Matthews International : Call Transcript Q2 2026

Published: 2026-05-04 17:29:01 ET MATW

Published on 05/04/2026 at 05:29 pm EDT

Matthews International Corporation

Q2 Fiscal 2026 Earnings Teleconference Call and Webcast

May 1, 2026

At this time all participants are in a listen-only mode. Later you will have the opportunity to ask questions during the question-and-answer session. To register to ask a question at any time, please press star, one on your telephone keypad.

Please note this call is being recorded. We are standing by if you should need any assistance.

It is now my pleasure to turn the meeting over to Daniel Stopar, Chief Financial Officer and Treasurer. Please go ahead.

Before we start, I'd like to remind you that our earnings release was posted on the Investors section of the Company's website, https://www.matw.com, last night. The presentation for our call can also be accessed in the Investors 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-K and other public 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. 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

Good morning and thank you for joining us to discuss Matthews' fiscal 2026 second quarter results. On our last earnings call, we said that we were focused on execution and we did just that in the second quarter. The redemption of our high-cost notes is complete. Our balance sheet is significantly improved. Interest expense is down materially, and for the first time in several years, we are entering the second half of our fiscal year with greater clarity and flexibility in our outlook.

Our Memorialization business continues to set the pace, delivering its fourth consecutive quarter of year-over-year EBITDA growth. And while our Industrial Technologies segment remains challenged, we are actively working to convert a substantial order pipeline that has grown since last quarter.

Let's start with our balance sheet. In January, we completed the early redemption of our $300 million of senior secured notes. This was not simply a refinancing exercise; this was a significant structural repair of a balance sheet that now looks fundamentally different than it did just 18 months ago. Our total long-term debt is now $579 million, down from $822 million one year ago, a reduction of over $243 million. Net debt stands at approximately $543 million today. And the interest expense savings from retiring those high cost notes are now flowing through, reducing annual expense by approximately $10 million and materially improving our cash profile dollar-for-dollar.

The debt extinguishment charge of $16.3 million recorded in Q2 included non-cash items of $3.4 million and is a one-time cost and should be read for exactly what it is, the price of materially improving our cost of capital, a trade that we are very comfortable with.

Turning to Propelis, our 40% equity interest continues to represent what we believe is one of the most compelling unrecognized value drivers in our portfolio. The Propelis team is making great progress on their SAP migration, the single most important operational milestone that will unlock the next layer of significant synergies. As we shared last quarter, this migration is expected to unlock over $25 million of the more than

$60 million in total identified synergies. The Propelis team has successfully stood up their own instance of SAP during the quarter, and we will begin the migration of SGS locations onto SAP over the next 6 months to 9 months. We expect to begin to see the results of these actions in our fourth quarter. Also, as further evidence of the performance of Propelis, we expect to receive a partial redemption of our preferred interest in the coming quarter.

Propelis is continuing to perform well above the $100 million EBITDA run rate that was assumed when we structured the transaction. As they move through 2026 and execute on their synergies their EBITDA run rate is expected to be around $130 million going into 2027. We continue to expect an exit from this investment within the next 12 months to 18 months. Every quarter that Propelis continues to grow EBITDA and captures synergies increases the value we expect to realize upon exit.

With regard to our second quarter results, total revenues were $259 million, compared to $428 million a year ago. As we have consistently communicated, year-over-year revenue comparisons will continue to reflect the deliberate portfolio reshaping we executed in fiscal 2025 and early fiscal 2026. The divestitures of SGK, Warehouse Automation and Saueressig account for the majority of the reduction.

Adjusted EBITDA for the fiscal 2026 second quarter was $45 million, compared to $51 million in the prior year second quarter, a solid result when you consider that the prior year second quarter included a full quarter of SGK results while this quarter contains only our 40% interest in Propelis. Stripping out the businesses we have deliberately exited, the continuing portfolio is performing as we projected: Memorialization delivering, the balance sheet improving, and Industrial Technologies remaining the variable we are actively working to improve. That is what we laid out at the start of this fiscal year.

Dan will walk you through our cash flow in detail, but I want to briefly note that our first half operating cash outflow reflects a cluster of discrete items; a legacy settlement payment, transaction-related fees from our recent divestitures, and annual recurring payments concentrated in our first quarter, that do not represent the underlying cash generation capacity of our continuing businesses. We expect both Q3 and Q4 to generate positive operating cash flow.

Turning to our businesses: the Memorialization business continues to be the engine that drives this company. Our Cornerstone segment reported sales of $215 million for the second quarter, an almost 5% increase over the prior year and Adjusted EBITDA of $49 million, up 8% year-over-year. For the first half of fiscal 2026, sales grew to $419 million and Adjusted EBITDA grew to $88 million. This segment continues to perform well.

