Matthews International Corporation Class A Aktie

Hello, and welcome, everyone, joining today's Matthews International Second Quarter Fiscal 2026 Financial Results.[Operator Instructions] Please note, this call is being recorded. [Operator Instructions] It is now my pleasure to turn the meeting over to Daniel Stopar, Chief Financial Officer and Treasurer. Please go ahead.

Good morning. I'm Dan Stopar , Chief Financial Officer of Matthews. And with me today is Joe Bartolacci , our company's President and Chief Executive Officer. Before we start, I'd like to remind you that our earnings release was posted on the Investors section of the company's website, 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 1 year ago, a reduction of over $240 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 interest 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 noncash items of $3.4 million and is a onetime cost and should be read for exactly what it is, the price of materially improving our cost of capital and 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 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 to 18 months. Every quarter that Propelis continues to grow EBITDA and capture 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 '26. The divestitures of SGK, warehouse automation and [ Sourcing ] 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 $10 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 letterering, bases 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 long-standing, 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. Revenue 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 the 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 Acxiom remains strong. The value propositions that we hope 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 the fiscal '26 year-end. With that said, let me reiterate that Action 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 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 for the end of our fiscal year as well. Included in those partnerships are discussions with global ultracapacitor manufacturers looking to move their production to DVE 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 13, an arbitrator issued an interim decision that favorably affirmed our ownership of and rights in our DBE technology and denied Tesla's request 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 continuous operational execution. We continue to believe this is achievable. Memorialization is operating an annualized run rate well above $175 million in adjusted EBITDA on its own. Propelis' contribution provides meaningful incremental EBITDA in our Brand Solutions segment and the recent win in engineering gives us confidence in our engineering 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 us 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 alternative review continues. As I've 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 AI 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.

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 stand-alone reporting systems, our 40% portion of the financial results of Propelis is reported on a 1-quarter lag. Consequently, for the 3 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 2025. And similarly, for the 6 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 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 nonoperating 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 nonoperating 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 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 1-quarter lag. As a result, the consolidated financial information for the quarter ended March 31, 2026, includes our 40% interest in 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 6 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 $0.255 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.

[Operator Instructions]

I will take our first question from Daniel Moore with 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 the -- 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 from competitors or other players in that arena since the acquisition?

So let me kind of parse that question out, Dan. You have a couple of questions in there. First off, with regard to our forecast looking for the balance of the year, I would tell our volume to be stable to modestly down. If you listen to some of our customers' earnings calls, you will recognize that Cascade 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 and pricing and frankly, some better execution 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 Cascade and Bronze side and our customers become Dodge customers as well. That -- 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 again.

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

That's what I didn't understand your question.

Okay. I apologize...

All right. Yes. I mean, obviously, we are always in the market, and there's 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, I mean 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.

Understood. Propelis, it 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 just talk about progress and when we'll have a better sense for execution.

No, no problem. I would tell you that -- I mean we are at the middle. And the biggest part of that middle was standing up their own instance of SAP. So as 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 key strokes 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.

No, that's really helpful color. One more, and I'll jump back in the 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 just -- and more importantly, are there examples or details regarding engagement with new potential customers since that ruling in February?

So 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 U.S.-based companies reach out to us that have 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.

Our next question comes from Colin Rusch with Oppenheimer.

Could you talk about the breadth and depth of the supercapacitor, 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.

We have the 3 largest producers of ultracapacitors at our doorstep today. As Colin, 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 for 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 3 largest producers of ultracapacitors that we're dealing with, 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 piece of equipment 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. 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 in the ultracapacitor side is significant, and it's something we've already done, don't need to kind of learn too much from it.

Excellent. And then we're seeing a lot of activity around reshoring of supply chains, particularly as we look at the drone market or to scale and some of the requirements from the U.S. military to have 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 U.S. to support a lot of those applications.

You couldn't have teed it up better for me, Colin. The 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 3 months, 4 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 -- 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 CA-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.

[Operator Instructions]

We will move next with Justin Bergner with Gabelli Funds.

Nice quarter, particularly on the Morialization side.

Thanks Justin , good morning.

I had a few questions, just some clarifying. So I think you said, Dan, that you got $11 million of revenue from Dodge, but you lost $176 million from the divestitures. Did I have those numbers correct?

$166 million from the divestitures, yes.

Okay. And then the Propelis JV, you said it's already doing $100 million plus EBITDA run rate, but the 40% figures of $9.5 million and $9.9 million are slightly below that. So is that just seasonality being a little bit weaker first half versus the second half?

Yes, Justin, that's exactly right. Their slowest quarter is typically the fourth calendar quarter. And so that would be the quarter that we would have reported in this fiscal quarter for Matthews.

Got you. All right. That makes sense. And then the 9.9% is the estimate for the current quarter, which I guess kind of aligns on an annualized basis, gross up --

Correct...

to $100 million. Okay. Got you. On memorialization, did it actually perform better than you expected in the quarter or about in line? And is there any element of price cost timing from the inflation in your average cost method of inventory that might have temporarily boosted EBITDA in the March quarter at the expense of future quarters?

I would tell you, Justin, that the quarter actually performed better at an execution level, worse at a revenue level. If you listen to one of our customers yesterday report, they reported a 4.5% decline in casketed deaths. We are well below that. Our volumes and Memorial -- and our volumes in the casket business are well below that number. So we've overperformed that level, but we were not anticipating that. Largely that had to do with an early flu season. We had strong results in our November and December period that we did not carry forward. So volumes were modestly lower than we would have expected. Price is consistent with what we had expected and -- but execution was even better.

Okay. And what is -- when you say execution was better, just help me understand some of the KPIs or...

I mean I would tell you, yes, I mean, it's hard to kind of get into that level detail, be glad to take it with you. But essentially, in the factories, they're running hot, let's put it that way. They're running well. Our yields, our consistencies really are performing at levels that we are admirable, and that helped this quarter tremendously. There are some things that are going on that are somewhat out of control. You've heard about 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're pretty -- we have it under our belt.

Okay. So you're actually factoring in some incremental headwind for the rest of the year on the tariff side for realization?

Modest, yes.

Yes, yes.

And is that -- that's new or that's tied to the Section 232 change?

I mean let's put it this way. I mean we don't want to get into that specifically. We've implemented some expectation on 232. But at the end of the day, whether that gets worse or gets better, it's something we don't control. There's an expectation in our forecast for some impact of that.

And that expectation is a little bit more of a headwind than maybe you thought a quarter ago entering perhaps the first quarter Okay. Got you. Just to make sure I understand the cash costs that are mostly onetime. So you have the debt redemption, you have the transactions, you have the legal and proxy costs. Are there any other major buckets of cash costs? And are you paying a material amount for this ongoing strategic review? Or is that more conditional upon stuff that might materialize from that strategic review?

Yes. Justin, the items that hit in the quarter were payments on -- kind of 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 fees that had to be paid. We also had to settle out on securitized receivables.

Okay. What are securitized receivables as of now? Or I mean, I assume we'll be in the queue, but if you're able to share it now.

