Matthews International's Q4 2025: Contradictions Emerge on EV Market Overcapacity, M&A Strategy and Debt Reduction, Dry Battery Tech Interest, Cremation Business Stability, and Energy Storage Opportunities

Date of Call: None provided

Financials Results

• Revenue: $319.0M for Q4, down from $447.0M a year ago (decline primarily due to SGK divestiture; SGK impact ≈ $120M)
• EPS: Net loss $27.5M or $0.88 per share vs $68.2M or $2.21 a year ago; non-GAAP adjusted net income $15.0M or $0.50 per share vs $16.6M or $0.55 prior year

Guidance:

• Adjusted EBITDA for fiscal 2026 expected to be at least $180 million.
• Memorialization expected to grow in fiscal 2026 driven by a full-year contribution from the Dodge acquisition.
• Additional cost reduction actions planned in Engineering to mitigate declines; corporate costs expected to be materially lower after transition services agreements expire.
• Anticipate significant debt reduction from expected net proceeds (Warehouse Automation ~$160M net; European packaging/tooling ~ $30M) with transactions closing early fiscal 2026.

Business Commentary:

• Divestitures and Debt Reduction:
• Matthews International completed the divestiture of its Warehouse Automation unit, receiving $230 million, with $160 million expected to be applied to debt reduction.

• This transaction is expected to significantly reduce total debt, enhancing the company's financial health and facilitating future strategic initiatives.

• Memorialization Segment Performance:

• The Memorialization segment reported higher revenues and adjusted EBITDA, driven by the Dodge acquisition and cost reduction actions.

• The acquisition and the disposition of underperforming European cremation equipment business contributed to the segment's improved performance.

• Energy Storage Opportunities:

• Matthews International received an order for a production-scale machine for a U.S.-based solid-state battery manufacturer, reflecting increased interest in its proprietary dry battery electrode technology.

• The company is exploring partnerships to expand adoption of this technology globally, seeing opportunities in solid-state batteries and ultracapacitors for various energy storage applications.

• New Product Launch and Market Recognition:

• The new Axian printhead received GS1 certification, the global standard for 2D code adoption, enabling it to meet high-speed reading standards.
• This certification opens new market opportunities, with the product positioned as an alternative to continuous inkjet technology, enhancing Matthews' market competitiveness.
  

  Sentiment Analysis:

  Overall Tone: Positive

  • "We had a strong finish to the year"; management highlighted divestitures and balance-sheet improvement ("we reduced our debt by $66 million") and provided forward targets ("we expect our adjusted EBITDA guidance to be at least $180 million for fiscal 2026").

Q&A:

• Question from Colin Rusch (Oppenheimer): Can you talk about the opportunity set for solid-state and ultracapacitors — are you seeing incremental interest outside automotive and changes in chemistry more attuned to stationary power applications?
  Response: DBE technology applies broadly beyond vehicles (including ultracapacitors and stationary storage); management is seeing increasing non-automotive interest, citing a ~$50M storage-related customer opportunity.

• Question from Colin Rusch (Oppenheimer): With a more flexible cash position after divestitures, how should we think about M&A to augment your technology portfolio?
  Response: Near-term priority is reducing debt to the ~2.5x target; no active M&A—strategic transactions will be considered only after deleveraging and completing current divestitures/TSAs.

• Question from Liam Burke (B. Riley Securities): Are customers less reticent to work with you despite the Tesla litigation — are they more willing to engage now?
  Response: Customers' decisions are driven more by market demand and localization than litigation; interest persists but depends on end‑market dynamics (e.g., EV overcapacity vs. emerging solid‑state demand).

• Question from Liam Burke (B. Riley Securities): How is the Memorialization cremation business performing?
  Response: Memorialization is performing well overall; management sold an underperforming European unit, streamlined operations (facility consolidation), and sees continued solid results with room for improvement.

• Question from Will Gildea (CJS Securities): Update on beta testing for the new printhead (Axian): key steps before broader commercialization and TAM over the next 2–3 years?
  Response: Axian is in-market with deliveries starting in December, GS1-certified, but initial production is chip-constrained; management cites a TAM > $2B while noting early commercialization will be limited volume.

• Question from Will Gildea (CJS Securities): Regarding the $300M 5-8 bonds due in ~2 years, what options exist to call or refinance early?
  Response: Company is in a call period and actively evaluating alternatives to call/refinance the bonds, considering divestiture proceeds (warehouse, packaging) as part of the decision.

• Question from Justin Bergner (Gabelli Funds): Can you elaborate on solid-state opportunities for energy storage and which end markets they primarily feed?
  Response: Solid-state targets varied end markets (examples include motorcycles, small appliances and larger vehicles); management views solid-state as a longer-term, higher-density/safety solution with adoption expected over time.

