Matthews International Corporation Q1 FY2026 earnings call

• Achieved leverage ratio below 3x by selling warehouse automation business for $225 million and Saueressig for $41 million, reducing net debt to ~$500 million.
• Early redemption of $300 million of 8.625% senior secured notes, expected to increase annual cash flow and reduce interest expense by $12 million.
• Propelis merger outperforming expectations, EBITDA run rate higher than assumed. Propelis team migrating to own SAP system, activating $20 million in synergies.
• Memorialization segment had solid quarter with 7% y-o-y sales increase due to Dodge acquisition and inflationary pricing. Mausoleum construction and additional product opportunities bode well.
• Industrial Technologies: Axian printhead chip had strong market response, paused shipments for refinements, positioning for volume production. Energy Solutions business faces headwinds but IP remains benchmark, lead pipeline over $100 million.

Memorialization Segment

• Sales for Q1 2026: $204.2 million vs $190.5 million prior year. Dodge acquisition contributed ~$10.4 million. Higher sales volumes for caskets, bronze, and granite cemetery memorials, plus inflationary price increases contributed. Mausoleum sales declined.
• Adjusted EBITDA: $38.9 million vs $36.6 million prior year. Increase due to higher sales volume, inflationary price realization, cost savings initiatives, offset partially by higher labor and material costs. Dodge acquisition and disposition of unprofitable European cremation equipment business also contributed.

Industrial Technologies Segment

• Sales for Q1 2026: $69 million vs $80.5 million prior year. Decline due to lower sales from engineering business and divestiture of tooling business, offset partially by higher sales from warehouse automation. Foreign currency rates had a favorable impact of $2.9 million.
• Adjusted EBITDA: Loss of $4.5 million vs profit of $1.8 million prior year. Decrease due to lower engineering sales, offset partially by cost reduction actions and lower compensation expense.

Brand Solutions Segment

• Sales for Q1 2026: $11.6 million vs $130.8 million prior year. Impact from divestitures of SGK and European packaging operations.
• Adjusted EBITDA: $12.7 million vs $12.3 million prior year. Current quarter mainly reflects 40% interest in Propelis, with European packaging business relatively breakeven.

• Expect adjusted EBITDA for fiscal 2026 to be at least $180 million, inclusive of 40% interest in Propelis.
• PIK interest related to Propelis preferred stock impacts corporate costs; principal repayment would reduce PIK interest and debt.
• Timing of orders in energy business is somewhat out of control, but anticipated in guidance. Focus on corporate cost structure to lower overhead once transition services agreements expire.
• Evaluation of strategic alternatives continuing, focusing on partnerships to capture IP value.

• Timing of orders in energy business is uncertain, affecting revenue projections.
• Events such as PIK interest realization and order timing may impact full-year results.
• Current transition services agreements limit ability to slash overhead in the short term.

Q: Can you talk about the breadth and depth of potential customers for ultracapacitors and batteries domestically and in Asia outside China?

A: Having conversations with OEMs and battery manufacturers in North America and Europe. In Asia, conversations ongoing as tariffs on Chinese products drive interest in Western solutions.

Q: Any tuck-in acquisition opportunities in the energy ecosystem?

A: Less about acquisition, more about joint development opportunities with players in mixing, material handling, or chemistry; partnerships likely instead of acquisitions.

Q: Are there other things to optimize the capital structure?

A: Propelis represents a cash and waiting event; repayment of preferred and exit from equity could impact capital structure, but current focus is on generating cash from operations.

Q: Expectations for memorialization market in fiscal 2026 vs 2025?

A: Continue to add Dodge business synergies, benefit from death rate trends and market share growth; top line to grow via inflationary price increases.

Q: Direction of quote activity in energy storage and if concentrated on larger systems?

A: Not concentrated on larger systems, but on customers who can order larger systems; $50 million item is big ticket, others are multiple customers with potential for large orders.

Q: Have copper price increases affected bronze pricing and passed through increases?

A: Buying is opportunistic, passed through price increases to offset copper cost, but copper price increases sometimes outpace price hikes.

Q: Color on cremation business?

A: Restructured, shut down West Coast facility, concentrated in Florida; expecting strong year ahead, invested in service portfolio for more opportunities.

Q: Ability to provide Propelis EBITDA estimate this quarter?

A: Seasonally light quarter for Propelis, next quarter profit not expected to be as high as current quarter.

Q: Tax liability on warehouse automation sale and breakdown of divestitures?

A: Tax liability paid via normal quarterly payments. European packaging and tooling divestitures: Packaging ~$60 million from SGK/Brand Solutions, ~$40 million from Industrial Technologies, all closed in December.

Q: Active EV pipeline in energy storage business?

A: All activity related to EV side, including battery separator line, calendar lines, $100 million portfolio mostly in EV sector.

Q: How many months did Axian program get backed due to electrical security?

A: Minor tweak, program was backed by ~30-45 days.