Matthews International Corporation (MATW) — FY2023 Form 10-K
Reporting period: Fiscal year ended September 30, 2023. This annual filing covers the full fiscal year, not a standalone 2023 fourth quarter. Matthews operates in Memorialization, Industrial Technologies, and SGK Brand Solutions.
Financial performance
| Metric | FY2023 | FY2022 |
|---|---|---|
| Sales | $1.881 billion | $1.762 billion |
| Gross profit / margin | $577.7 million / 30.7% | $522.3 million / 29.6% |
| Operating profit (loss) | $88.1 million | $(43.9) million |
| Net income (loss) attributable to Matthews shareholders | $39.3 million | $(99.8) million |
| Diluted EPS | $1.26 | $(3.18) |
| Adjusted EBITDA, non-GAAP | $225.8 million | $210.4 million |
| Cash from operating activities | $79.5 million | $126.9 million |
| Capital expenditures | $50.6 million | $61.3 million |
Gross margin improved to 30.7% from 29.6%. Adjusted EBITDA margin was approximately 12.0%, versus 11.9%. Interest expense rose to $44.6 million from $27.7 million, primarily due to higher average rates.
Segment results
| Segment | FY2023 sales | FY2022 sales | FY2023 adjusted EBITDA | FY2022 adjusted EBITDA |
|---|---|---|---|---|
| Memorialization | $843.0 million | $840.1 million | $164.0 million | $151.8 million |
| Industrial Technologies | $505.8 million | $335.5 million | $66.3 million | $56.8 million |
| SGK Brand Solutions | $532.1 million | $586.8 million | $57.1 million | $60.1 million |
Industrial Technologies’ sales growth mainly reflected the OLBRICH and R+S Automotive acquisitions, along with stronger energy-storage and product-identification sales. Memorialization benefited from pricing, mausoleums, cremation equipment, and the Eagle Granite acquisition, partly offset by lower casket and bronze memorial volumes. SGK sales and adjusted EBITDA declined amid lower U.S. and European brand and cylinder sales.
Liquidity, debt, and capital allocation
- Cash and cash equivalents were $42.1 million at year-end, compared with $69.0 million a year earlier. Working capital was $253.7 million; the current ratio was 1.6.
- Total debt was $790.2 million, including $463.2 million drawn on the revolving credit facilities and $298.5 million of 5.25% senior notes due December 2025. The $750 million domestic revolver matures in March 2025. The company reported compliance with debt covenants.
- Operating cash flow fell to $79.5 million, including working-capital outflows and $24.2 million of payments to settle SERP and ORRP obligations. The filing also identifies cash proceeds from receivables programs as operating cash flow.
- FY2023 dividends paid were $28.2 million, or $0.92 per share. Capital spending for FY2024 was estimated at approximately $75 million; management expected operating cash flow to fund anticipated capital spending.
- At year-end, $101.8 million of receivables had been sold under the receivables purchase agreement, which matures in March 2024; $18.0 million of factored receivables remained outstanding under a separate U.K. arrangement.
Material changes, outlook, and notable items
- Consolidated sales increased 6.7% year over year, despite an estimated $23.6 million unfavorable currency impact. Adjusted EBITDA rose 7.3%; GAAP net income recovered from the prior-year loss, which included an $82.5 million SGK goodwill impairment.
- Fiscal 2023 included $12.2 million of acquisition integration and other charges in gross profit and $12.5 million of acquisition, systems-integration, and cost-reduction charges in selling and administrative expenses. These and other adjustments are among management’s non-GAAP exclusions.
- SGK’s goodwill fair value exceeded carrying value by approximately 4% in a September 2023 interim assessment, down from approximately 9% in January. Further impairment is possible if projections or valuation assumptions deteriorate.
- Management cited over $200 million of new energy-storage orders received in FY2023’s first quarter, expected to affect Industrial Technologies sales through mid-FY2024. The company provided no consolidated numerical earnings or sales guidance in the supplied filing text. Backlog was generally expected to be substantially filled in FY2024.
- Management expected labor-cost increases, supply-chain challenges, and other inflation effects to continue near term, with partial mitigation from pricing and cost reductions. Other key exposures include foreign exchange, interest rates, raw-material costs, changing cremation and mortality patterns, competition, global conflicts, cybersecurity, and environmental compliance.
- Auditors issued unqualified opinions on the financial statements and internal controls; management also concluded internal control over financial reporting was effective. The principal critical audit matter was valuation of SGK goodwill.
Important facts for investors to verify
- Whether SGK’s limited goodwill valuation cushion and weaker segment sales lead to further impairment or operating deterioration.
- How much operating cash flow depends on receivables sales and factoring, and the renewal or replacement terms for the March 2024 receivables agreement.
- Refinancing plans and borrowing costs ahead of the March 2025 revolver maturity and December 2025 senior-note maturity, given higher variable rates.
- Conversion of the large Industrial Technologies order book into revenue and cash, and performance after the acquisitions.
- Whether FY2024 capital spending, working-capital needs, and dividends can be funded while maintaining adequate liquidity.
- The durability of FY2023 margin improvement after pricing, productivity benefits, and non-GAAP exclusions are considered alongside ongoing labor, material, and integration costs.