Matthews International Q2 2025 Earnings Call Transcript

Quartr
Provided by Quartr
May 1, 2025
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Operator

Greetings, and welcome to the Matthews International Second Quarter Fiscal twenty twenty five Financial Results. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce Steven Nicola, Chief Financial Officer.

Operator

Please go ahead.

Steven Nicola
Steven Nicola
CFO & Treasurer at Matthews International

All right. Good morning. Thank you, Paul. I'm Steve Nicola, Chief Financial Officer of Matthews. And with me today is Joe Bartolacci, our company's President and Chief Executive Officer.

Steven Nicola
Steven Nicola
CFO & Treasurer at Matthews International

Before we start, I would like to remind you that our earnings release was posted on the company's website, www.matw.com in the investor section last night. The presentation for our call can also be accessed in the investor section of the website under presentations. 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 ks and other periodic filings with the SEC. In addition, we will be discussing non GAAP financial metrics and encourage you to read our disclosures and reconciliation tables carefully as you consider these metrics.

Steven Nicola
Steven Nicola
CFO & Treasurer at Matthews International

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, I will turn the call over to Joe. Thank you, Steve.

Joseph C. Bartolacci
Joseph C. Bartolacci
President and CEO at Matthews International

Good morning. Let me begin today's call by providing an update on our energy solutions business and the recent developments impacting its growth. As you are aware, we recently firmly established our ability and right to market, offer, and sell dry battery electrode technology solutions to third parties. However, during certain intervals of our dispute regarding our ownership rights with Tesla, we are intentionally cautious in our efforts to promote our technology to third parties other than Tesla. As we discussed in our last earnings call, we now have clarity regarding our right to sell DBE solutions and we have built an extensive and highly valuable portfolio of intellectual property, technology, and know how related to the critical components of the dry battery electrode offering.

Joseph C. Bartolacci
Joseph C. Bartolacci
President and CEO at Matthews International

With that said, I can share some positive news. From the time that we reopened our doors for business in mid February after receiving the desired clarity on our ownership rights, we have reengaged with multiple battery manufacturers and auto OEMs and have issued quotes in excess of $100,000,000 These opportunities represent DBE end market solutions comprised of a mix of our proprietary calendaring equipment and primer coating machines used in the electrodes production process. In the pipeline, mass production lines represent the bulk of the total and interest from the equipment for our equipment is coming from major geographies for EV battery productions including South Korea, Europe and North America. This activity confirms that the demand for our innovative engineering solutions that enable efficient production of EV batteries is significant and continues to create opportunities for Matthews. It is important to note, however, that the sales lead time in this industry is long.

Joseph C. Bartolacci
Joseph C. Bartolacci
President and CEO at Matthews International

The investments in new gigafactories which contemplate using our equipment are very large and require extensive planning. Therefore, in order to expand the market opportunity for our equipment, we are building solutions that allow existing facilities to retrofit their current wet process or expand existing production technology with our dry battery electrode solution. This retrofit, we believe, can open up material opportunities beyond the market only for new Gigafactories. Moving on to SGK news, as we announced earlier this month, all regulatory approvals for the transaction have been secured and we expect to close the transaction any day now. As we reported on last quarter's earnings calls, we will receive $350,000,000 in consideration upfront, including $250,000,000 in cash, the retention of receivables totaling about $50,000,000 which will be used to pay back our securitization and a $50,000,000 preferred instrument which we hope to convert to cash in twelve to eighteen months.

Joseph C. Bartolacci
Joseph C. Bartolacci
President and CEO at Matthews International

The cash component will be primarily applied to reducing debt. We are also proceeding well with the divestiture of our remaining German SGK assets that were not merged with SGS. This transaction is expected to close before fiscal year end. Together with the initial consideration for SGK, we expect total initial consideration from the sale of our brand solutions segment to approach $400,000,000. In addition to the initial consideration for SGK, we received a 40% interest in the combined SGKSGS entity.

Joseph C. Bartolacci
Joseph C. Bartolacci
President and CEO at Matthews International

This entity will start out with approximately $900,000,000 in revenue and about $100,000,000 of EBITDA and $300,000,000 of bank debt. Our current projections expect over $50,000,000 of synergies to be achieved post integration at which time we intend to exit our ownership. Our current expectation is that we will receive an additional $300,000,000 from this investment as well. Also of note during the quarter, our warehouse automation business entered into an agreement with Teradyne Incorporated to market autonomous robotic solutions for the next generation of warehouse automation. This partnership uniquely positions us to promote autonomous vehicles or robotic picking solutions, which will be controlled by our highly recognized warehouse execution software.

