering business, which I assume relates to the acquisitions from a couple years ago. I realize that's more to support your energy storage business, or at least the acquisitions were. But is that business now profitable on an EBITDA basis, or does it still have a little ways to go? So there are a couple of things that are happening.
Speaker Change: And then the other quick question was the auto engineering business, which I assume.
Speaker Change: The acquisitions from a couple of years ago.
Speaker Change: I realize that's a more to support your energy storage business acquisitions work, but is that business now profitable on an EBITDA basis or does it still have a little ways to go.
Joseph C. Bartolacci: So there are a couple of things that are happening in that business. We are incrementally better than the prior year, modestly profitable at this point, but we're looking at a substantial change in that organization, starting hopefully here in the latter part of this fiscal year, as we've been in negotiations with the unions over there for quite a while, trying to get an adjustment both in terms of compensation as well as headcount that's fairly significant. We hope to talk a little bit more about that, Justin, a little later in the fiscal year once we get confirmation.
Speaker Change: There's a couple of things that are happening in that business. We are we are incrementally better than prior year modestly profitable at this point, but.
Speaker Change: We are we're looking at a substantial change in that in that organization, starting hopefully here in the latter part of this this fiscal year as we've been in negotiations with the unions over there for quite a while I'm trying to get an adjustment both in terms of compensation as well as head count that's fairly significant so we hope to have.
Speaker Change: Talk a little bit more about that Justin.
Speaker Change: A little later in the fiscal year once we get confirmation.
Justin Laurence Bergner: Great. Thanks.
Justin Laurence Bergner: Sure.
Speaker Change: Thank you Mr. Wilson, we have no further questions at this time I would like to turn the floor back over to you for closing comments.
William D. Wilson: Thank you. Mr. Wilson, we have no further questions at this time. I would like to turn the floor back over to you for closing comments.
William D. Wilson: Okay. Thank you, Christine. And again, thank you for joining us today and for 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.
Speaker Change: Okay. Thank you Christine and again, 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.
Speaker Change: Enjoy the rest of your day.
Speaker Change: 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.
Operator: 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.