Yes, we're about $55 million.

Okay. And then ongoing cash costs associated with this ongoing strategic review? Or are they more conditional cash costs based on?

No, there's no ongoing costs associated with that. I mean that's mostly done internal. To the extent we need external advice, it's going to be around legal more than anything else. I mean, where there's no -- these are things we're handling ourselves for the most part.

Okay and thank you, for taking all my questions guys.

Thank you, Justin.

[Operator Instructions]

And we show no further questions in queue at this time. 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.

Good day, everyone, and welcome to the Matthews International First Quarter Fiscal 2026 Financial Results. [Operator Instructions] Please note this call may be recorded. [Operator Instructions] It is now my pleasure to turn the conference over to Dan Stopar. Please go ahead.

Good morning. I'm Dan Stopar, Chief Financial Officer of Matthews. And with me today is Joe Bartolacci, 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 Investors section of the company's website, 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. I encourage you to read our disclosures and reconciliation tables carefully as you consider those 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, Dan. Good morning. Thanks for joining us today to discuss the financial results for Matthews fiscal 2026 first quarter. Today, we aren't just reporting on a quarter. We are reporting on the successful execution of a strategic pivot. Over the last 12 months, we set a target to bring our leverage ratio below 3x. I am pleased to announce that following a series of actions, we've achieved our goal. During our first quarter, we closed on the sale of our warehouse automation business for $225 million, representing a very accretive 15x adjusted EBITDA and a very accretive after-tax multiple of 11x for an asset that was highly underappreciated by the market.

In addition, we recently closed on the sale of Saueressig, our European Packaging and Surfaces business for a total consideration of $41 million, including cash, the assumption of pension and other liabilities and promissory notes. Selling the Saueressig assets enabled us to avoid significant restructuring costs and shed pension liabilities from our books. Saueressig represented the remaining assets of the packaging business that was not sold or transferred in our transaction with SGS. Saueressig was held back from the SGS transaction because we would not have received much value for the business. Instead, we converted the business to a highly favorable transaction for the company. Since last year, Saueressig EBITDA was only $1.5 million.

Also, as a result of the Saueressig transaction and actions taken over the past few years, our remaining pension liabilities stand well below $10 million from well over $300 million just a few years ago, of which $125 million was unfunded. As a result of these transactions, our net debt is down to roughly $500 million. We now sit below 3x, a balance sheet-driven target that we had set for ourselves 12 months ago. Beyond just reducing the debt balance, we have fundamentally improved our balance sheet and our cash flow profile. In January, we executed the early redemption of our -- of all $300 million of our 8.625% senior secured notes. By replacing high-cost debt with lower cost capital, we expect to increase our annual cash flow and reduce our annual interest expense by $12 million. This move reclaims capital can now be deployed toward our dividend, internal innovation and high-margin opportunities in memorialization.

A key pillar of our future cash realization is our 40% interest in Propelis. The merger of SGK and SGS is already outperforming expectations. Propelis is now operating at an EBITDA run rate significantly higher than the $100 million that was assumed at the time the deal was closed. In a move that should further enhance inbound cash flow, the Propelis team is currently migrating onto their own version of SAP. This move alone will activate $20 million in potential synergies, part of a total synergy target that exceeds $60 million, much of which is yet to be achieved. We expect to reap the full benefit of this investment when we exit the business, which we anticipate in an 18- to 24-month window. However, assuming a successful conversion to the new operating system in the coming months, we hope to begin to receive some repayment of our preferred equity possibly as soon as our third quarter.

Between the rising equity value and our $50 million preferred, including PIK interest of 10%, we view Propelis as a significant cash and waiting event. Given all that transpired in fiscal '25, we're happy with our first quarter results for fiscal '26. Total revenues were down on a year-over-year basis to $284 million, primarily reflecting the divestiture of our interest in SGK. Additionally, after adjusting for the 3-month lag in reporting and including our 40% interest in Propelis, adjusted EBITDA for the 2026 first quarter was $35 million compared to $40 million in the prior year's first quarter, which included 100% of SGK, a pretty compelling indication of how well we performed in the quarter.

Turning to our businesses. Memorialization continues to serve as the engine that drives our asset portfolio. Our Cornerstone segment had a solid quarter, buoyed by inflationary pricing and higher casket volumes driven by an active flu season and a strong performance in several other product lines. The segment reported a 7% year-over-year increase in sales, thanks to a positive contribution from the Dodge acquisition. Our team has done an exemplary job integrating Dodge, and they are capturing cost synergies ahead of plan. We've also taken significant steps to reduce the initial outlay to acquire Dodge, including expected asset sales and working capital reductions.

The outcome of these transactions will bring the adjusted purchase price of Dodge closer to $50 million with anticipated EBITDA contributions of over $12 million, another highly accretive acquisition. We believe there are more M&A opportunities like Dodge available to us, though it is difficult to ascertain when business owners might be ready to contemplate a sale. However, our deep relationships in this space should enable us to be ahead of the market when the time is right.

We're also seeing strong demand for Mausoleum Construction, which bodes well for our Gibraltar Construction business. Mausoleum projects provide good margins and more importantly, pull through additional opportunities for other products such as bronze lettering and vases.

Moving on to Industrial Technologies. Revenues were down 14% year-over-year in the first quarter, primarily reflecting lower sales by our Energy Solutions business and the impact of the Saueressig Surfaces divestiture. Let's first focus on our Product Identification business, where sales grew modestly during the first quarter, driven by favorable currency shifts and tariff impact. Axian, our new printhead chip product, made its public debut at a PACK EXPO, where the market response was exceptionally strong. We were not surprised by the high interest, which resulted in a strong list of customers entering into our early pipeline directly from meetings at that event. Since the PACK EXPO event, global interest in Axian has continued to build. Our distributors in the EMEA region are showing strong pull, and we're now engaging targeted customers across the region, broadening visibility and accelerating early adoption.

We're also seeing Axian being a clear entry point into the CPG space, where we have expanded what we believe to be our total available market to over $3 billion. Through our introduction and initial discussion with customers, we are seeing interest not only from continuous inkjet users, which is still the largest part of the market, but also from thermal inkjet customers seeking high-quality print at substantially lower cost than thermal inkjet. This new interest further validates the high value of our intellectual property. We have been running our Axian systems in real-world production environments and delivering stable uptime, consistent print quality, reduced cost of ownership and ease of use, essentially all of our value propositions.

One final note on Axian. Based on customer feedback, we recently made a deliberate decision to pause shipments and incorporate a small set of production refinements to the equipment. Specifically, we added more electronic shielding to the product to protect it from electrical noise, nothing of significance in a normal part of initial product launches as we can never fully evaluate all of the operating environments in which the equipment is used. That work is now complete, and we are positioned to place production units this quarter with these additional improvements.

Overall, the strong market reception, the larger TAM, expanding global pipeline and a solid beta performance gives us confidence as we move towards volume production. As mentioned in previous quarters, we are seeking partnerships in this business to accelerate the adoption of this technology and offset some of the costs associated with further development. We hope to have further news on this initiative as the product gains market acceptance and we are able to ramp up our production.