Joseph C. Bartolacci
Joseph C. Bartolacci
President and CEO at Matthews International

Together, we will we will offer further cost and efficiency enhancements to new and existing warehouses while again distinguishing our software as a market leader in the warehouse execution software space. As for our second quarter results, consolidated sales came in generally as expected, but lower on a year over year basis, primarily due to the challenge faced by our energy solutions business. Overall, we reported $428,000,000 in consolidated sales in the fiscal twenty twenty five second quarter compared to April in the second quarter of twenty twenty four. Adjusted EBITDA for the second quarter twenty five was higher than anticipated and primarily reflected the benefits gained from our recent cost reduction efforts. Adjusted EBITDA was $51,400,000 in the second quarter of twenty twenty five compared to $56,800,000 in the 2024 corresponding period.

Joseph C. Bartolacci
Joseph C. Bartolacci
President and CEO at Matthews International

With respect to the businesses, SGK reported another solid quarter highlighted by its best sales quarter since the fourth quarter of fiscal twenty twenty two. The strong performance was primarily driven by new account growth in The Americas and some benefit from price realization. We believe that the business is well positioned to reach a higher level of performance once coupled with SGS given each businesses complimentary assets and anticipated synergies. Integrating some of these businesses such as the respective Flexo platforms will enable the new entity to take full advantage of scale and grow. Additionally, the new entities combined creative business, which will focus on packaging, e commerce, and other brand related marketing efforts will generate approximately $200,000,000 in revenue and will be a formidable competitor to other agencies given its size, geographic breadth and access to low cost support.

Joseph C. Bartolacci
Joseph C. Bartolacci
President and CEO at Matthews International

Moving on to industrial technologies, let me add some color to our energy solutions performance in the quarter. We still have a backlog of about $70,000,000 in equipment. We're also working on a number of opportunities which will involve our innovative solutions as applied towards solid state battery development and energy grid storage. Grid storage represents the fastest growing area for battery development with a significant available market for our innovative solutions, which is in addition to the market opportunity for electric vehicles. Moving on to warehouse automation, sales in the second quarter were lower year over year reflecting slow market recovery.

Joseph C. Bartolacci
Joseph C. Bartolacci
President and CEO at Matthews International

However, we saw encouraging signs during the quarter with very strong order intake indicative of a turning new market, which we expect will be realized in the second half of this fiscal year. Those signs included an active quoting market and record orders from prominent brands resulting in a backlog that has returned to healthy levels. Product identification reported relatively flat year over year results for the second quarter of twenty twenty five, and we remain on track with our new product launch for later this summer. Memorialization revenues were down by 7% in the second quarter compared to the prior year, primarily due to volume declines in our bronze and grant businesses. The primary driver of the lower revenue was the decline in casketed deaths during the quarter and the closure of our UK cremation facility earlier this year.

Joseph C. Bartolacci
Joseph C. Bartolacci
President and CEO at Matthews International

We did receive benefit from pricing actions, but not enough to offset these events. As for our balance sheet, our debt position increased modestly during the quarter, but as I highlighted earlier in our discussion, we expect to apply proceeds from the STK transaction to our revolver. Additionally, given the current levels where our shares are trading, we believe it makes sense to utilize a portion of the proceeds towards repurchasing our stock. Note also that our bonds are not callable until September. At that time, we will evaluate whether or not to address those notes contingent on market conditions.

Joseph C. Bartolacci
Joseph C. Bartolacci
President and CEO at Matthews International

Regarding tariffs, we believe that we have put actions in place to mitigate the impact of tariffs as they currently are contemplated. New sourcing and pricing in areas of the business with the most impact should manage the consequences and we should see very little impact in our fiscal twenty five results. Looking to the balance of the year, we expect another stable year results from our memorialization business. Based on recent order rates, we expect our warehouse automation segment to show improved results in the second half of the year as that market begins to turn. Additionally, our cost reduction initiative is ongoing and on track to generate cost savings in excess of our initial projection of $50,000,000 With regard to SGK, as I've stated, we expect the transaction to close soon.

