Matthews International's SAP Delays and Shifting Memorialization Guidance Expose Earnings Call Contradictions

Date of Call: Aug 7, 2026

Financials Results

• Revenue: $246M, down from $349M a year ago
• EPS: Net loss of $0.75 per share, compared to net income of $0.49 per share a year ago

Guidance:

• Reduced adjusted EBITDA guidance to $158M-$162M for fiscal 2026.
• Memorialization segment target of approximately $175M in full-year adjusted EBITDA, a record year.
• Expect Propelis to exit calendar 2026 at an annualized EBITDA run rate of about $130M.
• Marketing process for Propelis divestiture to commence within next 12 months upon reaching $130M EBITDA run rate.
• Plan for $5M reduction in corporate costs next year over and above transition services costs.
• Expect engineering business improvement in 2027 post-restructuring.

Business Commentary:

Challenging Quarter and Strategic Actions:

• Matthews International reported a net loss of $23.7 million, or $0.75 per share, compared to net income of $15.4 million a year ago for Q3 FY2026.
• The decline was primarily due to lower operating performance in the Industrial Technologies segment, negative results from the equity investment in Propelis, higher strategic initiative costs, and lower income tax benefits.
• The company took decisive restructuring actions, including a cost reduction of $10 million annually in its European engineering operations and a corporate cost reduction of $5 million next year.

Memorialization Segment Performance:

• The Memorialization segment reported sales of $208 million for Q3 FY2026, a 2.1% increase from $204 million a year ago.
• Adjusted EBITDA was $42.2 million, roughly in line with the prior year’s $42.8 million.
• Sales were impacted by lower estimated U.S. casketed death rates and significantly higher input costs, particularly in copper, steel, and fuel.

Propelis Synergy Delays:

• The company's 40% share of Propelis' adjusted EBITDA contributed $12.7 million for Q3 FY2026, falling short of the expected $50 million for the full fiscal year.
• The delay was caused by the SAP implementation project taking longer than anticipated, impacting the timing of synergy capture.
• Despite the delay, the total anticipated synergy benefits remain clear, and the ultimate sale of Propelis is still expected to generate significant cash flow.

Product Identification Business Growth:

• Product identification sales grew 5% in Q3 compared to a year ago.
• The growth was supported by the strategic partnership with Linx Printing Technologies, expanding customer access to each company's product portfolio in key markets.
• The business continues to receive significant interest in the Imperia Axion Inkjet systems, demonstrating strong commercial response.

Energy Storage and DBE Technology:

• The engineering business faced delays due to overcapacity for battery production across the industry, but interest in the company's DBE solution is growing.
• Several leading players in the auto and battery industries are seeking testing time and joint development discussions.
• The company is commissioning a new mass production machine to test chemistry formulas at mass production scale, with expectations of significant interest from automotive manufacturers looking to own their battery manufacturing capabilities.

Sentiment Analysis:

Overall Tone: Negative

• CEO stated 'this was a difficult quarter' and 'this quarter did not deliver' on key expectations, attributing challenges to four identified risks. He said 'the outcome affirmed the limited scope of Tesla’s misappropriation and breach claims' with remaining phases not material. He noted 'significant headwinds' and a net loss, but expressed confidence in actions to prevent recurrence and confidence in long-term technology value.

Q&A:

• Question from Liam Burke (B. Riley Securities): On the DBE side, where are you on quotes, and do you have any type of visibility on potential order activity there?
  Response: Soft commitments for DBE mass production lines in 2027 from several auto and battery customers; successful internal tests ongoing.

• Question from Liam Burke (B. Riley Securities): How are you envisioning scaling the print technology JV in Europe?
  Response: Scaling limited by silicon fab capacity; bilateral agreement provides access to partner's products in North America; more markets to open as fab ramps.

• Question from Daniel Moore (CJS Securities): You don’t sound like someone that’s retiring. You’re still in the CEO seat until successor is identified? That’s the right way to think about it?
  Response: Yes, remains engaged until successor is hired; still has 'vim and vigor' to push forward initiatives like DBE and product identification.

• Question from Daniel Moore (CJS Securities): Memorialization, talk about margin compression and challenges with input costs, tariffs, and pricing.
  Response: Compression from low death rates, rising commodity costs, and tariffs; taking price actions and tariff mitigation steps; cautious to avoid mix shift; expects commodity cycle to normalize.