The Dodge acquisition continues to contribute meaningfully, adding approximately $11 million in sales per quarter and is ahead of our EBITDA targets. Our team has done an excellent job integrating Dodge, and we are now realizing the cost and commercial synergies we expected when the deal was first identified. After accounting for asset monetization and working capital actions, we expect the adjusted purchase price of Dodge to be under $50 million with EBITDA contributions exceeding $12 million, this will stand as another highly accretive acquisition for our shareholders.

We are also seeing continued strength in Mausoleum construction orders through our Gibraltar Mausoleum business, which not only generates good margins directly but pulls through demand for bronze lettering,

vases, and other Memorialization products. Pricing realization remains solid in the business, and we continue to benefit from productivity improvements across the segment.

We believe there are more M&A opportunities in the Memorialization space that look like Dodge, highly accretive, strategic, defensible market positions. Our relationships in this industry are deep and longstanding, and we are positioned well to move when the time is right.

With regard to the tariff environment and its impact on our businesses, the situation remains fluid as you are aware and we will continue to manage this proactively as we have over the past several years.

Moving on to Industrial Technologies. Revenues were $43 million for the quarter, compared to $81 million a year ago. The year-over-year decline reflects the divestitures of the Warehouse Automation and Tooling businesses completed in 2025. What remains is a focused, Technology-driven portfolio of high value product identification and engineered solutions and we continue to see significant opportunities in both businesses.

Let me start with product identification. We can report that we shipped our first production units to paying customers, several of whom were beta customers that saw the tremendous value of the technology. As noted last quarter, we had stopped deliveries as we corrected certain minor issues noted during beta testing but now those issues have been resolved.

The commercial response to Axian remains strong. The value propositions that we hoped to deliver are proving true, higher quality marks using significantly less solvent while reducing the cost of maintenance are driving strong interest in our new product. As we noted last quarter, we have expanded our total addressable market estimate to about $3 billion as we have validated interest from customers currently using high quality, but more expensive solutions. We continue to actively pursue and engage in strategic partnership discussions, including white label opportunities with leading industry participants to accelerate adoption and market reach. These opportunities will speed up adoption and give us access to markets that we would not develop for a while. We hope to have news to share on these discussions before fiscal '26 year-end.

With that said, let me reiterate that Axian will not be a material contributor to the top line this year, given last quarter's delays, but we expect to see a more meaningful contribution from the product line next year.

Moving now to our Engineering and Energy Solutions business'.

The second quarter was again challenging as expected. However, let me walk you through our pipeline. We were recently awarded a $25 million order for a converting line to be delivered to the United States. Together with $75 million of orders that we continue to confidently work on, we expect a material change in this business next year. In addition to those orders, we are working on multiple partnership agreements that utilize our highly proprietary DBE technology. We hope to announce those partnerships before the end of our fiscal year as well. Included in those partnerships are discussions with global ultracapacitor manufacturers looking to move their production to DBE technology. Ultracapacitors, an essential element of energy delivery to the Data Storage industry, are yet another Energy Storage Solution that will benefit from DBE

On the DBE front, we received an important legal development in the second quarter. On February 13th, an arbitrator issued an interim decision that favorably affirmed our ownership of, and rights in, our DBE technology and denied Tesla's requests for broad injunctive relief. Tesla's attempt to prevent us from selling our own proprietary technology was rejected, again. The very narrow injunction on certain components has had no material impact on our technology, as we already have alternative components.

This is a meaningful win for our IP position and for the long-term value of our Energy Solutions business. Practically speaking, the ruling removes a key overhang that we believe has caused several sophisticated

counterparties to delay deepening their engagement with us. Moreover, this ruling meaningfully mitigates any material liability.

Our near-term expectations from the DBE market remain measured. But the long-term thesis is intact and is actually strengthening. Many industry participants continue to affirm that DBE is a critical enabling technology for next-generation chemistries including solid state. We expect to take additional cost reduction actions within the Engineering business in the second half to protect cash while we wait for the market to absorb our pipeline.

With regard to our full-year outlook, we set guidance of at least $180 million in Adjusted EBITDA for fiscal 2026, inclusive of our 40% interest in Propelis. Achieving the full-year target requires a stronger second half, driven primarily by Memorialization continuing its current trajectory, Industrial Technologies converting its pipeline, and Propelis continuing its operational execution.

