Transcript: Matthews International Q2 2026 Earnings Confer...

Matthews International (NASDAQ:MATW) held its second-quarter earnings conference call on Friday. Below is the complete transcript from the call.

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Summary

Matthews International reported a net loss of $21.8 million for the fiscal 2026 second quarter, largely due to the redemption of $300 million in senior secured notes and lower performance in the Industrial Technologies segment.

Consolidated sales dropped to $259 million from $428 million a year ago, mainly due to divestitures, with the Memorialization segment showing improvement partly thanks to the Dodge acquisition.

Adjusted EBITDA decreased to $44.7 million from $51.4 million, with the Brand Solutions segment showing reduced performance due to the SGK divestiture.

The company has been focusing on strategic integration with Propelis, reporting a 40% share of Propelis' adjusted EBITDA, which was lower than previous SGK results.

Future outlook includes modest sales growth in the Memorialization segment, with ongoing cross-selling activities and potential M&A opportunities being monitored.

Cash flow used in operations increased significantly due to divestiture-related disbursements and other strategic costs, while net debt decreased following divestiture proceeds.

Management noted improved execution in the Memorialization segment and ongoing efforts to expand customer base and partnerships, particularly in energy and military applications.

Full Transcript

OPERATOR

Financial performance. Thank you, Joe before starting the Financial Review, I want to give a reminder on the financial reporting with respect to the SGK business. As you are aware, the divestiture of this business closed on May 1, 2025,. The fiscal 2025 consolidated financial information presented in this release reflects the financial results of the SGK business through the closing date as a result of the integration process of Propelis and transition to its standalone reporting systems. Our 40% portion of the financial results of Propelis is reported on a quarter lag. Consequently, for the three months ended March 31, 2026, the company's portion of earnings or losses for its equity method investment in Propelis includes the months from October 2025 through December 20 and similarly for the six months ended March 31, 2026. The company's portion of the earnings or losses for its equity method investment in Propelis includes the months from July 2025 through December 2025. 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 initiative 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 fiscal 2026 second quarter were 259 million compared to 428 million a year ago. The decrease primarily reflected 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 technology 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 37 cents per share, compared to $10.5 million or 34 cents 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 US 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 Technology 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 segments 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 technology 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 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 and 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 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 and tooling businesses. During the first quarter, these cash 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 the withholding tax obligations for vested equity compensation, and finally, the Board declared this week a quarterly dividend of 25.5 cents per share on the company's common stock. The dividend is payable on May 25, 2026. The stockholders of record at May 11, 2026. This concludes the financial review and we will now open the call for any questions. Thank you. And if you would like to ask a question, please press Star one on your key to leave the queue at any time. Press 2 once again. That is Star 1 to ask a question. And we will pause a moment to allow everyone a chance to join the queue. And we'll take our first question from Danielle Moore with CJS Securities. Please go ahead. Your line is open.

Joe

Thank you. Good morning, Joe. Good morning, Dan. Thanks for taking the questions. Good morning, Dan. Morning, Dan.

Danielle Moore (Analyst at CJS Securities)

Let's start with Memorialization outlook. Modest sales growth for the remainder of the year. I think Dodge has maybe half a quarter left. So just kind of looking at your expectations for organic growth, looking out beyond the next quarter or so with the revised mix, including Dodge. And then from an inorganic perspective, are you seeing more inbound inquiries with from competitors or other players in that arena since the acquisition?

Joe

Let me kind of parse that question out then. You have a couple questions in there. First off, with regard to our forecast looking for the balance of the year, I would call our volume to be stable to modestly down. If you listen to some of our customers earnings calls, you'll recognize that casket has had a pretty low period this past quarter. We performed better than that because of some things that we've done internally, both the addition of Dodge, some pricing and frankly some better execution on in other markets that we serve. As we move forward through the balance of the year. We are in the midst of doing some cross selling activities trying to get both Dodge customers to become our customers on the casket and bronze side and our customers become Dodge customers as well as those efforts are baked into our forecast. Looking forward, hopefully they will be successful. But that's part of the synergy expectations we're going to get.

Danielle Moore (Analyst at CJS Securities)

Very helpful and on the M and A front. Just wondering if you're seeing more inbounds. You know, I know Dodge is sort of a new platform.

Joe

I didn't understand that part of your question.

Danielle Moore (Analyst at CJS Securities)

Okay, now I apologize. Yep. All right.

Joe

Yes. I mean obviously we are always in the market and there was always a few things that are floating around. I wouldn't say there's a lot of inbounds, but there are opportunities out there. We'll pick timing based on when it's right for us as well as when others are ready to sell. There still are Small opportunities like that. As I said in my portion of the call, these are highly accretive over a wonderful base that we have. So we expect to be able to pull those off. I just can't pick the timing of them all the time.