Joseph C. Bartolacci
Joseph C. Bartolacci
President and CEO at Matthews International

Therefore, assuming five months of our proportional ownership of SGKSGS, we have updated our adjusted EBITDA guidance to at least $190,000,000 It is important to note, however, that our new guidance of $190,000,000 would be equal to our original guidance of $2.00 $5,000,000, but for the sale of SGK. Finally, regarding our strategic initiatives that we began last several quarters ago, it continues as we believe that the company's intrinsic value is significantly higher than where the stock currently trades. We are committed to finding ways to unlock shareholder value through this process and all possibilities are being considered. Unfortunately, current market turbulence has made our efforts somewhat more challenging, but we hope that the markets will calm in the near future, and we expect our efforts will be successful. Like we did with SGK, we are determined to prudently highlight the fair value of our businesses, and we are sure that we will.

Joseph C. Bartolacci
Joseph C. Bartolacci
President and CEO at Matthews International

Now I'll turn it over to Steve to deliver the financial for the quarter's results.

Steven Nicola
Steven Nicola
CFO & Treasurer at Matthews International

Thank you, Joe. For the financial review, let's begin with slide seven. For the fiscal twenty twenty five second quarter, the company reported a net loss of $8,900,000 or $0.29 per share compared to net income of $9,000,000 or $0.29 per share a year ago. On a non GAAP adjusted basis, net income attributable to the company for the current quarter was 10,500,000 or $0.34 per share compared to $21,800,000 or $0.69 per share last year. The decline primarily reflected the impacts of lower adjusted EBITDA, which I will discuss in a few minutes, higher interest expense for the current quarter and an unfavorable tax impact from losses in our German operations.

Steven Nicola
Steven Nicola
CFO & Treasurer at Matthews International

Consolidated sales for the fiscal twenty twenty five second quarter were $427,600,000 compared to $471,200,000 a year ago. The decline primarily reflected lower sales for the industrial technology segment mainly reflecting lower engineering sales. Additionally, sales for the memorialization segment declined compared to primarily due to lower unit volumes. Estimated US casketed deaths declined from the same quarter a year ago. Sales for the SGK Brand Solutions segment were modestly higher than the second quarter last year primarily reflecting increases in The US and Asia Pacific markets.

Steven Nicola
Steven Nicola
CFO & Treasurer at Matthews International

Consolidated adjusted EBITDA for the fiscal twenty twenty five second quarter was $51,400,000 compared to $56,800,000 a year ago. The decrease primarily reflected declines in the industrial technologies and Memorialization segments. Adjusted EBITDA for the SGK Brand Solutions segment increased modestly compared to last year. Please see the reconciliations of adjusted EBITDA and non GAAP adjusted earnings per share provided in our earnings release. Please move to slide eight to review our segment results.

Steven Nicola
Steven Nicola
CFO & Treasurer at Matthews International

Sales for the Memorialization segment for the fiscal twenty twenty five second quarter were $205,600,000 compared to $222,200,000 for the same quarter a year ago. Sales volumes for bronze and granite cemetery memorials and caskets were lower for the quarter compared to last year, primarily resulting from lower US casketed deaths. Cremation equipment sales were also lower for the quarter. In addition, the recent disposal of our unprofitable cremation and incineration equipment operations in Europe unfavorably impacted sales for the current quarter. These declines were partially offset by improved price realization.

Steven Nicola
Steven Nicola
CFO & Treasurer at Matthews International

Changes in foreign currency rates had an unfavorable impact of $422,000 on the segment's current quarter sales compared to a year ago. Memorialization segment adjusted EBITDA for the current quarter was $45,000,000 compared to $46,600,000 for the same quarter last year. The decrease primarily resulted from the impact of lower sales and increases in material and labor related costs. These increases were partially offset by the favorable impacts of improved pricing, benefits from cost savings initiatives, and the disposal of the European operations which were generating operating losses. Please move to slide nine.

Steven Nicola
Steven Nicola
CFO & Treasurer at Matthews International

Sales for the Industrial Technology segment for the fiscal twenty twenty five second quarter were $80,800,000 compared to $116,100,000 a year ago. The decline mainly resulted from lower sales for the segment's engineering business, principally energy storage solution sales. Warehouse automation sales were also lower for the quarter. In addition, the shutdown of our unprofitable R and S automotive business, which was acquired in connection with the Ulbrich acquisition in 2022 contributed to the segment's year over year sales decline. Changes in currency rates had an unfavorable impact of $1,500,000 on the segment's current quarter sales compared to a year ago.