• Question from Justin Bergner (Gabelli Funds): When you say excess capacity in automotive batteries, does that mean customers need to see incremental/localized capacity before adopting your solution irrespective of legal dynamics?
  Response: Automotive battery production currently shows overcapacity (especially in China); adoption will depend on localization and economics—customers are more likely to switch when localized capacity and favorable ROI align.

• Question from Justin Bergner (Gabelli Funds): What is the significance of GS1 certification for the new printhead/product ID solution?
  Response: GS1 certification is a global standard enabling 2D code reading at required line speeds; management says their equipment uniquely meets the quality and speed demands necessary for retailer-grade scanning.

• Question from Justin Bergner (Gabelli Funds): You mentioned ~$160M net proceeds from Warehouse Automation and ~$30M from European packaging/tooling—how much additional liability reduction (pension/securitized receivables) should we factor in?
  Response: Net proceeds already account for assumed liabilities: packaging/tooling had ~ $10M of assumed liabilities and Warehouse Automation a little under $10M; $160M net is what management expects to apply to debt after taxes/fees.

Contradiction Point 1

Electric Vehicle (EV) Market and Capacity Overcapacity

It involves the company's assessment of the EV market and capacity overcapacity, which could impact their strategic positioning and investment decisions.

Are customers willing to work with you despite the pending Tesla lawsuit? - Liam Burke (B. Riley Securities)

20251121-2025 Q4: Customers depend on market environments. They're not reticent but focused on market opportunities. EV has overcapacity on the battery side, while solid-state and ultracapacitors are smaller-market opportunities growing in demand. - Joseph Bartolacci(CEO)

Has the urgency to develop a rival DBE platform for Tesla's battery processing changed? - Liam Dalton Burke (B. Riley Securities, Inc., Research Division)

2025Q3: As demand grows and capacity localizes, our solutions' economic benefits will be more compelling. The trend towards electrification supports future capacity needs. - Joseph Bartolacci(CEO)

Contradiction Point 2

M&A Strategy and Debt Reduction

It reflects the company's strategic priorities regarding M&A and debt reduction, which are critical for financial health and future growth prospects.

How should we view M&A and technology investments given your flexible cash position? - Colin Rusch(Oppenheimer)

20251121-2025 Q4: Currently, our focus is on reducing debt, aiming for a net leverage ratio of 2.5x or better. Once SGK exits, we'll be well below this target. - Joseph Bartolacci(CEO)

What are the expected synergies and benefits from the SGK Brand Solutions sale? - Dan Moore(Analyst)

2025Q1: The deal realizes value for SGK at an attractive multiple, improving net leverage to less than 3 post-transaction. - Joseph Bartolacci(President and CEO)

Contradiction Point 3

Customer Interest in Dry Battery Electrode Technology

It highlights differing perspectives on the level of customer interest in the dry battery electrode technology, which is crucial for strategic planning and investor expectations.

What opportunities exist for solid-state and ultracapacitors in addressing data center power needs and buffering? - Colin Rusch (Oppenheimer)

20251121-2025 Q4: We're seeing increased interest in energy storage, including ultracapacitors and storage for data centers. - Joseph Bartolacci(CEO)

How does the $100M+ in customer quotes since early February compare to the same period last year? Where are you seeing renewed interest in terms of geography and end markets? - Daniel Moore (CJS Securities)

2025Q2: The $100 million plus in quotes reflects a significant increase from the previous year, showing strong interest in the dry battery electrode technology. - Joe Bartolacci(President & CEO)

Contradiction Point 4

Cremation Business Stability

It highlights differing perspectives on the stability and operational improvement of the cremation business, which is a key component of the company's operations.

How is the cremation business performing? - Liam Burke (B. Riley Securities)

20251121-2025 Q4: The cremation business is stable. We've sold underperforming European operations, and there's efficiency improvement ongoing, but we still see room for improvement. - Joseph Bartolacci(CEO)

What is the rate of Memorializations' year-over-year declines, and what are your expectations for its organic growth in Q3 and the remainder of the year? - Daniel Moore (CJS Securities)

2025Q2: The declines can be attributed to lower US casketed deaths and the closure of a UK cremation facility. There's a normalization of death rates compared to last year. Expectations for the segment remain stable. - Steven Nicola(CFO), Joe Bartolacci(President & CEO)

Contradiction Point 5

Energy Storage and Solid-State Opportunities

It involves the company's strategic focus and market opportunities in energy storage and solid-state technology, which are crucial for future growth and investment decisions.

What opportunities exist for solid-state and ultracapacitors in addressing data center power needs and power buffering? - Colin Rusch(Oppenheimer)

20251121-2025 Q4: We're seeing increased interest in energy storage, including ultracapacitors and storage for data centers. - Joseph Bartolacci(CEO)

Could you clarify the arbitrator's ruling and its impact on the energy segment's business? - Liam Burke(Analyst)

2025Q1: Ultimately, DBE solutions are designed for various applications, including solid-state batteries, ultracapacitors, and more. - Joseph Bartolacci(President and CEO)