Matthews International Q4 2025: Contradictions Emerge on Energy Storage Timelines, Debt Strategy, and SGK Divestiture Plans

Financials Results

• Revenue: $319M, down from $447M YOY, primarily due to SGK divestiture
• EPS: $0.50 per share (non-GAAP adjusted), down from $0.55 per share YOY, primarily due to SGK divestiture

Guidance:

• Adjusted EBITDA guidance for fiscal 2026 is at least $180 million, inclusive of the 40% interest in Propelis.
• Expect a full year contribution from the Dodge acquisition, enabling Memorialization segment growth in fiscal 2026.
• Plan additional cost reduction actions at the engineering business to mitigate further declines and convert opportunities into orders.
• Corporate costs expected to be materially lower after expiration of transition services agreements from divestitures.

Business Commentary:

• Strategic Divestitures and Simplification:
• Matthews International completed the divestiture of SGK and Warehouse Automation, with the latter sold for $230 million, of which $160 million is expected to be used for debt reduction.
• The company retained a 40% stake in Propelis, which is now operating at an EBITDA run rate higher than the $100 million assumed at the deal's closing.

• These actions were part of a strategy to simplify the corporate structure and focus on higher-growth businesses.

• Financial Performance and Cost Reduction:

• The company reported a net loss of $27.5 million or $0.88 per share for Q4 2025, compared to a net loss of $68.2 million or $2.21 per share a year ago.
• Consolidated adjusted EBITDA was $51.5 million, down from $58.1 million due to the SGK divestiture, but Memorialization segment adjusted EBITDA increased to $45.1 million.

• Cost reduction actions resulted in a $8.5 million reduction in full-year corporate costs, and debt was reduced by $66 million.

• Growth Investments and Acquisitions:

• The acquisition of Dodge contributed significantly to the Memorialization segment's performance, with sales increasing to $209.7 million.
• The launch of the new printhead, Axian, has received positive market response, with GS1 certification highlighting its ability to meet 2D code quality standards.

• These investments are aimed at positioning the company for long-term success in higher-growth, higher-margin businesses.

• Energy Storage and Battery Technology:

• The company received an order for a production-scale machine for a U.S.-based solid-state battery manufacturer and is exploring a $50 million opportunity for a battery separator line.
• The proprietary dry battery electrode technology has attracted interest from multiple parties, reinforcing Matthews' leadership in this area.
• The focus is on expanding adoption of this technology through partnerships and strategic investments.

Sentiment Analysis:

Overall Tone: Positive

• "We're very pleased with the company's results. We had a strong finish to the year in a challenging economic environment." "We believe a full year contribution from the Dodge acquisition will enable Memorialization to grow in fiscal 2026." "Based on these factors and inclusive of our 40% interest in Propelis, we expect our adjusted EBITDA guidance to be at least $180 million for fiscal 2026."

Q&A:

• Question from Colin Rusch (Oppenheimer): Congratulations on the progress with the customers on the battery side. Can you talk a little bit about the opportunity set when you think about solid-state and ultracapacitors, given what we're seeing with data center power needs and power buffering. Are you seeing any incremental interest on the ultracapacitor side or changes in chemistry that may be more attuned to some of the stationary power application rather than the mobile applications?
  Response: The dry battery electrode technology applies to various energy storage needs beyond vehicles, including ultracapacitors and data center storage. A $50 million order opportunity for a battery separator line is expected in early fiscal 2026, and the pipeline exceeds $150 million.

• Question from Colin Rusch (Oppenheimer): And then with the strategic review, you've been able to divest a number of businesses. You're potentially in a more flexible cash situation. How should we think about M&A and augmenting some of the technology portfolio that you guys have a really solid foundation with here as you look at some of these bigger opportunities starting to emerge in a more concrete way?
  Response: The immediate focus is on reducing debt to the target of 2.5x or better. After debt reduction, the company will explore strategic initiatives and partnerships, particularly in energy, memorialization, and new printhead technology, but has nothing imminent on the table.

• Question from Liam Burke (B. Riley Securities): Joe, you called out a firm order, and then you also called quantified another potential order. You also quoted pipeline opportunities. Is it -- are your customers less reticent to start working with you even though the Tesla lawsuit has not been completely resolved yet?
  Response: Customers are more focused on market conditions and localized capacity than the litigation. Interest exists in European EV markets and solid-state batteries, which have different dynamics with smaller volumes but higher efficiency.