Steven Nicola
Steven Nicola
CFO & Treasurer at Matthews International

Adjusted EBITDA for the Industrial Technologies segment for the current quarter was $6,000,000 compared to $10,000,000 for the same quarter a year ago. The decrease primarily resulted from the segment sales decline offset partially by the benefits of recent cost reduction actions. Please move to slide 10. Sales for the SGK Brand Solutions segment increased to $141,200,000 for the quarter ended 03/31/2025 compared to $132,900,000 a year ago. The increase primarily reflected higher merchandising sales and increases in The US and Asia Pacific brand markets.

Steven Nicola
Steven Nicola
CFO & Treasurer at Matthews International

European packaging cylinders and brand sales declined from a year ago. Currency rates had an unfavorable impact of $2,500,000 on the segment's current quarter sales compared to a year ago. Adjusted EBITDA for the SGK Brand Solutions segment was $15,600,000 for the current quarter compared to $15,400,000 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. Please move to slide 10.

Steven Nicola
Steven Nicola
CFO & Treasurer at Matthews International

Cash flow provided by operating activities for the fiscal twenty twenty five second quarter was $6,300,000 compared to $57,100,000 a year ago. Costs in connection with the SGK transaction, the contested proxy and our restructuring actions were significant contributors to the decrease from a year ago. On a year to date basis, cash utilized in operating activities was $18,700,000 for the current year compared with cash provided by operating activities of $29,800,000 last year. In addition to the current quarter items, the year to date change also reflected payments in connection with litigation costs. Outstanding debt was $822,000,000 at 03/31/2025 compared to $8.00 $9,000,000 at 12/31/2024.

Steven Nicola
Steven Nicola
CFO & Treasurer at Matthews International

The company's net debt, which represents outstanding debt less cash, was $782,000,000 at the end of the current quarter compared to $776,000,000 at 12/31/2024. Upon the closing of the SGK transaction, we expect a significant reduction in debt. For the fiscal twenty twenty five second quarter, the company purchased approximately 5,900 shares under its stock repurchase program. These purchases were related to withholding taxes on equity compensation vesting as we remained primarily focused on debt. However, as we previously indicated with the stock price at its current levels, we intend to use some of the SGK proceeds for stock repurchases.

Steven Nicola
Steven Nicola
CFO & Treasurer at Matthews International

As we previously disclosed, we recently initiated cost reduction programs that span several of our business units and corporate functions. These programs are expected to result in annual consolidated savings up to $50,000,000 and we currently remain on track to achieve and potentially exceed this target. The most significant portions of the estimated savings will be from our engineering and tooling operations in Europe and our general and administrative costs. With respect to our fiscal twenty twenty five earnings expectations, we previously projected adjusted EBITDA of at least $2.00 $5,000,000 for fiscal twenty twenty five which contemplated the SGK Brand Solutions segment in our consolidated results for the full year. Based on an SGK transaction closing date in early May, our pro form a consolidated adjusted EBITDA projection for fiscal twenty twenty five has been updated to at least $190,000,000 This projection is subject to adjustment based on the actual closing date.

Steven Nicola
Steven Nicola
CFO & Treasurer at Matthews International

This projection replaces the full results of SGK for the remaining five months of fiscal twenty twenty five with a pro form a projection for our 40% interest in the new entity. The updated amount maintains our original projection of the February for the year modified only for the pro form a impact of the SGK transaction. Please note that as a result of the integration process of the new entity and transition to its own standalone reporting systems, we plan to report our 40% interest in the earnings of the new entity on a one quarter lag. As a result, our actual reported adjusted EBITDA will differ from pro form a results during this period. Finally, the board declared yesterday a quarterly dividend of $0.25 per share on the company's common stock.

Steven Nicola
Steven Nicola
CFO & Treasurer at Matthews International

The dividend is payable 05/26/2025 to stockholders of record May twelve, twenty twenty five. This concludes the financial review and we will now open the call for

Steven Nicola
Steven Nicola
CFO & Treasurer at Matthews International

questions. Paul?