Moving on to our Energy Solutions business unit. It was a challenging quarter as we expected. But while the European market and U.S. battery space face near-term headwinds, our IP remains a global benchmark. We firmly believe in the value of our IP, while interest in our solution remains strong and steady as reflected in over $100 million in our lead pipeline. Included in the pipeline are several opportunities on the calendaring side where we expect decisions to be made in the second half of this fiscal year. We're also discussing opportunities on the ultracapacitor front and hope to have some clarity on order decisions later this fiscal year. Additionally, as we discussed last quarter, we are awaiting a decision from a domestic energy solutions provider for a $50 million U.S.-based opportunity for a battery separator line. The technical team for the client has approved our equipment's efficacy and the significant value that it provides. We expect this opportunity will convert to an order later this fiscal year as the customer works towards securing supply agreements.

Our near-term expectations for the dry battery electrode market has decreased. However, DBE is still viewed by market participants as highly valuable and an enabler of next generation of chemistries, including solid state. We continue to see industry announcements on R&D and patents around the dry process. For example, LG recently stated its intent to actively pursue strategic patents relating to DBE as they view it as a critical for large-scale production. The company also confirmed its goal to begin full-scale commercial production by 2028. Samsung recently identified the 2026, 2027 time frame as a pivotal period. Their CEO also spoke of a battery super cycle where a period of demand growth will enable their next-generation technology platform, including solid-state batteries to reach full-scale mass production.

Samsung's mention of a super cycle also augurs well for the energy storage systems market, which is expected to double globally by 2030. Analysts expect this market's growth to be driven by several factors, including U.S. tariffs on Chinese-made batteries, enabling Korean manufacturers to expand the North American market share and Korean firms converting their underutilized EV battery lines to energy storage production. These activities speak of a market that is pivoting towards the type of battery chemistries and regional supply chains where DVE technology provides the greatest competitive advantage. To protect cash, while we wait for the battery super cycle, we are exploring strategic partnerships and direct investment to expand adoption without heavy capital expenditure. This continues to be an area of focus for our bankers supporting our strategic alternatives efforts.

With regard to our outlook for 2026, we believe a full year contribution from the Dodge acquisition will enable memorialization to grow in fiscal 2026. Additional cost reduction actions at the engineering business are planned for later this fiscal year to mitigate any further declines in the business as we work towards converting several opportunities into orders. Based on these factors and inclusive of our 40% interest in Propelis, we expect our adjusted EBITDA guidance to be at least $180 million for fiscal 2026.

Please note that several events may have impact on our full year results. First, we have been accruing the PIK interest related to the preferred that we received from the SGK transaction. That interest is reflected as a reduction in our corporate and other operating costs. Obviously, to the extent that we receive principal as a reduction of our preferred, PIK interest will decline, but then we will have also received cash, which will further reduce our debt. Second, the timing of orders in our energy business is somewhat out of our control. Although we are confident in the value that we have demonstrated to our customers, demand in North America and Europe for additional battery capacity has slowed. We believe that we have anticipated this in our guidance, but we remain cautious on our timing. While our current transition services agreements from recent sales temporarily limit our ability to slash overhead, these agreements have expiration dates. Once they have rolled off, we expect to focus on our corporate cost structure, which we expect will be materially lower.

We have demonstrated that we know the true value of our assets, and we will be patient in taking actions that do not reflect the best interest of our shareholders. We have fixed our balance sheet, and we are now focused on accelerating the returns to our shareholders. Finally, our evaluation of strategic alternatives is continuing. As discussed above, we are principally focused on finding partnerships, which will benefit our shareholders by capturing the full value of our intellectual property. However, we will be prudent, like we have demonstrated by the sale of our warehouse automation business and the merger of SGK, we know what the true values of our businesses are, and we'll be patient in our process.

Now I'll turn it over to Dan for a deeper dive into our 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. As part of the transaction, the company received a 40% ownership interest in the newly formed entity, the Propelis Group. Please note that as a result of the integration process of Propelis Group and the transition to its own stand-alone reporting systems, our 40% portion of the financial results of Propelis will be reported on a 1-quarter lag. As a result, the consolidated financial information for the fiscal first quarter of 2026 discussed today includes our 40% interest in the financial results of Propelis for the months of July through September of 2025. In contrast, the prior year first quarter consolidated financial information reflects the complete financial results of the SGK business. Our financial statements will be included in the quarterly report on Form 10-Q and will also reflect our portion of the results of Propelis for July through September 2025.

Now let's begin the financial review with Slide 7. For the fiscal 2026 first quarter, the company reported net income of $43.6 million or $1.39 per share compared to a net loss of $3.5 million or $0.11 a share a year ago. The change primarily reflected a significant gain recorded this year on the divestiture of the warehouse automation business, partially offset by losses recorded on the divestitures of the European packaging and tooling businesses, higher litigation and other strategic initiative costs and lower operating performance in the Industrial Technologies segment for the current quarter.

Consolidated sales for fiscal 2026 first quarter were $285 million, compared to $402 million a year ago. The decrease primarily reflected the divestitures of the SGK business on May 1, 2025, and the European packaging and tooling businesses on December 1, 2025. The consolidated sales impact of these divestitures was approximately $120 million for the current quarter. Sales for the Industrial Technologies segment were lower for the quarter, offset partially by higher sales for the Memorialization segment. Consolidated adjusted EBITDA for the fiscal 2026 first quarter was $35.2 million compared to $40 million a year ago. The decline primarily reflected lower operating performance by the engineering business. The Memorialization segment reported higher adjusted EBITDA for the quarter, while corporate and other nonoperating costs were higher in the current year.

On a non-GAAP adjusted basis, net loss attributable to the company for the current quarter was $6 million or $0.19 per share compared to net income of $4.3 million or $0.14 per share last year. The decline primarily reflected the impact of lower operating profits and the unfavorable impact of losses in foreign jurisdictions for which we were unable to record tax benefits. 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 first quarter of fiscal 2026 were $204.2 million compared to $190.5 million for the same quarter a year ago. The Dodge acquisition contributed sales of approximately $10.4 million to the current quarter. Higher sales volumes for caskets, bronze and granite cemetery memorials, combined with inflationary price increases also contributed to the improvement in the segment's results. Mausoleum sales declined, primarily resulting from timing of construction projects and cremation equipment and related sales were also lower than a year ago.

Memorialization segment adjusted EBITDA for the current quarter was $38.9 million compared to $36.6 million for the same quarter last year. The increase primarily resulted from the benefits of higher sales volume, inflationary price realization and cost savings initiatives, partially offset by the impact of higher labor and material costs. The Dodge acquisition and the disposition of the unprofitable European cremation equipment business also contributed to the increase in the segment's adjusted EBITDA.