• Question from Daniel Moore (CJS Securities): Is it possible to bucket the $38M Industrial segment revenue by product ID and energy storage?
  Response: Engineering revenue was $14M; product identification revenue was about $24M, up 5%.

• Question from Daniel Moore (CJS Securities): Guidance implies $10M sequential improvement; what are the drivers beyond Propelis?
  Response: Cost actions in engineering, seasonally strong Q4 for cemetery and product ID business.

• Question from Daniel Moore (CJS Securities): Any details on timing for meaningful revenue ramp from DBE equipment?
  Response: Expect second half of 2027; discussions ongoing with auto OEMs and battery makers like LG; acceleration driven by need for control over battery production and new chemistries.

• Question from Daniel Moore (CJS Securities): Is litigation with Tesla still a hang-up for potential customers?
  Response: Largely past; the limiting nature of the Tesla ruling provides solid footing; one customer cited not wanting to get entangled in a Tesla suit, unrelated to DBE.

• Question from Justin Bergner (Gabelli Funds): Have we caught up on the SAP implementation at Propelis, or is there further delay risk?
  Response: Implementation delayed by one quarter; migration from legacy systems ongoing; synergies delayed but expected to scale.

• Question from Justin Bergner (Gabelli Funds): Have you seen elasticity risk from higher prices in memorialization?
  Response: Yes, some price elasticity seen this quarter with mix shift down within product lines (e.g., more expensive caskets to lower-priced ones), not significant share loss.

• Question from Justin Bergner (Gabelli Funds): What has changed for automakers to re-interest in DBE technology amid soft EV demand?
  Response: OEMs want control over battery production and are pursuing next-gen chemistries (e.g., solid state) that require dry electrode; government incentives and competition from Chinese firms are driving urgency; dry electrode offers lower cost and smaller footprint than wet electrode.

Contradiction Point 1

Memorialization Segment Outlook

Contradiction on volume growth expectations for the Memorialization business.

Daniel Moore (CJS Securities) - Daniel Moore (CJS Securities)

2026Q3: The company is taking action... and is sensitive to avoiding a mix shift down in product tiers. - [Joe Bartolacci](CEO)

How much of the Memorialization margin compression is due to timing of rising costs versus price increases, and is there a tariff impact? - Dan Moore (CJS Securities, Inc.)

2026Q2: Memorialization volume is expected to be stable to modestly down for the balance of the year. - [Joe Bartolacci](CEO)

Contradiction Point 2

Status of Propelis SAP Implementation

Contradiction on the progress and timeline of the critical SAP system migration.

Justin Bergner (Gabelli Funds) - Justin Bergner (Gabelli Funds)

2026Q3: The implementation is ongoing, with the delay causing a $5M shortfall to the full-year forecast. The work is currently delayed by one quarter... - [Daniel Stopar](CFO)

Has the SAP implementation on Propelis been completed, or is there a risk of further delays? - Dan Moore (CJS Securities, Inc.)

2026Q2: The big lift was getting the Propelis team on its own instance of SAP, which is now complete. The migration of SGS locations will start in about 90 days... - [Joseph Bartolacci](CEO)

Contradiction Point 3

Energy Storage/DBE Revenue Ramp Timeline

Contradiction on when significant revenue from DBE business will materialize.

Daniel Moore (CJS Securities) - Daniel Moore (CJS Securities)

2026Q3: A meaningful revenue ramp is currently expected in the second half of 2027. - [Joe Bartolacci](CEO)

For the MEODEO (DBE electrode) business, could you provide an update on customer interest, demo timelines, and potential revenue ramp? - Dan Moore (CJS Securities, Inc.)

2026Q1: FY26 revenue projection for Energy Solutions: $30–35 million. - [Joseph Bartolacci](CEO) & [Daniel Stopar](CFO)

Contradiction Point 4

Financial Impact of SAP Implementation Delay

Contradiction on the magnitude of the financial shortfall due to the SAP delay.

Justin Bergner (Gabelli Funds) - Justin Bergner (Gabelli Funds)

2026Q3: The implementation is ongoing, with the delay causing a $5M shortfall to the full-year forecast. - [Daniel Stopar](CFO)

Has Propelis caught up on the SAP implementation, or is there a risk of further delays? - N/A

20251121-2025 Q4: [No mention of any financial shortfall related to SAP implementation delays in the provided Q&A summary.] - N/A