Operator

Thank you. We'll now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove your question from the queue.

Operator

For participants using speaker equipment, it may be necessary to pick up the handset before pressing your star keys. One moment please while we poll for questions. Our first question is from Daniel Moore with CJS Securities.

Daniel Moore
Director of Research at CJS Securities

Thank you. Good morning, Joe. Good morning, Steve. Start with energy storage. How does the $100,000,000 plus in customer quotes since early February compare to where we were this time for the same period last year?

Daniel Moore
Director of Research at CJS Securities

And you touched on it in the prepared remarks, but where are you seeing the most renewed interest? I assume that's all outside of Tesla, but by geography and end market, where are you seeing customers come back to you?

Joseph C. Bartolacci
Joseph C. Bartolacci
President and CEO at Matthews International

Lot of questions in there, Dan. Good morning. So let me kind of parse through. If I miss something, let me please re ask. So as it relates to a year ago, you noticed in my comments, I said we were relatively out of the market from a marketing a year ago.

Joseph C. Bartolacci
Joseph C. Bartolacci
President and CEO at Matthews International

So I would tell you that the hundred million plus of quotes that we have out today is dramatically higher than the same period last year. There was, I mean, there was no time other than when we were dealing with Tesla where we have in quotes of that significance. So this is all very good news for us and frankly shows what we think is the interest in our solution. Secondly, where is it coming from? Without giving names, it but you can pick the geographies.

Joseph C. Bartolacci
Joseph C. Bartolacci
President and CEO at Matthews International

It's South it's South Korea. It's which is a large part of it. I mean, the battery operators in that part of the world are extremely interested in this solution. We have several OEMs in North America and in Europe also talking to us, but we also have a growing interest in what we call the energy, the grid storage side of this business as people are starting to look for expansions into other areas for the use of electric storage devices. What is important to understand, and we have been trying to emphasize this over the last several quarters, this particular solution, dry battery is, dry battery electrode is applicable to all forms of battery storage, whether it's a cell phone that you're holding in your hand or whether it's a a flashlight or an automobile or energy storage device, it's applicable to all those technologies.

Joseph C. Bartolacci
Joseph C. Bartolacci
President and CEO at Matthews International

So we're only scratching the surface of where this this opportunity can go.

Daniel Moore
Director of Research at CJS Securities

Alright. That does cover a lot of those. Thank you. Memorialization, just maybe talk about the cadence of year over year, declines over the past couple of months and what are your expectations for organic growth overall for the segment fiscal Q3 and the balance of the year?

Steven Nicola
Steven Nicola
CFO & Treasurer at Matthews International

Dan, I'll start with that and I'll let Joe finish the question. But one of the other factors in the year over year comparability was we did have another quarter where we were weak. The comparable last year included higher than normal granite related sales. As a year ago in this past quarter, we were still working off significant backlogs from the pandemic. That was one other comparable that contributed to the reported decline year over year.

Joseph C. Bartolacci
Joseph C. Bartolacci
President and CEO at Matthews International

I would tell you that in reality we saw some normalization, continued normalization on comparative basis over prior years. We saw higher death rates than we would have expected last year, and I think we're seeing a little bit of that pullback this quarter.

Daniel Moore
Director of Research at CJS Securities

Okay. One more and I'll jump back in queue. Just remind me, Steve, the cost reduction actions, 50,000,000, you know, and I think teasing could be a little higher. Just remind us how much is in the fiscal twenty five guide and what would be left sort of for incremental benefit to '26?

Steven Nicola
Steven Nicola
CFO & Treasurer at Matthews International

Right now, it's running about 20 this year, 30 next year.

Daniel Moore
Director of Research at CJS Securities

Okay.

Steven Nicola
Steven Nicola
CFO & Treasurer at Matthews International

Roughly.

Daniel Moore
Director of Research at CJS Securities

I'll jump back with any follow ups.

Operator

Thank you. Our next question is from Colin Rausch with Oppenheimer.

Colin Rusch
Managing Director - Head of Sustainable Growth & Resource Optimization Research at Oppenheimer & Co. Inc.

Thanks so much, guys.

Colin Rusch
Managing Director - Head of Sustainable Growth & Resource Optimization Research at Oppenheimer & Co. Inc.

