Matthews International Corporation

Greetings and welcome to the Matthews International Second Quarter Fiscal 2025 Financial Results. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Stephen Nicola, Chief Financial Officer. Please go ahead.

All right, good morning. Thank you, Paul. I'm Steve Nicola, Chief Financial Officer of Matthews, and with me today is Joe Bartolasi, our company's President and Chief Executive Officer. Before we start, I would like to remind you that our earnings release was posted on the company's website, www.matw.com, in the investor section last night. The presentation for our call can also be accessed in the investor 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 periodic 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.

Thank you, Steve. Good morning. Let me begin today's call by providing an update on our energy solutions business and the recent developments impacting its growth. As you are aware, we recently firmly established our ability and right to market, offer, and sell dry battery electrode technology solutions to third parties. However, during certain intervals of our dispute regarding our ownership rights with Tesla, We are intentionally cautious in our efforts to promote our technology to third parties other than Tesla. As we discussed in our last earnings call, we now have clarity regarding our right to sell DBE solutions, and we have built an extensive and highly valuable portfolio of intellectual property, technology, and know-how related to the critical components of the dry battery electrode offering. With that said, I can share some positive news. From the time that we reopened our doors for business in mid-February, after receiving the desired clarity on our ownership rights, we have reengaged with multiple battery manufacturers and auto OEMs and have issued quotes in excess of $100 million. These opportunities represent DBE and market solutions comprised of a mix of our proprietary calendaring equipment and primer coating machines used in the electrode production process. In the pipeline, mass production lines represent the bulk of the total, and interest for our equipment is coming from major geographies for EV battery production, including South Korea, Europe, and North America. This activity confirms that the demand for our innovative engineering solutions that enable cost-efficient production of EV batteries is significant and continues to create opportunities for Matthews. It is important to note, however, that the sales lead time in this industry is long. The investments in new gigafactories which contemplate using our equipment are very large and require extensive planning. Therefore, in order to expand the market opportunity for our equipment, we are building solutions that allow existing facilities to retrofit their current wet process or expand existing production technology with our dry battery electrode solution. This retrofit, we believe, can open up material opportunities beyond the markets only for new gigafactories. Moving on to SGK news. As we announced earlier this month, all regulatory approvals for the transaction have been secured, and we expect to close the transaction any day now. As we reported on last quarter's earnings calls, we will receive $350 million in consideration upfront, including $250 million in cash, the retention of receivables totaling about $50 million, which will be used to pay back our securitization, and a $50 million preferred instrument, which we hope to convert to cash in 12 to 18 months. The cash component will be primarily applied to reducing debt. We are also proceeding well with the divestiture of our remaining German SGK assets that were not merged with SGS. This transaction is expected to close before fiscal year-end. Together with the initial consideration for SGK, we expect total initial consideration from the sale of our brand solution segment to approach $400 million. In addition to the initial consideration for SGK, we received a 40% interest in the combined SGK-SGS entity. This entity will start out with approximately $900 million in revenue and about $100 million of EBITDA and $300 million of bank debt. Our current projections expect over $50 million of synergy to be achieved post-integration, at which time we intend to exit our ownership. Our current expectation is that we will receive an additional $300 million from this investment as well. Also of note during the quarter, our warehouse automation business entered into an agreement with Teradyne Incorporated to market autonomous robotic solutions for the next generation of warehouse automation. This partnership uniquely positions us to promote autonomous vehicles or robotic picking solutions, which will be controlled by our highly recognized warehouse execution software. Together, we will offer further cost and efficiency enhancements to new and existing warehouses, while again distinguishing our software as a market leader in the warehouse execution software space. As for our second quarter results, Consolidated sales came in generally as expected, but lower on a year-over-year basis, primarily due to the challenge faced by our energy solutions business. Overall, we reported $428 million in consolidated sales in the fiscal 2025 second quarter, compared to $471 million in the second quarter of 24. Adjusted EBITDA for the second quarter of 25 was higher than anticipated and primarily reflected the benefits gained from our recent cost reduction efforts. Adjusted EBIT, though, was $51.4 million in the second quarter of 2025 compared to $56.8 million in the 2024 corresponding period. With respect to the businesses, SGK reported another solid quarter highlighted by its best sales quarter since the fourth quarter of fiscal 22. The strong performance was primarily driven by new account growth in the Americas and some benefit from price realization. We believe that the business is well positioned to reach a higher level of performance once coupled with SGS, given each business' complementary assets and anticipated synergies. Integrating some of these businesses, such as the respective Flexo platforms, will enable the new entity to take full advantage of scale and grow. Additionally, the new entity's combined creative business, which will focus on packaging, e-commerce, and other brand-related marketing efforts, will generate approximately $200 million in revenue and will be a formidable competitor to other agencies given its size, geographic breadth, and access to low-cost support. Moving on to industrial technologies, let me add some color to our energy solutions performance in the quarter. We still have a backlog of about $70 million in equipment. We're also working on a number of opportunities which will involve our innovative solution as applied towards solid state battery development and energy grid storage. Grid storage represents the fastest growing area for battery development with a significant available market for our innovative solutions, which is in addition to the market opportunity for electric vehicles. Moving on to warehouse automation. Sales in the second quarter were lower year over year, reflecting slow market recovery. However, we saw encouraging signs during the quarter with very strong order intake, indicative of a turn in the market, which we expect will be realized in the second half of this fiscal year. Those signs included an active quoting market and record orders from prominent brands, resulting in a backlog that has returned to healthy levels. Product identification reported relatively flat year-over-year results for the second quarter of 2025, and we remain on track with our new product launch for later this summer. Memorialization revenues were down by 7% in the second quarter compared to the prior year, primarily due to volume declines in our bronze and grand businesses. The primary driver of the lower revenue was the declining casket of deaths during the quarter and the closure of our UK cremation facility earlier this year. We did receive benefit from pricing actions, but not enough to offset these events. As for our balance sheet, our debt position increased modestly during the quarter, but as I highlighted earlier in our discussion, we expect to apply proceeds from the STK transaction to our revolvers. Additionally, given the current levels where our shares are trading, we believe it makes sense to utilize a portion of the proceeds towards repurchasing our stock. Note also that our bonds are not callable until September. At that time, we will evaluate whether or not to address those notes contingent on market conditions. Regarding tariffs, we believe that we have put actions in place to mitigate the impact of tariffs as they currently are contemplated. New sourcing and pricing in areas of the business with the most impact should manage the consequences and we should see very little impact in our fiscal 25 results. Looking to the balance of the year, we expect another stable year results from our memorialization business. Based on recent order rates, we expect our warehouse automation segment to show improved results in the second half of the year as that market begins to turn. Additionally, our cost reduction initiative is ongoing and on track to generate cost savings in excess of our initial projection of $50 million. With regard to SGK, as I've stated, we expect the transaction to close soon. Therefore, assuming five months of our proportional ownership of SGK-SGS, we have updated our adjusted EBITDA guidance to at least $190 million. It is important to note, however, that our new guidance of $190 million would be equal to our original guidance of $205 million, but for the sale of SGK. Finally, regarding our strategic initiatives, that we began several quarters ago, it continues, as we believe that the company's intrinsic value is significantly higher than where the stock currently trades. We are committed to finding ways to unlock shareholder value through this process, and all possibilities are being considered. Unfortunately, current market turbulence has made our efforts somewhat more challenging, but we hope that the markets will calm in the near future, and we expect our efforts will be successful. Like we did with SGK, we are determined to prudently highlight the fair value of our businesses, and we are sure that we will. Now I'll turn it over to Steve to deliver the financial for the quarter's results.