Danielle Moore (Analyst at CJS Securities)

Understood. Propelis sounds like just maybe a little bit more under the hood. Are we at the front end of the IT and SAP implementation? Is that sort of, you know, just talk about progress and you know, when we'll have a better sensor execution?

Joe

No, no, no problem. I would tell you that we are at the middle and the biggest part of that middle was standing up their own instance of SAP. So all of the SGK team has separated from our, we're still supporting, but they've separated onto their own instance of SAP. That is a massive lift and that is the key to bringing on the other system, the other parts of the company, in particular sgs. One thing I would stress, and this is I know some of the team may be on the call, so I don't want to kind of make it sound too simple. The big lift was getting them off on their own. We've already implemented all of these changes that are necessary to make SAP adaptable to a brand related business like SGK when we bought sgk. So it's not a novel ERP implementation. Yes, there are some flows that are going to be different. Yes, there are some keystrokes are going to be different. But at the end of the day SGS is moving on to a platform that is already fully baked and ready to go for a brand related system. So we're very confident on their ability to execute going forward. 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 we will populate the SGK team, will populate the SGS team with people that know how the systems already work for their business.

Danielle Moore (Analyst at CJS Securities)

No, that's really helpful. Color. One more and I'll jump back in queue. Just in terms of the announcement in February regarding the arbitration with Tesla, just what are the next steps, Tesla's next moves? Obviously that's a conjecture, but more importantly, are there examples or details regarding engagement with new potential, potential customers since that ruling in February?

Joe

So I mean, look, I'm not in the minds of our friends in California and nor do I want to be, but I can tell you it's given a lot of clarity both to us and to the customers that we've been trying to work with for a while. Those efforts will continue and I will tell you they have opened more doors in the last 60 days or so. We have expanded our geographies to include Japan. We've gone deeper with our European potential customers and partners over there. And we've had some US based companies reach out to us that had not been very specific in the past. This clarity that comes out of this ruling has been the hindrance to us for a long, long, long time. I can't tell you what's next. I can tell you that we are emboldened by it.

Danielle Moore (Analyst at CJS Securities)

All right, very helpful. I'll jump back with any follow ups. Thanks, Joe.

OPERATOR

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

Colleen Rauch (Analyst at Oppenheimer)

Thanks so much, guys. You know, could you talk about the breadth and depth of the super capacitor ultracapacitor customers on this? Obviously, the need for voltage buffering at the data center is enormous and just curious about how quickly that opportunity could come and how many folks might participate in it.

Joe

We have the three largest producers of ultracapacitors at our doorstep today. As you call in, you're the one person on the phone that actually knows this. This is how we got into DBE in 2015. We converted some activated carbon from Maxwell using our technology back in about 2015. And so we are well, well, well down the path of being able to do this. When we talk about partnerships, there are multiple forms of partnership with the three largest producers of ultracapacitors that we're both in terms of joint investment to produce the electrode used for an ultracapacitor as well as to provide the electrode to them. We have a, we have a piece of equipment in the, in Germany right now that is being commissioned as we speak. You saw the beginnings of that, I believe, Colin, a few months or years ago. Yeah, that, that, 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. So the opportunity ultracapacitor side is significant and it's something we've already done. Don't need to kind of learn too much from it.

Colleen Rauch (Analyst at Oppenheimer)

Excellent. And then, you know, we're seeing a lot of activity around reshoring of supply chains, particularly as we look at the drone market start to scale and some of the requirements from the US military to have, you know, fully integrated supply chains in North America to support military demand. I'm just curious about how active conversations are for you guys around the potential to support some of the battery manufacturing that's going to have to happen in the US to support a lot of those applications.

Joe

You couldn't have teed it up better for me, Colin. Fact of the matter is we're operating in several different forms with respect to that. You've heard us speak about a relatively large order for North America battery separators. That order we expect. That's one of the big orders we expect here over the course of the next three months, four months or so that is going specifically into the United States for that purpose of bringing it onshore. We're having significant discussions with solid state manufacturers who particularly use our have already used our equipment to produce the batteries necessary for solid state, which is a military application. 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 3D printing capabilities in our memorialization segment. That business produces 3D 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.

Colleen Rauch (Analyst at Oppenheimer)

Awesome guys. Thanks so much.

OPERATOR

Yep, thank you. And once again, that is store N1 on your telephone keypad if you would like to join the queue. We will move next with Justin Bergner with Gabelli funds. Please go ahead. Your line is open.