• Question from Liam Burke (B. Riley Securities): Fair enough. And on Memorialization, cremation, is that still -- how is that doing?
  Response: The cremation business is performing fine. The underperforming European business was sold, and operations have been integrated into the Florida facility, with room for further improvement.

• Question from Will Gildea (CJS Securities): This is Will, on for Dan. Can you provide an update on beta testing for the new Printhead solution? What are the key steps before you can commercialize it more broadly? And how should we think about the TAM for that product over the next 2 to 3 years?
  Response: The Axian printhead is already in market with initial sales starting in December. It has GS1 certification for 2D codes and is the only printer meeting speed requirements. The total addressable market is over $2 billion.

• Question from Will Gildea (CJS Securities): And looking at the balance sheet, the $300 million 5-8 bonds aren't due for another 2 years. What are your options to call or refinance early if you were to choose to do so?
  Response: The company is in a call period for the bonds and will evaluate refinancing options, especially with proceeds from pending divestitures, but no specific plans were detailed.

• Question from Justin Bergner (Gabelli Funds): Just to start, could you elaborate the solid-state opportunities for energy storage, which end markets are those primarily feeding?
  Response: Solid-state battery opportunities span various applications from small appliances to larger vehicles. Solid-state technology offers advantages like higher energy density, lighter weight, and faster charging, with a customer order already received.

• Question from Justin Bergner (Gabelli Funds): Okay. When you say there's excess capacity in the battery side as it relates to the automotive opportunity for energy storage, is what you're saying effectively that even though you have a better solution with the wet, I guess, capacity already installed, you need to see incremental capacity before customers come to you independent of the legal dynamics?
  Response: Excess battery capacity exists globally, but demand is also shifting towards localized production. The company's technology has better economics and will become more attractive as new capacity expands and requires replacement.

• Question from Justin Bergner (Gabelli Funds): And then just the certification for the new chip head -- product ID solution. What is the significance of that certification?
  Response: GS1 certification standardizes 2D code reading globally. The company's Axian printhead is the only one capable of printing at speeds that match the efficiency of traditional barcode scanners, critical for retail operations.

• Question from Justin Bergner (Gabelli Funds): Got you. All right. And then one last cleanup question, if I may. So you mentioned $160 million net proceeds from Warehouse Automation and $30 million of net proceeds from European packaging and tooling, both to close in the first quarter. Just how much liability reduction should we also factor in whether it's pension or securitized receivables on top of that $160 million and $30 million?
  Response: The $160 million net proceeds from Warehouse Automation and $30 million from the packaging tooling business already include assumed liabilities. The buyer assumes approximately $10 million in liabilities for each transaction.

Contradiction Point 1

Pipeline and Order Conversion Timelines for Energy Storage

This represents a significant shift in the expected timing for a major revenue-generating order, moving from a specific near-term forecast to a vague, extended future expectation. The $50M U.S. battery separator line opportunity, previously expected in 60-90 days, is now described as "currently being worked on" without a new timeline, directly impacting revenue visibility.

Can you outline the opportunities for solid-state and ultracapacitors in addressing data center power needs and buffering? Are there incremental interests or chemical changes making ultracapacitors more suitable for stationary power applications over mobile ones? - Colin Rusch (Oppenheimer)

20251121-2025 Q4: A $50 million U.S. opportunity for a battery separator line (for storage, not automobiles) is currently being worked on, indicating strong interest in stationary power applications like data centers. - Joseph Bartolacci(CEO)

How long until the $150 million energy storage pipeline converts? Are you still fulfilling Tesla orders? - Justin Bergner (Gabelli Funds, LLC)

2025Q3: A significant U.S. battery coating line order (~$50 million) is expected to be received in the next 60–90 days, pending process testing and government funding support. - Joseph C. Bartolacci(CEO) & Steven F. Nicola(CFO)

Contradiction Point 2

Debt Reduction Priority and Strategic Flexibility

This shows a clear evolution in the company's capital allocation strategy. The focus shifts from a singular, immediate priority of debt reduction to a dual focus that explicitly includes pursuing strategic M&A and technology investments once a debt target is met. This change in financial strategy can significantly alter capital structure and growth trajectory expectations.