Please move to Slide 9. Sales for the Industrial Technologies segment for the first quarter of fiscal 2026 were $69 million compared to $80.5 million a year ago. The decline mainly resulted from lower sales for the segment's engineering business and the divestiture of the segment's tooling business on December 1, 2025. The decline was offset partially by higher sales for the warehouse automation business. Changes in foreign currency rates also had a favorable impact of $2.9 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 $4.5 million compared to a profit of $1.8 million for the same quarter a year ago. The decrease primarily resulted from the impact of 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. Sales for the Brand Solutions segment were $11.6 million for the quarter ended December 31, 2025, compared to $130.8 million a year ago. Sales for the current quarter were comprised of the months of October and November for the segment's European packaging operations, which were divested on December 1, 2025. The impact of this divestiture was a decrease of $3 million compared to the same quarter in the prior year. The remaining decrease resulted from the divestiture of the SGK business on May 1, 2025, which had an impact of approximately $115 million for the quarter.

Adjusted EBITDA for the Brand Solutions segment was $12.7 million for the current quarter compared to $12.3 million a year ago. The current quarter mainly reflects the company's 40% interest in Propelis as our European packaging business reported relatively breakeven results, and this was generally consistent with the same quarter a year ago. To reiterate the earlier comments about Propelis, our 40% portion of the financial results of Propelis is reported on a 1-quarter lag. And as a result, the consolidated financial information discussed today includes our 40% interest in the results of Propelis for the months of July through September.

Please move to Slide 11. Cash flow used in operating activities for the fiscal 2026 first quarter was $52 million compared to $25 million a year ago. The first fiscal quarter is typically our slowest, generally reflecting a net operating cash outflow, and this is due primarily to seasonally lower earnings and the payment of year-end accruals, taxes, insurance and other annual payments. The quarter also reflected payments in connection with divestitures, litigation and other strategic initiatives. Outstanding debt at December 31, 2025, was $537 million and net debt, which represents debt less cash, was $506 million. Net debt declined by $173 million in the first quarter of fiscal 2026, driven by receipt of $240 million of cash proceeds from the divestitures of the warehouse automation business and the European packaging and tooling businesses.

Total cash proceeds from the warehouse automation sale, including $40 million of estimated future income tax payments in addition to other costs are projected to be $170 million. This business has a relatively low tax basis and is predominantly a U.S.-based business. Net proceeds from the sale of the European packaging and tooling businesses are approximately $30 million, including $14 million received at closing, $8 million to be received within 90 days of closing and the balance in the form of interest-bearing seller notes due in future years. The buyers also assumed pension and certain obligations with the transaction. For the first quarter of fiscal 2026, the company purchased 206,123 shares under its stock repurchase program at an average cost of $25.04 per share. These repurchases were solely related to withholding tax obligations for vested equity compensation. And finally, the Board declared last week a quarterly dividend of $0.255 per share on the company's common stock. The dividend is payable February 23, 2026, to stockholders of record February 9, 2026.

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

[Operator Instructions] We'll take our first question from Colin Rusch with Oppenheimer.

Guys, as you look at the landscape around ultracapacitors, batteries and a pretty significant investment in domestic manufacturing that's in the planning stages right now. Can you talk about the breadth and depth of potential customers that you're looking at here domestically? And then would also love to hear about something similar in Asia outside of China in terms of how much of those conversations are at this point? I know you gave a little bit of color, but would love some additional detail.

Yes, I mean, with respect to the North American markets and the European markets, the customers, all those players that you might expect it to be, whether it be OEMs or whether it be battery manufacturers, we're having conversations with all of them. As you said, it's still in the planning stages, but more and more you're hearing about the desire to move towards DBE, and that's coming from the battery manufacturers. The OEMs are kind of now awakening to the idea that this is where they need to go. And the idea that tariffs on Chinese products could continue for a long time to come, only makes it more important that we are a Western world. So we think we're well positioned to continue to deliver into the future. We're just having a difficult time right now as we go through this cycle.

Excellent. And then as you look at the ecosystem of technologies that could augment the DBE, is there anything of interest or bubbling up that we could think about you guys pursuing as a tuck-in acquisition? Obviously, you don't want to signal too hard, but just curious about the pipeline of potential M&A opportunities for you guys.

When we speak of energy, it's less about acquisition capacity than it is joint development opportunities with different players, whether it be the mixing side, on the material handling side or on the chemistry side, it's the joint development between partnerships that allow us to bring to fruition the opportunities. I don't need to acquire them. Oftentimes, they're much bigger companies than we are. There may be possibility for them to invest in us or for them to carry the weight of the capital investments that we expect will be necessary for this. So I don't see significant opportunities for acquisition right now. It doesn't mean that something couldn't arise. We own everything we need for the pieces of the equipment that we produce.

Excellent. And then just a final one on the balance sheet. Obviously, you guys have optimized the business, streamlined it and now are sitting in a much different position from a debt-to-EBITDA ratio perspective. Are there other things that the company is contemplating now to optimize the capital structure? Or should we think about the current capitalization as the path forward and just generating cash from operations here on an ongoing basis?

As a practical matter, you heard me mention what we call the cash and waiting event that comes from Propelis. Two elements of that, whether it be the repayment of the preferred, which is more likely to occur before the exit from the equity. But those 2 events themselves, you can put your own multiple on those numbers. I mean, with a business that's running well over $100 million worth of EBITDA already and relatively low debt in that business, we think debt equity is pretty valuable, whatever multiple you put on that EBITDA. As we start approaching that time when that becomes realization, there'll be more discussions about what we do from a capital structure standpoint.

Our next question comes from Daniel Moore with CJS Securities.

Start with memorialization. Solid quarter, obviously. How do we think about just what are your expectations for the market looking at, obviously, caskets, memorials, cremation? When I kind of think about calendar year '26 versus '25, what are the puts and takes there? And then in the very short term, some extreme weather here that can sometimes cause delays in that business. Just wondering what you're seeing early in fiscal Q2.

Dan, I'll let Dan Stopar give you the numbers, but let me give you a little bit of color on what the current environment is happening to us. As you've been around for this business for quite a while, you understand the month of January was a difficult month for us. Hopefully, that's just a time step as people still need to be buried, still need to be celebrated and so forth. So we expect that to pick up here in February and March and maybe come back to even a greater number than we had expected. But -- so I would expect we are firing pretty well on a number of cylinders in that business right now. We've just begun the integration from a commercial standpoint of the opportunities on the Dodge side. We think that there's an opportunity to expand both market shares on both sides of the equation, whether it be on the Dodge product side or whether it be on our memorial side. And that team is excited about that opportunity. Those efforts are just beginning as we speak. When we look at the balance of the year, I'll let Dan speak to you about the numbers. He'll give you a better perspective. He's got it in front of him. Go ahead, Dan.

Yes. Dan, I think Joe kind of gave you the overview of the market expectations. Obviously, we're going to continue to add in our year-on-year comps as we pick up more of the Dodge business. And we have synergies that will layer on throughout the year going into the following year, 1.5 years after that. So we continue to follow the same expectation around death rates in the 1.5% to 2% cremation rates that will continue to grow, but at a declining rate. And then obviously, we are taking advantage of our ability to grow in the market and build market share. But also top line will continue to grow as we increase our prices to offset inflationary costs.

