Matthews International Corporation — FY2021 Form 10-K
Reporting period: Fiscal year ended September 30, 2021. This filing reports annual results; it does not provide standalone fourth-quarter financial results. Matthews provides brand solutions, memorialization products, and industrial technologies through three reporting segments.
Financial performance and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $1,671.0 million | $1,498.3 million |
| Gross profit / margin | $541.8 million / 32.4% | $497.8 million / 33.2% |
| Operating income (loss) | $42.0 million | $(64.2) million |
| Net income (loss) attributable to Matthews shareholders | $2.9 million; $0.09 diluted EPS | $(87.2) million; $(2.79) diluted EPS |
| Adjusted EBITDA | $227.8 million | $203.1 million |
| Cash from operating activities | $162.8 million | $180.4 million |
| Capital expenditures | $34.3 million | $34.8 million |
| Total debt | $763.7 million | $834.5 million |
Revenue increased 11.5%; adjusted EBITDA rose 12.1%. Gross margin declined 0.8 percentage points. The GAAP net result improved substantially, primarily because FY2020 included a $90.4 million goodwill impairment; FY2021 net income remained modest. Adjusted EBITDA is a company-defined non-GAAP measure and should not be treated as a substitute for GAAP earnings or operating cash flow.
All three segments grew sales year over year: SGK Brand Solutions $726.9 million (up 4.9%), Memorialization $769.0 million (up 17.2%), and Industrial Technologies $175.1 million (up 17.4%). Memorialization adjusted EBITDA was $165.7 million, SGK $99.7 million, and Industrial Technologies $26.7 million. Segment sales and adjusted EBITDA are reported before corporate and non-operating costs.
Operating cash flow was lower than FY2020 and included a $15.0 million discretionary defined-benefit-plan contribution. At September 30, 2021, cash and cash equivalents were $49.2 million, restricted cash was $19.2 million, working capital was $269.9 million, and the current ratio was 1.8. Total debt declined by $70.8 million; the company had $349.8 million drawn on its $750 million revolving facility and $96.0 million outstanding under its receivables securitization facility. The $35 million term loan was repaid in March 2021. The company reported compliance with debt covenants.
FY2021 dividends were $0.86 per share. The company repurchased 380,109 shares for $11.9 million. Management estimated FY2022 capital expenditures of approximately $60 million and said it expected operating cash flow and borrowing capacity to meet foreseeable capital needs.
Changes, outlook, risks, and unusual items
- Drivers and pressures: Higher Memorialization unit sales, including caskets, reflected COVID-19 impacts; all segments also benefited from higher sales in selected products and markets. Productivity measures and price realization helped, while higher material and transportation costs, labor and other inflationary pressures, and price competition weighed on results.
- Outlook: Management expected COVID-related customer, facility, and supply-chain disruptions and inflation to affect near-term results, with partial mitigation expected from pricing and cost-reduction programs. The filing provides no specific FY2022 revenue or earnings guidance. Backlogs for custom systems and certain equipment were elevated; management expected the current backlog to be substantially filled in FY2022 absent COVID-related disruptions.
- Pension plans: The company froze and planned to terminate its defined-benefit plan. Subsequent to year-end, it contributed $20 million and paid $178.2 million in lump-sum distributions, settling a substantial portion of the plan. Management expected a non-cash charge exceeding $30 million in FY2022 Q1, additional FY2022 contributions of approximately $15 million, and approximately $24.2 million of FY2023 payments to settle SERP and ORRP obligations.
- Goodwill and amortization: No goodwill impairment was recorded in FY2021, but the Graphics Imaging reporting unit’s estimated fair value exceeded carrying value by only approximately 5%; adverse changes in projections or valuation assumptions could require an impairment. Intangible amortization rose to $84.2 million, including effects of revised useful lives for certain customer relationships.
- Legal and contingent matters: A Saudi Arabian court judgment in the company’s favor over a customer letter-of-credit dispute was final and enforceable, but recovery remains uncertain; the company had reserved the full funded letter-of-credit amount. Management did not expect other ordinary-course legal proceedings to materially affect consolidated results or cash flows.
- Other risks: The filing highlights supply-chain delays and costs, labor shortages and wage inflation, commodity prices, foreign exchange, COVID-19, competitive pressures, changing mortality and cremation trends, acquisitions, cybersecurity, regulatory compliance, and environmental remediation. Approximately 34% of FY2021 sales were to customers outside the United States.
Important facts for investors to verify
- Whether cash generation and margins can withstand continuing input-cost, transportation, labor, and supply-chain pressures.
- FY2022 performance and backlog conversion, including the demand and profitability of engineered energy-storage products and warehouse automation systems.
- The actual pension-settlement charge, remaining plan funding needs, and settlement of SERP and ORRP obligations.
- Graphics Imaging goodwill headroom and the sensitivity of impairment estimates to revenue, margins, and discount rates.
- Extension and terms of the receivables securitization facility, which matured in March 2022, and the European credit facility, which matured in December 2021; management stated it intended to extend both.
- Collection prospects for the Saudi Arabian judgment and any resulting change to the existing reserve.
- The company reported unqualified audit opinions and effective internal control over financial reporting as of September 30, 2021.