With the customer engagement on the battery side, can you talk about the maturity of the testing process and evaluation from those customers as well as their interest and potential for you guys to aggregate a turnkey line for any of these folks, particularly in North America?

Joseph C. Bartolacci
Joseph C. Bartolacci
President and CEO at Matthews International

Again, a couple of questions. Good morning, Colin. I would tell you, as I said in my comments, the vast majority of the volume of those 100,000,000 plus in quotes is mass production. So these are not, these are people that are well beyond their testing phase, and they're into the development of the specs associated with mass production lines. Unlike our friends that we've done work with over the last several years who had been working on it for multiple years.

Joseph C. Bartolacci
Joseph C. Bartolacci
President and CEO at Matthews International

These folks have been working on the testing they worked on it for multiple years and then put a mass order in. These folks have been working in the background on our test equipment for quite a while, and the machinery that we're talking about right now is what they would call their mother equipment, which is the primary machine that represents the example of what they expect their production equipment to look like. So the first one to go out with a little bit less finality as to what it's going to be, and then ultimately, they'll tweak that machine to what they want in a more significant order thereafter as they start to see it run. You the other part of your question, Colin, I lost

Colin Rusch
Managing Director - Head of Sustainable Growth & Resource Optimization Research at Oppenheimer & Co. Inc.

It was about turnkey, your your ability to Turnkey. Yeah. Offer turnkey solutions. Yeah.

Joseph C. Bartolacci
Joseph C. Bartolacci
President and CEO at Matthews International

So starting here, we expect it by September. We've talked about this before with with the street that we expect to have a machine here September, October ish that we will allow some of our customers to come in and to operate on a production level piece of equipment rather than having to design from scratch what they're looking for. We will have a production level piece of equipment, including material handling on the front end side of it, that right now that is not our proprietary solution. We've got a couple of partners we're bringing in to work with that. So the intent is to allow large battery manufacturers and other OEMs to come in with their materials, run through the process on our equipment at production rates and see what that looks like and tweak their final specs to that.

Colin Rusch
Managing Director - Head of Sustainable Growth & Resource Optimization Research at Oppenheimer & Co. Inc.

Super helpful. And then just shifting gears to warehouse automation, given what we're seeing in terms of deteriorating labor productivity in warehouses, some of the slowdown in overall build out, but then a lot of work being focused on optimizing throughput on these facilities. Can you talk a little bit about your strategy around evolving that part of the business? Obviously, you've got a nice set of customer engagements, but supplementing that with technology from other folks and being able to aggregate more robust solutions, It seems like an area where you could start accelerating growth. Just want to get a sense of your overall thought process on how much more you augment the offering and how you see that opportunity emerging over the next several years.

Joseph C. Bartolacci
Joseph C. Bartolacci
President and CEO at Matthews International

Sure. You heard me on my comments talk about our partnership with Teradyne. Teradyne is the owner of MiR robotics. MiR is a leading provider of robotics into a lot of industries from autos and other associates. This is an area they do not sell into at all right now.

Joseph C. Bartolacci
Joseph C. Bartolacci
President and CEO at Matthews International

We've got a couple of other partnerships as well. We seem to be quite the bell of the ball. We've been uniquely positioned because of our we don't have reliance on hardware, so in other words, we don't sell conveyors and heavy sorters and all the heavy equipment associated with warehouses. So our ability to come in and offer robotic solutions is unique, and our ability to go back to our existing customers and augment their productivity with our partnership with Teradyne is a significant opportunity in our view. We'll continue to expand those relationships.

Joseph C. Bartolacci
Joseph C. Bartolacci
President and CEO at Matthews International

We don't have any great intention of acquiring any kind of robotics associations with this, but there are other small investments we'll make to the portfolio to allow us to be a unique provider in the space. Remember, we sell warehouse execution software. Warehouse execution runs the inside of a warehouse. We're now going to be running the robotics that we've talked about, and now we have a partnership with one of the leaders in the space. So that's where we're going.

Colin Rusch
Managing Director - Head of Sustainable Growth & Resource Optimization Research at Oppenheimer & Co. Inc.

Thank you so much, guys.

Operator

Our next question is from Justin Bergner with Gabelli Funds.

Justin Bergner
Portfolio Manager, Research Analyst at Gabelli Funds

Good morning, Joe. Good morning, Steve. Lots of moving parts, mostly good. So I had a few questions. Just some kind of quick cleanup questions.