We continue to believe this is achievable. Memorialization is operating at an annualized run rate well above

$175 million in Adjusted EBITDA on its own. Propelis' contribution provides meaningful incremental EBITDA in our brand solutions segments and the recent win in engineering gives us confidence in our forecast. But several things may impact that forecast. The pace and timing of Engineering orders, the outcome of current tariff discussions at the federal level, the timing of synergies at Propelis and the economic impact of geopolitical challenges all can have an impact on our full year results.

With that said, we are working hard on things that we can control to deliver those results. The pipeline is real, the synergies are clearly identified, and tariffs can come and go. With these factors in mind, we are reaffirming our full-year Adjusted EBITDA guidance of $180 million.

Finally, our strategic alternatives review continues. As I have noted above, we have multiple potential partnerships and arrangements currently in discussion. The Board is actively engaged, and our focus remains on delivering on the full value of our intellectual property, particularly in Energy Solutions and Axian, through partnerships, licensing, or other structures that do not require us to sell our businesses at a discount to their intrinsic value.

Now I'll turn it over to Dan for a deeper dive on our financial performance.

Now let's begin the financial review with Slide 7. For the fiscal 2026 second quarter, the Company reported a net loss of $21.8 million, or $0.69 per share, compared to a net loss of $8.9 million, or $0.29 per share a year ago. The change primarily reflected a loss recorded this year on the redemption of $300 million of senior secured notes, higher strategic initiatives costs and lower operating performance in the Industrial Technologies segment, which was partially offset by lower acquisition and divestiture costs, reduced net interest and other deductions, and higher income tax benefits.

Consolidated sales for the fiscal 2026 second quarter were $259 million, compared to $428 million a year ago. The decrease primarily reflect the divestitures of the SGK business on May 1, 2025, the European Packaging and Tooling businesses on December 1, 2025, and the Warehouse Automation business on

December 31, 2025. The consolidated sales impact of these divestitures was approximately $166 million for the current quarter and was partially offset by an $11 million contribution from the acquisition of the Dodge Company. Sales for the Industrial Technologies and Brand Solutions segments were lower for the quarter, offset partially by higher sales for the Memorialization segment.

Consolidated Adjusted EBITDA for the fiscal 2026 second quarter was $44.7 million, compared to

$51.4 million a year ago. The decline reflected lower operating performance by the Engineering business within the Industrial Technologies segment. In addition, our 40% share of Propelis' Adjusted EBITDA included in our results for the quarter was lower than the amount of Adjusted EBITDA that we reported for SGK Brand Solutions segment last year. The Memorialization segment reported higher Adjusted EBITDA for the quarter, while Corporate and other non-operating costs were lower in the current year.

On a non-GAAP adjusted basis, net income attributable to the Company for the current quarter was $ 11.6 million, or $0.37 per share, compared to $10.5 million, or $0.34 per share last year. The increase primarily reflected the impact of lower interest expense, and higher other non-operating income, which more than offset lower operating profits. Please see the reconciliations of Adjusted EBITDA and non-GAAP adjusted earnings per share provided in our earnings release.

Please move to Slide 8 to review our segment results. Sales for the Memorialization segment for the second quarter of fiscal 2026 were $215.3 million, compared to $205.6 million for the same quarter a year ago. The Dodge acquisition contributed sales of approximately $11 million to the quarter. Sales volumes for caskets and cemetery memorials declined in the quarter due to lower estimated U.S. casketed death rates. Sales of Cremation equipment and Mausoleums were also lower in the current quarter. These volume declines were partially offset by the impact of inflationary price increases.

Memorialization segment Adjusted EBITDA for the current quarter was $48.8 million, compared to

$45 million for the same quarter last year. The increase was primarily contributed by the Dodge acquisition. Benefits from inflationary price realization and cost savings initiatives were partially offset by the impact of lower sales volume, combined with higher labor and material costs.

Please move to Slide 9. Sales for the Industrial Technologies segment for the second quarter of fiscal 2026 were $43.4 million, compared to $80.8 million a year ago. The decrease primarily reflected the divestiture of the segment's tooling business on December 1, 2025, and warehouse automation business on December 31, 2025. The segment's Engineering business also reported a decline in sales compared to last year, which was offset partially by higher sales for the product identification business. Changes in foreign currency rates had a favorable impact of $3.1 million on the segment's current quarter sales compared to a year ago.

Adjusted EBITDA for the Industrial Technologies segment for the current quarter was a loss of $3.3 million, compared to a profit of $6 million for the same quarter a year ago. The decrease primarily resulted from the impact of the Warehouse Automation divestiture and lower Engineering sales, offset partially by the segment's cost reduction actions in its Engineering business and the impact of lower compensation expense.