Very helpful. And as you touched on, obviously, synergized down the Dodge acquisitions looking maybe 4x-ish on a kind of adjusted multiple, so certainly very attractive. Talk about just the opportunity set there from an inorganic perspective. Is it that specific end market where you see room for additional opportunity? Or is it more sort of ancillary products around the memorialization business?

I think it's both, Dan. At the end of the day, I mean, whether we look to find opportunities to sell our caskets to customers of Dodge that are overseas or in other parts of the North American market where we don't serve today or whether it is to introduce a new product into a market that we currently don't serve. I think that when we look at acquisitions, we think we have a pretty good structure to be able to run through every door in the United States when it comes to sales. So if I can add a product line that we currently don't have and expand it over 100 and some odd salespeople across the United States that currently just put that into their portfolio and begin to sell, we'll add that.

And then when we look at our structure, and be able to take the kind of synergies that we took out of the Dodge acquisition in a relatively short period of time, we think we can make some highly accretive transactions. Now to be fair, there's nothing on the horizon right now. I do not want to walk away from this and say we're on a tirade to ramp up our debt levels and continue to go through the acquisition trail.

What I am conveying is that there's a significant opportunity across the United States and elsewhere in the world to continue to add pieces to the puzzle to this portfolio that we currently don't have.

Really helpful. Again, back to energy storage, just pulling on the string a little bit. It sounds like your expectation is that the cadence of orders is likely to pick up in H2 at least based on your current conversations. So we think about more of a kind of a fiscal '27 ramp in revenue? And any kind of sense for the range or scope or size of these opportunities? I know you mentioned one was a $50 million potential revenue opportunity. What are we looking at here just in terms of how we think about the backlog and order book could grow as we look out a couple of quarters?

Yes. I mean the interesting thing that comes, you should take from my comments is now the large Korean manufacturers whose names we gave to you earlier, battery manufacturers and others, by the way, are speaking very freely about dry battery electrode. That it is in their development plan, and they expect to be in market with the dates they've kind of committed publicly. I don't expect them to be coming in and launching with $0.5 billion worth of orders. It is a ramp process for them. We have some equipment that we're working on as we speak. Our new production piece of equipment, they -- our people are beginning to schedule time on here to be able to run their samples on our equipment, and that should facilitate the acceleration of the production process for them. As they see a -- rather than going -- as we've said before, rather than going from a lab machine and scaling up to a pilot machine, selling up, scaling up to a production machine, we have a production level piece of equipment that we manufactured that's sitting in our facility in Vreden right now, where we're going to begin selling time to some of our battery manufacturers and OEMs to be able to run their chemistries through to see how it handles it.

So we'll be able to speak more to that probably second half, but I do not want to create an expectation of significant orders. We've kind of given you the $50 million order, which we expect. It has passed technical efficacy tests. We have several other smaller orders that make up the other $50 million in our pipeline. Hopefully, those come to fruition over the second half of the year. Then the ramp thereafter is going to be dependent on when they begin to scale out their gigafactories. We don't control that. We're a critical piece of those gigafactories, but we are not the major spend.

Understood. Really helpful. And just a reminder what is in the -- from a revenue perspective and the projections for fiscal '26, just for energy storage in ballpark terms?

$30 million to $35 million, Dan.

Perfect. Okay. Last one, obviously, great to see the leverage back down. Congrats on execution of those transactions. Expectations, Dan, for sort of CapEx and free cash flow in fiscal '26, just thinking about the organic delevering capability, whether that's going to be closer to breakeven or if we can kind of start to tick that even lower on an organic basis here in the near term?

Yes. Dan, CapEx should be around $25 million for the year. From this point forward, this is Q1, we typically build working capital. And from this point forward, for the rest of the year, we should get some small benefits, $5 million to $10 million on working capital. So with an EBITDA -- cash EBITDA that should be when you start with our $180 million and you back off the Propelis piece that may or may not monetize this year, you're going to be left with about $130 million of cash EBITDA. We should be in pretty good shape after interest expense and dividends, treasury stock to generate some cash for the last 3 quarters.

Really helpful. I’'ll circle back with any follow-ups.

Dan, I'd be remiss if I didn't at least highlight the commentary with respect to the pension. I remember conversations with this group a few years back when we were $125 million underfunded, and we're now down to virtually 0 underfunded. We think that we're pretty proud of what we've had to get done there. And some of that sat in that -- we had to put into our revolver and help the, what created some of the debt situation we were in.

Our next question comes from Liam Burke with B. Riley Securities.

Joe, you quantified a few quarters back the quote activity that you've been having as the Tesla overhang has been eased. Off that number, and I'm not asking for a number, but directionally, is that quote activity increasing? And is it concentrated on larger systems?

I would not say it's concentrated on the larger systems. It's concentrated on customers that can order larger systems, I would say. The $50 million item is the big ticket item in that portfolio. The rest of them are made up of multiple customers that have the potential to place large orders thereafter.

Okay. Dan, copper pricing has been increasing. Obviously, that affects bronze pricing. Have you been able to get the increases passed through?

Yes. So far, Liam, I think you know we buy out for about 6 months. So that's -- we're working through that now. But certainly, we've been buying at higher rates all along. We've passed through price increases that should help us offset that to a large degree.

Unfortunately, Liam, it's moving faster than our price increases sometimes. So it's a moving target lately.

And our buying is opportunistic, right, to try to time the market when the prices do dip down.

Great. And just a little color on cremation. There wasn't any mention in the prepared comments. I presume it's just moving along just fine.

Yes. After some restructuring, we shut down a facility on the West Coast, concentrated that back into our Florida facility. We're expecting a strong year from them after -- if you recall, last year, we divested of our European operations. That was a comparable that's going to have a year-over-year full year impact on us, but should trail off. I think it's this quarter, right, Dan. So we lose it this quarter, and we're expecting a pretty strong year for them going forward. We're seeing great interest in a couple of new products, in particular, in new services. We've invested pretty significantly in our service portfolio. And that is really what is bringing more and more opportunities for us as our competitors just don't have that scale.

Our next question comes from Justin Bergner with Gabelli Funds.

I have a handful of questions. Most are kind of just clarifying in nature. Maybe to start, the Propelis EBITDA, I think in prior quarters, you provided an estimate for the EBITDA in the quarter, even though the adjusted EBITDA number was speaking to the contribution from the prior quarter. Are you able to do that this quarter as well?

Yes. Justin, we -- last quarter, we were able to provide that because that was year-end. It was much later in the quarter. As we mentioned, they're delayed in developing their financial statements. What I can tell you is this is seasonally their lightest quarter. So we would not expect the profit that we pick up next quarter to be as high as what it was this quarter.

Got you. Second, the tax liability on the warehouse automation sale, has that been paid yet or mostly been paid yet? Or is that yet to come out of your cash balance effectively?

No, that will be paid for our normal quarterly payments over the remainder of the year.

So it's essentially all remaining the tax liability?

That's correct.