Justin Bergner
Portfolio Manager, Research Analyst at Gabelli Funds

The cost out, the 50,000,000 cost out, is any of that tied to SGK?

Joseph C. Bartolacci
Joseph C. Bartolacci
President and CEO at Matthews International

No. Is this is to be perfectly frank, it is associated with the downsizing of the volumes, associated with the volumes in our energy business in Europe and at corporate.

Justin Bergner
Portfolio Manager, Research Analyst at Gabelli Funds

Okay. Gotcha. And then the SGAK accounting post close, you'll be including their equity income on a one quarter lag in your EBITDA or 40% of

Steven Nicola
Steven Nicola
CFO & Treasurer at Matthews International

No. No, Justin. What we'll do is on a GAAP basis, we'll be including our equity income, our equity portion of their net income in our GAAP net income. It'll be one line item on our income statement. For purposes of the adjusted EBITDA amount, we'll include their actual adjusted EBITDA on a one quarter lag, but also provide a pro form a for that one quarter lag.

Steven Nicola
Steven Nicola
CFO & Treasurer at Matthews International

So, we will have we will be presenting our pro form a full period results, if you will.

Joseph C. Bartolacci
Joseph C. Bartolacci
President and CEO at Matthews International

Remember, Justin, they're integrating onto our systems. We hope this is not a permanent, a long, long term situation, but as they migrate onto our systems, it's going to be a little bit choppy from a reporting standpoint. It'll hopefully several quarters like this and then will be real time.

Justin Bergner
Portfolio Manager, Research Analyst at Gabelli Funds

Gotcha. That makes sense. So you're going to actually be showing an estimate for the current quarter EBITDA in the pro form a and then the actual gap accounting is a one quarter lag just to make sure that it's correct given the changes taking place within the joint venture?

Joseph C. Bartolacci
Joseph C. Bartolacci
President and CEO at Matthews International

That's correct.

Justin Bergner
Portfolio Manager, Research Analyst at Gabelli Funds

Okay. Thank you. In terms of the share repurchase, I mean, your current authorization is fairly modest. Would you then be considering once SGK closes changing or expanding the share repurchase authorization?

Joseph C. Bartolacci
Joseph C. Bartolacci
President and CEO at Matthews International

You're anticipating what's coming. So, yes.

Justin Bergner
Portfolio Manager, Research Analyst at Gabelli Funds

Okay. Gotcha. And then more substantive questions. So this retrofit opportunity, just can you provide a little bit more color as to how it would work to retrofit wet

Joseph C. Bartolacci
Joseph C. Bartolacci
President and CEO at Matthews International

Sure. This so sure. So essentially, the process for building a battery is multiple steps. One of the steps is the electrode production itself. The electrode production right now the wet process utilizes what we've described for a long time, a slurry containment system.

Joseph C. Bartolacci
Joseph C. Bartolacci
President and CEO at Matthews International

You create a slurry, you coat it, you bake it off over a hundred meter oven, and then you wind it, and continue the rest of the process. Our equipment comes in and takes up a fraction of that space and generates far more battery, far more electrode than you can with a wet production cycle right now. So the opportunity is, and we've got a cost justified for those customers as they're looking at it, we'll deliver that turnkey solution and drop it into your facility. You can run it simultaneous with or eliminate all your wet process and all the solvent handling portions in that business, but nothing else in your factory needs to change.

Justin Bergner
Portfolio Manager, Research Analyst at Gabelli Funds

Okay. And would you expect a similar size and price tag as a mass production system or would this be a smaller version?

Joseph C. Bartolacci
Joseph C. Bartolacci
President and CEO at Matthews International

Is a mass production. So this is mass production. It's just the elimination of their mass production of wet electrode for our mass production of dry.

Justin Bergner
Portfolio Manager, Research Analyst at Gabelli Funds

Okay. So what's different versus a new battery factory, for example?

Joseph C. Bartolacci
Joseph C. Bartolacci
President and CEO at Matthews International

New new battery factory. In a retrofit, frankly, I mean, if you if to produce the amount of electrode necessary, that if I had a a a gigafactory that needed to produce in wet today, the replacement of our equipment on this space could probably triple the amount of electrode being produced in that similar space. So that well, that's what changes essentially is the efficiencies that are generated by using dry battery electrode.

