MATW

General Operational Update

• All four previously identified full-year risks (engineering order pace/timing, federal tariff outcomes, Propelis synergy timing, geopolitical economic impacts) negatively affected results this quarter, which management had pre-flagged as potential headwinds.
• Propelis returned $25 million of Matthews' preferred equity, which was used primarily to pay down outstanding debt.
• Corporate cost structure continues to decline, and decisive restructuring was implemented for European engineering operations.
• CEO Joe Bartolacci announced his upcoming retirement, timed to the completion of a successor hiring process which the board has already commenced.

Energy Storage/Engineering Business

• Energy storage order conversion faced delays aligned with industry-wide battery production overcapacity, with delays expected to continue through the remainder of fiscal 2026.
• A new mass production DBE (dry battery electrode) testing machine is now being commissioned; reservations for testing time starting October have grown significantly, with interest from leading global auto OEMs and battery suppliers. Matthews is the only provider with a commercially viable solution for this market need.
• One large anticipated engineering order was won, but customer scope changes limit material revenue recognition this fiscal year. Two other anticipated orders were lost, and remaining expected orders are pushed to September 2026.
• A $10 million annual cost reduction restructuring was implemented for European engineering; German labor regulations slow immediate cost impact, and management is evaluating strategic alternatives for the business (process to conclude in Q4), with further restructuring planned if strategic alternatives do not succeed.
• Early-stage qualification of DBE electrodes for sale as a finished product to ultracapacitor partners is underway, with multiple business models under evaluation.
• The liability phase of the Tesla arbitration is complete, with the ruling affirming the limited scope of Tesla's misappropriation and breach claims; remaining damage claims (which management does not view as material) and Matthews' counterclaims are ongoing. The long-term DBE technology thesis remains intact, with major industry players like LG and Samsung publicly affirming DBE as a critical next-generation battery technology.

Memorialization Business

• Headwinds include industry-wide record-low per capita death rates (further declines occurred this year against expectations of a rebound) and input cost inflation (copper up to $6.60/lb from $4.50/lb, steel up 21% YoY, fuel costs above prior guidance) that has outpaced price increases, especially for fixed-contract products.
• The Dodge acquisition continues to be accretive, with most targeted cost synergies already realized; management sees additional high-accretion, strategic M&A opportunities in the memorialization space.
• Seasonal revenue patterns remain consistent: Q2 revenue peaks with flu season, stepping down in Q3, and Q4 is typically the strongest quarter for bronze/granite memorials due to spring thaw installation delays in the Northeast.

Propelis Investment

• Total expected synergy value remains unchanged, but synergy capture timing has been delayed by the SAP implementation (the project is on track but taking longer than initially planned), leading to a $5 million full-year forecast shortfall. Total annualized synergies are still expected to reach a $130 million adjusted EBITDA run rate by the end of calendar 2026.
• The marketing process for a full sale of Propelis is expected to begin within 12 months (triggered by hitting the $130 million EBITDA run rate), and the sale is expected to generate significant cash to further reduce debt.

Product Identification Business

• The new Axion printhead is now being placed with paying customers, with strong commercial demand. The proprietary Imperia Axion inkjet controller system is a key competitive differentiator that eases customer integration, and beta test customers are converting to full commercial adoption.
• A new strategic partnership with Lynx Printing Technologies was announced to expand access to CPG customers in the UK and France, while also giving Matthews access to Lynx's product portfolio for North American market expansion. Axion's value proposition is expanding the segment's addressable market and positioning it to displace legacy print technologies.

• Full-year fiscal 2026 adjusted EBITDA guidance was downwardly revised to $158 million to $162 million (including Matthews' 40% share of Propelis adjusted EBITDA), from prior higher guidance.
• Management maintains a full-year adjusted EBITDA target of approximately $175 million for the memorialization segment, which would be a record annual result.
• Propelis is still expected to hit an annualized adjusted EBITDA run rate of $130 million by the end of calendar 2026, with the exit (sale) process starting within 12 months of hitting that target.
• A meaningful revenue ramp for DBE energy storage projects is expected in the second half of calendar 2027, with engineering business improvement expected overall in 2027.
• Corporate costs will be cut by an additional $5 million next year, above and beyond costs related to the end of the Propelis transition services agreement.