Okay. And then just trying to clarify the sale of European packaging and industrial tooling. I think you mentioned December 1, but then I saw the January 7 press release. So how much in sales is coming out of Industrial Technologies for the tooling business? And what closed in December versus in January?

Yes, it all closed in December. And Packaging was about $60 million that came out of SGK, the Brand Solutions segment and $40 million came out of Industrial Technologies.

Okay. Got you. That's helpful. So then the portion out of Industrial -- okay, so you said there was a few million, I guess, for the quarter that wasn't in there for SGK and a few million that wasn't in there because of Industrial Technologies because of the December 1 close.

Yes, that's right. It was about $3 million, I believe, on the SGK side and yes, a couple.

Yes, on the industrial side.

On the Industrial side.

Okay. Got you. And then maybe bigger picture, what remains active in the electric vehicle kind of pipeline as it relates to your energy storage business? I mean it seems like most of what you're talking about is outside of EVs now, but where do you continue to engage on the EV side?

No, no. In fact, actively, all of them are on the EV side, whether it be the battery separator line, whether it be the calendar lines that we've quoted, the $100 million is pretty much all located in the EV sector. They also could be for energy storage, which would be more for freestanding facilities. But I mean it's all related to that.

Okay. Got you. And then the chip had delay because of some of the customer requests on electrical security, how many months did that back the program?

30 days. 30, 45 days, Dan. Excuse me, Justin. It was a minor tweak basically.

It appears we have no further questions. I'll turn the program back to the speakers for any additional or closing remarks.

We have no further comments. We appreciate your time today, and we look forward to speaking to you in several months.

Hello, and welcome, everyone, joining today's Matthews International Fourth Quarter and Year-End Fiscal 2025 Financial Results. [Operator Instructions] Please note, this call is being recorded. [Operator Instructions] It is now my pleasure to turn the meeting over to Chief Financial Officer, Steve Nicola. Please go ahead.

Thank you, Nikki, and good morning. I'm Steve Nicola, Chief Financial Officer of Matthews. And with me today is Joe Bartolacci, our company's President and Chief Executive Officer; and Dan Stopar, our incoming Chief Financial Officer, beginning December 1. 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 Investors section 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.

Thank you, Steve. Good morning. Thanks for joining us today to discuss the financial results for Matthews fiscal 2025 fourth quarter and 2025 year-end. Before sharing our solid results for the fourth quarter, I want to take a step back on our strategic progress. Earlier this year, we laid out several objectives: simplify our corporate structure, expand our work with -- in higher growth and higher-margin businesses and reduce our costs. I am proud to say that we have taken decisive actions throughout the year to deliver against each of those goals. I would like to spend a few minutes elaborating on our progress across each of these buckets.

The divestiture of SGK and Warehouse Automation at compelling valuations have clearly simplified our story. In selling SGK, we retained a 40% stake in the new company, Propelis, that is outperforming expectations. Thus, we expect to reap a significant benefit when we exit this business, which is likely over the next 18 to 24 months. From a commercial perspective, the market response to Propelis has been very favorable. Propelis is now operating at an EBITDA run rate significantly higher than the $100 million that was assumed at the time the deal was closed.

After a period of consolidation post COVID, CPGs are realizing the need to innovate in order to strengthen their brands. Thus, the Propelis core packaging business is having a strong performance. Plus, given our new scale, we are seeing opportunities on the marketing side of the business that neither business had the scale to deliver on before the transaction. Note that over $50 million of synergies are yet to be executed with a significant portion of those synergies to be delivered next year. We expect this to be a highly favorable transaction. Once we exit, we will have a significantly delevered our business, putting us in a position to further increase shareholder value. Building on this, last week, we announced an agreement to sell our Warehouse Automation unit to Duravant LLC, a global leader in engineered equipment and automation solutions.

Under the deal terms, Matthews will receive $230 million comprised of $223 million in cash consideration plus the assumption of certain liabilities. After taxes, fees and payments of other liabilities, we expect that $160 million will be applied to debt reduction, significantly reducing our total debt. We believe this to be a highly attractive transaction as well that enables us to further reduce our debt position and strengthen our balance sheet as we work towards our long-term target of 2.5x while enhancing our ability to pursue additional strategic initiatives. The value of our Warehouse Automation business was highly underappreciated by the market, but this transaction reflects its true value. At over 3x revenue and 15x adjusted EBITDA, this transaction was very accretive.

Assuming that HSR approval is secured within the customary 30-day period, we expect the transaction to close before the end of December. To further simplify our operating structure, we also expect to complete a few smaller transactions, including the sale of our Saueressig packaging and [indiscernible] GmbH in the next -- in the near term. We continue to actively evaluate other strategic portfolio opportunities assisted by JPMorgan, and we will update you accordingly. As I'll discuss in more detail shortly, across our business segments, we have made important growth investments to better position the company for long-term success. The Dodge acquisition is delivering even better-than-expected results in memorialization. And in October, we acquired substantially all the assets of Keystone Memorials, a wholesale manufacturer of granite materials in Georgia.

This highly strategic investment drives equipment, 22 acres of property and 30,000 square foot production facility in Elberton, Georgia that will enable us to produce personal mausoleums, a growing segment of the market. In the Industrial Technologies segment, we launched our new printhead, Axian in October, and I'm pleased to report that the initial response from the market has been overwhelmingly positive. In addition, we have continued advancing efficiency actions, resulting in a reduction of full year corporate costs on a year-over-year basis of $8.5 million. In addition, we reduced our debt by $66 million. Finally, from a governance perspective, we have put in place meaningful adjustments to enhance accountability. We declassified our Board and removed supermajority voting requirements.

And on Wednesday, we announced the appointment of Michael Nauman as Matthew's Chairman of the Board. Michael succeeds Alvaro Garcia-Tunon, who retired -- who will retire as Chairman and from the Board and -- as Chairman and from the Board when his term expires at our annual meeting. Michael's extensive technical expertise, M&A experience and leadership come at a transformative time for Matthews as we focus on long-term value creation for our shareholders. We look forward to the contributions that Michael will bring to the Board as Chairman. Turning to our fourth quarter performance. We're very pleased with the company's results. We had a strong finish to the year in a challenging economic environment, driven by improved year-over-year performance in our Memorialization and warehouse automation business units. Additionally, we saw the benefits of our focus on reducing corporate and other nonoperating costs, which added to our strong operating results.

From an EBITDA and adjusted earnings per share perspective, our results were higher for the quarter than prior year when you exclude the impact of the SGK divestiture, a strong performance. Let's move on to the specific business units, beginning with Memorialization, which reported higher revenues and adjusted EBITDA on a year-over-year basis. As we reported in May, the Dodge acquisition contributed significantly to our performance in the fourth quarter. We're very pleased with the progress they are making on the integration process as synergies are being captured ahead of plan. Additionally, we are preparing to initiate cross-selling activities and expect this acquisition to be a strong contributor to revenues and EBITDA in fiscal 2026.