Please move to Slide 10. With the divestiture of the European Packaging operations on December 1, 2025, combined with the divestiture of the SGK business on May 1, 2025, the Brand Solutions segment did not have reportable revenue for the quarter ended March 31, 2026. A year ago, the divested entities reported sales of $141.2 million.

Adjusted EBITDA for the Brand Solutions segment was $9.6 million for the current quarter, compared to

$15.6 million a year ago. The current quarter mainly reflects the Company's 40% interest in Propelis. To reiterate our earlier comments about Propelis, our 40% portion of the financial results of Propelis is reported on a one-quarter lag. As a result, the consolidated financial information for the quarter ended March 31,

2026, includes our 40% interest of the financial results of Propelis for the months of October through December of 2025.

Please move to Slide 11. Cash flow used in operating activities for the six months ended March 31, 2026, was $67.4 million, compared to $18.7 million a year ago. During the period the Company made significant disbursements in connection with divestitures, including income taxes, transaction fees, and repayments of securitized receivables. Expenditures for litigation and proxy defense also consumed significant cash in the period. Additionally, our first half of the fiscal year is typically slower than the second half, generally reflecting a net operating cash outflow, due primarily to seasonally lower earnings and the payment of year-end bonus accruals and other annual payment items.

Outstanding debt at March 31, 2026, was $579 million, and net debt, which represents debt less cash, was

$543 million. The net debt decreased by $135 million since the end of fiscal 2025 driven by the receipt of

$243 million of cash proceeds from the divestitures of the Warehouse Automation business and the European Packaging & Tooling businesses during the first quarter. These cash-in inflows were partially offset by cash used in operations and the payment of fees to redeem the $300 million senior secured notes.

During the second quarter of fiscal 2026, the Company purchased 22,953 shares under its Stock Repurchase program at an average cost of $26.33 per share. These repurchases were solely related to withholding tax obligations for vested equity compensation.

Finally, the Board declared this week a quarterly dividend of $0.25.5 per share on the Company's common stock. The dividend is payable on May 25, 2026, to stockholders of record at May 11, 2026.

This concludes the financial review, and we will now open the call for any questions.

And we'll take our first question from Daniel Moore with CJS Securities. Please go ahead. Your line is open.

into our forecast looking forward. Hopefully, they will be successful, but that's part of the synergy expectations we're going to get.

So at this point in time, they will start that migration in about 90 days, and they will go location by location like we did in 2014 successfully. I would hope that would go even easier than it did for us early on because the SGK team will populate the SGS team with people that know how the systems already work for their business.

Thank you. Our next question comes from Colin Rusch with Oppenheimer. Please go ahead. Your line is open.

You saw the beginnings of that, I believe, Colin, a few months or years ago. That piece of production-level equipment is ready here shortly, and we are lining them up to be able to produce test results at production rates of speed, something we did not have the capacity to do before. The opportunity in the ultracapacitor side is significant, and it's something we've already done. Don't need to learn too much from it.

But the important thing in all this is it's not limited to our Battery business. It's not limited only to energy. We've talked about our, and I don't want to get too far ahead of my skis here, but we've talked about our 3-D printing capabilities in our Memorialization segment. That business produces 3-D printed molds at highly rapid speeds, have great application to the Military when it comes to spare parts and to other cast-related products that are used by the Military today. We think we have some legs in front of us that we can run with on a couple of fronts in our industry, not just the Battery side.

We will move next with Justin Bergner with Gabelli Funds. Please go ahead. Your line is open.

Dan Stopar: One hundred and sixty-six from the divestitures, yes.

There are some things that are going on that they're somewhat out of control. You've heard about the tariffs coming and going and things that are kind of difficult for us to kind of anticipate and deal with. Those things flow through our forecast today as if they would be implemented. So we're cautious looking forward on that part of the business for the things we don't control. The things we do control; we have it under our belt.

Dan Stopar: Yes. Justin, the items that hit in the quarter were payments pursuant to the closure of the Warehouse sale. If you remember, we received $225 million right at the end of last quarter. We closed that deal on the 31st. We had tax payments this quarter. We had deal payments that had to be paid. We also had to settle out on securitized receivables.

This will conclude our Q&A session as well as our conference call. Thank you for your participation, and you may disconnect at any time.

xxx

Disclaimer

Matthews International Corporation published this content on May 04, 2026, and is solely responsible for the information contained herein. Distributed via Public Technologies (PUBT), unedited and unaltered, on May 04, 2026 at 21:25 UTC.