1. Memorialization: Q3 2026 sales were $208.1 million, up 2.1% year-over-year (YoY) from $203.7 million. The Dodge acquisition contributed $4.4 million in incremental sales, with volume declines from lower U.S. casketed death rates offset by inflationary price increases. Adjusted EBITDA was $42.2 million, slightly down from $42.8 million YoY. For the first nine months of fiscal 2026, adjusted EBITDA hit $130 million, a 4.4% improvement over the prior year. This segment contributed 84.6% of total consolidated Q3 2026 revenue.

2. Industrial Technology: Q3 2026 sales were $38 million, down from $87.9 million YoY, driven by the December 2025 divestiture of tooling and warehouse automation businesses. Of the $38 million in revenue, $14 million came from the engineering business (including energy storage and coding/converting) and $24 million came from product identification; product identification sales grew 5% YoY. Adjusted EBITDA was a loss of $5.4 million, down from a $9 million profit YoY, due to the divestiture and lower engineering sales partially offset by engineering cost cuts. This segment contributed 15.4% of total consolidated Q3 2026 revenue.

3. Brand Solution: Following divestitures of SGK (May 2025) and European packaging operations (December 2025), the segment only reflects Matthews' 40% equity interest in Propelis (recorded on a one-quarter lag). Q3 2026 adjusted EBITDA was $9.7 million, up from $5 million YoY (which reflected SGK results prior to divestiture). Based on preliminary Propelis data for April-June 2026, Matthews' 40% share of adjusted EBITDA would be $12.7 million. Total consolidated Q3 2026 sales were $246 million, down from $349 million YoY primarily due to divestitures.

• Industry-wide battery production overcapacity has caused extended delays in energy storage engineering order conversion and revenue recognition, with delays expected through the end of fiscal 2026.
• Memorialization faces multiple overlapping headwinds: record-low industry death rates that have continued to decline (against expectations of a rebound), input cost inflation (copper, steel, fuel) that has outpaced implemented price increases, fixed-price contracts that limit near-term pricing adjustments, and product mix shift to lower-priced offerings as prices rise that compresses margins.
• Propelis synergy capture has been delayed one quarter by slower-than-expected SAP implementation and legacy system migration, leading to a $5 million full-year forecast shortfall, with further uncertainty around total timing of synergy realization.
• European engineering restructuring cost savings are delayed by German labor regulations and union negotiation requirements, and the ongoing strategic alternative evaluation process requires retaining key talent that limits near-term cost reduction.
• The ongoing Tesla arbitration process, even with non-material expected damages, has continued to impact some customer procurement decisions, as some potential clients avoid engagement to avoid potential legal entanglement.
• Axion printhead production scaling is currently limited by third-party fab manufacturing capacity, limiting near-term geographic expansion of the new product line.
• Input cost and tariff volatility remain ongoing risks that are difficult to fully hedge with incremental price increases, particularly in the memorialization segment.

Q: What is the current status of DBE order and quote activity following favorable arbitration rulings against Tesla, and when can orders be expected? / A: Matthews is currently commissioning its new in-house mass production DBE testing machine, with soft commitments from multiple auto OEM and battery customers. If testing is successful, customers expect to move to formal orders in 2027. Management is confident in current in-house testing results and the growing market demand for DBE technology.

Q: How will the new Lynx partnership in the UK/France scale the Axion product identification business? / A: Current near-term scaling is limited by third-party fab production capacity for Axion chips. As fab capacity ramps, the partnership will expand to additional markets. The agreement is bilateral, also giving Matthews access to Lynx's product portfolio to expand its own North American offering.

Q: Can you break down Industrial Technology Q3 revenue, and what drives the expected sequential Q4 EBITDA improvement? / A: Of the $38 million total Q3 Industrial revenue, $14 million was engineering/energy storage and $24 million was product ID (which grew 5% YoY). Expected sequential improvement comes from lower engineering cost base from recent restructuring, seasonally strong Q4 demand for both memorialization cemetery products and product identification.

Q: What has changed to drive increased automaker interest in DBE despite current industry EV overcapacity? / A: Automakers now recognize they need to control their own battery production for competitiveness, and many new battery chemistries (including solid state) require DBE technology to work. Government support for battery development in regions like Germany to compete with Chinese manufacturers also increases demand. DBE also offers lower capital cost and smaller production footprint than traditional wet electrode processes, making it attractive for new capacity investment.