As for Industrial Technologies, revenues were lower year-over-year, reflective of our ongoing challenges in the engineering business. In Warehouse Automation, we capitalized on the market recovery underway and strong order rates to drive strong revenues and adjusted EBITDA in Q4. This strong performance is reflected in the robust market interest and valuation we received for this business. With respect to our product identification business, building on my earlier comments about the launch of Axian, we also received GS1 certification as the only jetting unit able to meet 2D code quality standards, which can be read at speeds we believe that no other competitor has achieved. This is yet another key differentiator for this novel technology.

GS1 certification is the global standard for adoption of the 2D codes, which are beginning to be required across the world. In the current environment, tariffs have impacted all of our businesses and for the most part, we have been successful in mitigating these costs by passing along higher prices. This remains a volatile topic, as you all are aware, but the team has so far done excellent work in managing in this difficult environment. Finally, moving on to the Engineering business segment. Let me first provide an update regarding our proprietary dry battery electrode technology.

For almost 2 years, we have been in a prolonged dispute with Tesla addressing their false ownership claims arising from our proprietary advanced rotary processing and calendaring offerings, frequently referred to as the all-in-one solution for the dry battery electrode. We have already successfully prevailed in numerous rulings against Tesla in recent years. Notably, however, I am at a slight disadvantage speaking in any form about the details of our dispute as I cannot further explain components of the litigation given certain matters have been or are being addressed through confidential arbitration. That said, Tesla's vigorous efforts to claim ownership rights in our solutions, solutions that we have been working on and refining with our German engineering team for over 2 decades, further confirm our position that our proprietary technology is highly valuable and sought after.

Specifically, many parties continue to show keen interest in our DBE offerings. Consistent with prior rulings, I remain confident we will maintain our ownership rights in our proprietary DBE technology. Indeed, certain rulings have already reinforced Matthew's long-standing leadership in the design, development and manufacturing of continuous process machinery for battery electrode production, including our proprietary dry battery electrode solution. With respect to business activity for the engineering business, during the quarter, we received an order for a production scale machine for a U.S.-based solid-state battery manufacturer, which we will hope will be one of many delivered as this novel technology comes to market. DBE is considered the best solution for solid-state batteries given the lack of solvents in the production process.

We expect as more companies come to market with solid-state solutions, interest in our proprietary technology will continue to grow. Also in December, we will engage with a domestic energy solutions provider to prove our equipment's efficacy for a $50 million U.S.-based opportunity for a battery separator line, another product in our energy storage portfolio. We expect this opportunity will convert to an order in early fiscal 2026 as the customer works towards securing supply agreements. Our pipeline of opportunities remain steady with quotes in excess of $150 million, and we expect to announce more orders in 2026. Looking ahead, with regards to the energy business, we are exploring multiple partnerships with several industry participants.

Our intent is to partner with others who can help us expand adoption of this technology around the globe. We are open to partnering directly on projects as well as looking for direct investments into the business. This will not be an immediate event, but has been one of the focuses of our strategic alternative efforts. Finally, concluding with a few comments looking forward to 2026. We believe a full year contribution from the Dodge acquisition will enable Memorialization to grow in fiscal 2026. Additional cost reduction actions at the engineering business are planned for next year to mitigate any further declines in the business as we work towards converting several opportunities into orders.

Based on these factors and inclusive of our 40% interest in Propelis, we expect our adjusted EBITDA guidance to be at least $180 million for fiscal 2026. Recognize that we will have multiple transition services agreements in place from various divestitures, which will limit our ability to take more significant action to reduce our overhead, but we are working on and expect corporate costs to be materially lower after the expiration of those agreements. Finally, our evaluation of strategic alternatives is continuing. However, we will be prudent in making decisions focused on achieving appropriate value for our shareholders. Like we have demonstrated by the sale of our Warehouse Automation business and the merger of SGK, we know what the true values of our businesses are, and we'll be patient in our process. Now I'll turn it over to Steve for a discussion.

Thank you, Joe. Before starting the financial review, I want to give a reminder on the financial reporting with respect to SGK. As you are aware, the divestiture of SGK closed on May 1, 2025, and as such, our consolidated financial information reflects the financial results of the SGK business through the closing date. As part of the transaction, the company received a 40% ownership interest in the newly formed entity, Propelis Group. Please note that as a result of the integration process of Propelis Group and transition to its own stand-alone reporting systems, our 40% portion of the financial results of Propelis will be reported on a 1-quarter lag.

As a result, except as otherwise noted, the consolidated financial information discussed today only includes our 40% interest in the financial results of Propelis for the months of May and June 2025. Similarly, our financial statements to be included in the annual report on Form 10-K will only reflect our portion of the results of Propelis for May and June 2025. However, in Joe's remarks in the press release yesterday, we provided our adjusted EBITDA results for fiscal 2025, inclusive of estimated Propelis results for July through September 2025 for your reference. Now let's begin the financial review with Slide 7.

For the fiscal 2025 fourth quarter, the company reported a net loss of $27.5 million or $0.88 per share compared to $68.2 million or $2.21 per share a year ago. The change primarily reflected significant restructuring charges a year ago, including a goodwill write-down compared to litigation costs and other restructuring costs and asset write-downs for the current quarter. Consolidated sales for the fiscal 2025 fourth quarter were $319 million compared to $447 million a year ago. The decrease primarily reflected the divestiture of the SGK business on May 1, 2025. The consolidated sales impact of the SGK divestiture was approximately $120 million for the current quarter. Sales for the Industrial Technologies segment were lower for the quarter, offset partially by higher sales for the Memorialization segment.

Consolidated adjusted EBITDA for the fiscal 2025 fourth quarter was $51.5 million compared to $58.1 million a year ago. The decline primarily reflected the SGK divestiture. The Memorialization segment reported higher adjusted EBITDA and corporate and other nonoperating costs were lower for the quarter, which were partially offset by a decline in adjusted EBITDA for the Engineering business. On a non-GAAP adjusted basis, net income attributable to the company for the current quarter was $15 million or $0.50 per share compared to $16.6 million or $0.55 per share last year. The decline primarily reflected the impact of the SGK divestiture. With respect to Propelis, based on preliminary financial projections that were provided to us, their current estimate of adjusted EBITDA for July through September 2025 was $32.2 million. Please note that these projections are unaudited and subject to review and as a result, may change.

Our 40% portion of this amount would be $12.9 million. Accordingly, adjusting for the impact of the 3-month lag, the company's consolidated adjusted EBITDA for the fiscal 2025 fourth quarter would have approximated $57 million compared to the $58.1 million generated a year ago. 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 fiscal 2025 fourth quarter were $209.7 million compared to $196.8 million for the same quarter a year ago. Acquisitions, primarily Dodge, contributed sales of approximately $11 million to the current quarter, which were offset partially by the disposition of the European cremation equipment business. Higher sales volumes for Bronze Memorials and inflationary price increases also contributed to the improvement of the segment sales.