Justin Bergner
Portfolio Manager, Research Analyst at Gabelli Funds

Okay. But what would you be supplying that's different in a retrofit situation versus a new factory situation?

Joseph C. Bartolacci
Joseph C. Bartolacci
President and CEO at Matthews International

Oh, now I understand. Nothing. Nothing. It's the same it's the same equipment we would sell to others, but what what what we'd have to sell is what that's part of the strategy of developing our our own solution turnkey that allows customers to come in. They don't have they won't have to go through the process of having to develop their specs and ultimately testing.

Joseph C. Bartolacci
Joseph C. Bartolacci
President and CEO at Matthews International

Our expectation is once they're able to run at speed, they can order it from our machine directly into their into their plant.

Justin Bergner
Portfolio Manager, Research Analyst at Gabelli Funds

Okay. That makes Yeah.

Joseph C. Bartolacci
Joseph C. Bartolacci
President and CEO at Matthews International

I'm sorry.

Justin Bergner
Portfolio Manager, Research Analyst at Gabelli Funds

That makes sense. And then lastly, the grid storage opportunity. I mean, I understand how that could be attractive, but help me understand the business case for dry versus wet or whatever you'd be replacing there versus the business case in the EV world. It just it doesn't jump out as much.

Joseph C. Bartolacci
Joseph C. Bartolacci
President and CEO at Matthews International

It's exactly the same. Wet is a much less efficient process. Secondly, when you talk about grid storage, could be talking about different thicknesses of the actual electrode itself. You can get a thicker electrode using dry electrode than you can with wet. So the chemistries that you use in grid storage are different than EV batteries, and as a result, what you end up with is the a better solution that's less expensive for grid storage than current tech current technology.

Joseph C. Bartolacci
Joseph C. Bartolacci
President and CEO at Matthews International

So the dynamics, the value propositions are exactly the same for e for EV and grid. The difference is, frankly, the opportunity for EV could probably be larger if the world went EV, but still, it's an addition to what we're doing right now. So we think it's a market expansion.

Justin Bergner
Portfolio Manager, Research Analyst at Gabelli Funds

Gotcha. Alright. Thank you for taking all my questions.

Operator

Sure. Thank you. There are no further questions at this time. I'd like to hand the floor back over to Steven Nicola for closing remarks.

Steven Nicola
Steven Nicola
CFO & Treasurer at Matthews International

All right. Thank you, Paul. And we'd like to thank everyone for participating in our call this morning. And we look forward to our next call in July following the third quarter fiscal earnings. Have a great day.

Executives
    • Steven Nicola
      Steven Nicola
      CFO & Treasurer
    • Joseph C. Bartolacci
      Joseph C. Bartolacci
      President and CEO
Analysts
    • Daniel Moore
      Director of Research at CJS Securities
    • Colin Rusch
      Managing Director - Head of Sustainable Growth & Resource Optimization Research at Oppenheimer & Co. Inc.
    • Justin Bergner
      Portfolio Manager, Research Analyst at Gabelli Funds
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Key Takeaways

  • Since mid-February, Matthews has reengaged multiple battery manufacturers and auto OEMs on its dry battery electrode (DBE) technology, issuing over $100 million in quotes across key EV geographies and developing retrofit solutions to convert existing wet-process lines.
  • Matthews anticipates closing the SGK Brand Solutions divestiture imminently, receiving approximately $400 million in initial consideration (including $250 million cash) plus a 40% stake in the combined SGKSGS entity, with plans to apply proceeds to debt reduction and share repurchases.
  • Second-quarter consolidated sales totaled $428 million, down year-over-year primarily due to industrial technologies, while adjusted EBITDA of $51.4 million exceeded expectations thanks to cost reduction efforts.
  • Segment highlights included SGK’s best sales quarter since Q4 FY22, record order intake in warehouse automation restoring a healthy backlog, and a 7% decline in memorialization revenues driven by lower casket volumes amid normalized death rates.
  • Matthews updated its fiscal 2025 adjusted EBITDA guidance to at least $190 million pro forma for SGK, continues a $50 million cost-saving program, declared a $0.25 quarterly dividend, and is exploring strategic actions to unlock long-term shareholder value.
AI Generated. May Contain Errors.
Earnings Conference Call
Matthews International Q2 2025
00:00 / 00:00

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