Given the recent divestitures and improved cash flexibility from the strategic review, how do you view M&A opportunities to enhance the technology portfolio? - Colin Rusch (Oppenheimer)

20251121-2025 Q4: After the SGK divestiture, the company will be well below that target and will then have the capacity to pursue strategic initiatives, partnerships, or investments in areas like energy, memorialization, or new printhead technology. - Joseph Bartolacci(CEO)

What synergies do you anticipate between the Axiom printhead business and the warehouse automation business over the next 3-5 years, and how are you pursuing acquisitions or technology to accelerate automation growth? - Colin Rusch (Oppenheimer & Co. Inc.)

2025Q3: The primary focus is on reducing debt. However, the company is interested in embedding its software into autonomous warehouse robots and start-up hardware... This allows participation in growth without large acquisitions. - Joseph C. Bartolacci(CEO)

Contradiction Point 3

Status and Strategy Regarding Strategic Growth Fund (SGK) Divestiture

This contradiction concerns the intended use of proceeds from a major divestiture. The company's stance shifts from a clear plan to use a portion of the proceeds for stock repurchases to a new emphasis on using the funds solely for debt reduction in the near term. This directly impacts shareholder returns and capital structure.

Given the strategic review and divestiture of several businesses, which has improved your cash position, how should we think about M&A to enhance the technology portfolio? - Colin Rusch (Oppenheimer)

20251121-2025 Q4: After the SGK divestiture, the company will be well below that target and will then have the capacity to pursue strategic initiatives... However, the near-term focus is solely on debt reduction and managing ongoing transition services agreements. - Joseph Bartolacci(CEO)

Following the SGK transaction, will you consider changing or expanding the share repurchase authorization? - Justin Bergner (Gabelli Funds)

2025Q2: The company anticipates using a portion of the SGK proceeds for stock repurchases given the current stock price levels. - Joseph Bartolacci(CEO)

Contradiction Point 4

Interest and Opportunities in Battery Technology and Market Applications

This highlights a strategic shift in the characterization of the core customer base and market opportunity. The narrative changes from describing interest as primarily coming from battery manufacturers and auto OEMs (mobile applications) to emphasizing a strong, specific opportunity in stationary power (data centers) for a non-automotive application. This could signal a material change in market focus and target customers.

Can you discuss the opportunities for solid-state and ultracapacitors given data center power demands and buffering needs? Are you seeing increased interest in ultracapacitors or chemistry advancements tailored to stationary power applications compared to mobile applications? - Colin Rusch (Oppenheimer)

20251121-2025 Q4: The company's dry battery electrode (DBE) technology applies to all energy storage... A $50 million U.S. opportunity for a battery separator line (for storage, not automobiles) is currently being worked on, indicating strong interest in stationary power applications like data centers. - Joseph Bartolacci(CEO)

How have customer quotes since early February compared to the same period last year? Where is renewed interest strongest, and by geography and end market, where are customers returning? - Daniel Moore (CJS Securities)

2025Q2: Interest is coming from South Korea, North America, and Europe, primarily from battery manufacturers and auto OEMs. There is also growing interest in grid storage. - Joseph Bartolacci(CEO)

Contradiction Point 5

Nature and Timing of Customer Quotes for Battery Production

This presents a contradiction regarding the quality and certainty of the sales pipeline. In Q2, the company stated that new quotes were "dramatically higher" and that customers were "well beyond the testing phase," implying firmness. In Q4, the CEO states customers are "not necessarily less reticent," attributing decisions to market conditions, which suggests continued uncertainty and a less committed pipeline.

Joe, you mentioned a firm order and quantified another potential order, and you cited pipeline opportunities. Are your customers less hesitant to start working with you despite the unresolved Tesla lawsuit? - Liam Burke (B. Riley Securities)

20251121-2025 Q4: Customers are not necessarily less reticent due to the Tesla litigation. Their decisions are more driven by market conditions. - Joseph Bartolacci(CEO)

Regarding battery customer engagement, can you discuss the testing process maturity and customer evaluations? What’s the potential for turnkey solutions in North America? - Colin Rusch (Oppenheimer)

2025Q2: The $100+ million in quotes is **dramatically higher** than the same period last year... indicating these customers are **well beyond the testing phase** and are developing specifications. - Joseph Bartolacci(CEO)