Granite Memorials and casket sales volumes declined, primarily resulting from lower U.S. casketed deaths. Additionally, Granite Memorial sales a year ago were favorably impacted by the working down of backlogs that had accumulated during the pandemic. Cremation equipment and related sales were also lower than a year ago. Memorialization segment adjusted EBITDA for the current quarter was $45.1 million compared to $40.5 million for the same quarter last year. The increase primarily resulted from the benefit of inflationary price realization and cost savings initiatives, offset partially by the impact of higher material costs.

Acquisitions and the disposition of the unprofitable European cremation equipment business also contributed to the increase in the segment's adjusted EBITDA. Please move to Slide 9. Sales for the Industrial Technologies segment for the fiscal 2025 fourth quarter were $93 million compared to $113.9 million a year ago. The decline mainly resulted from lower sales for the segment's engineering business. The decline was offset partially by higher sales for the Warehouse Automation business. In addition, the shutdown of the unprofitable automotive business contributed to the segment's year-over-year sales decline. Changes in foreign currency rates had a favorable impact of $3.4 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 $11 million compared to $15.9 million for the same quarter a year ago.

The decrease primarily resulted from the impact of lower engineering sales, offset partially by the segment's cost reduction actions in its engineering business and the impact of higher Warehouse Automation sales. Please move to Slide 10. Sales for the Brand Solutions segment were $16.2 million for the quarter ended September 30, 2025, compared to $135.9 million a year ago. Sales for the current quarter consisted of the segment's European packaging operations. The decrease resulted from the divestiture of the SGK business on May 1, 2025, which had an impact of approximately $120 million for the quarter. Adjusted EBITDA for the Brand Solutions segment was $7.4 million for the current quarter compared to $17.3 million a year ago.

The current quarter mainly reflects the company's 40% interest in Propelis as our European packaging business reported relatively breakeven results, which was generally consistent with the same quarter a year ago. The decrease in the segment's adjusted EBITDA resulted from the divestiture of the SGK business. Please move to Slide 11. Cash flow provided by operating activities for the fiscal 2025 fourth quarter was $10.3 million compared to $35.9 million a year ago. For the fiscal year ended September 30, 2025, cash flow used in operating activities was $23.6 million compared to cash provided by operating activities of $79.3 million last year.

Cash costs in connection with acquisitions and divestitures, litigation and restructuring of the German operations and the unfavorable working capital impact related to the Tesla project were the significant factors in the operating cash flow decline for the current year. Outstanding debt at September 30, 2025, was $711 million and net debt, which represents debt less cash, was $678 million. Net debt declined modestly for the fiscal 2025 fourth quarter. The company's net leverage ratio at September 30, 2025, based on trailing 12 months adjusted EBITDA was $3.6 million. With the pending sales of our Warehouse Automation business and our European packaging and tooling business, both of which are expected to close in the early part of fiscal 2026, we expect significant reduction in our debt levels.

Net cash proceeds from the Warehouse Automation sale, net of income taxes and other costs are projected to be $160 million. This business has a relatively low tax basis and is predominantly a U.S.-based business. Net proceeds from the sale of the European packaging and tooling business are projected to approximate $30 million. The buyer is assuming pension and certain other obligations with the transaction. For the fiscal 2025 fourth quarter, the company purchased 5,262 shares under its stock repurchase program at an average cost of $20.33 per share. These repurchases were solely related to withholding tax obligations for vested equity compensation.

For the year ended September 30, 2025, the company repurchased approximately 568,000 shares at an average cost of $21.54 per share. Finally, the Board declared this week an increase in the quarterly dividend to $0.255 per share on the company's common stock. This represents the 32nd consecutive annual dividend increase since becoming a publicly traded company. The dividend is payable December 15, 2025, to stockholders of record December 1, 2025. This concludes the financial review, and we will now open the call for any questions. Nikki?

[Operator Instructions] We'll take our first question from Colin Rusch with Oppenheimer.

Congratulations on the progress with the customers on the battery side. Can you talk a little bit about the opportunity set when you think about solid-state and ultracapacitors, given what we're seeing with data center power needs and power buffering. Are you seeing any incremental interest on the ultracapacitor side or changes in chemistry that may be more attuned to some of the stationary power application rather than the mobile applications?

Certainly, Colin, thank you. Good to talk to you. You know a lot more about the energy storage business than many of our investors do, and that's important because factually, you're absolutely correct. The reality is that our dry battery electrode technology applies far more than just the energy that goes into a vehicle, whether it's ultracapacitors who we're having multiple discussions with or whether it's for storage capacity for anything from data centers to anything else. The customer I referred to that is looking at a $50 million order next year is exactly that. It is storage. It is not for automobiles. So we're seeing increased interest. The technology is highly valuable and focused on any type of energy storage, and we're looking to expand upon that opportunity everywhere we look.

And then with the strategic review, you've been able to divest a number of businesses. You're potentially in a more flexible cash situation. How should we think about M&A and augmenting some of the technology portfolio that you guys have a really solid foundation with here as you look at some of these bigger opportunities starting to emerge in a more concrete way?

Well, right now, Colin, we're focused on reducing our debt, and we're going to get that in line. And we have a target here of coming at 2.5 or better when we look at our debt. The exit of SGK will clearly, clearly put us well below that target, and we're very comfortable being there. As I said in my comments, that will open up the opportunities for strategic initiatives. And whether it be on the energy side, whether it be on the memorialization side or the execution of our new printheads, we will look at it diligently and try to be prudent about that decision as we go forward.

Imminently, though, we do not have anything on the table that we'd be focused on as we try to get out the door of what we do have. There's a lot on our plate right now, folks with 3 transition services agreements, divestitures happening, restructuring associated with that. We have enough on our plate right now to deal with. And I would say in the near term, we're focused solely on debt.

Our next question comes from Liam Burke with B. Riley Securities.

Joe, you called out a firm order, and then you also called quantified another potential order. You also quoted pipeline opportunities. Is it -- are your customers less reticent to start working with you even though the Tesla lawsuit has not been completely resolved yet?

I would say that they're less -- not less, reticent as much as they're more dependent on the market environments in which they operate. And when it comes to EV, there is overcapacity on the battery side. We are looking at a fairly significant opportunity, we believe, in the European market where one of our potential customers has had success and is looking at the building of a new factory over there. When we look at solid state, that's another completely different market, smaller volumes at this point in time, but higher -- let's call it, efficiency when it comes to the battery itself. As Colin mentioned earlier, included in there are some opportunities when we look at ultracapacitors, another form of energy storage. So I would tell you, Liam, they're not so much worried as much of that as they are in making sure they have market opportunities.

Fair enough. And on Memorialization, cremation, is that still -- how is that doing?

The business itself or the trend? The business itself is doing fine. We are -- as Steve mentioned in his comments, we sold our underperforming European business, which had been a drag for us for a while. We had shut down our -- many of you may know, we have a facility in Apopka, Florida. From an efficiency standpoint, we looked at opportunities on the West Coast to be able to support that market more locally. We have shut down that facility, integrating that also into Apopka. We still have room for improvement in the business, but it continues to operate at a pretty good rate.

We will move next with Dan Moore with CJS Securities.

This is Will, on for Dan. Can you provide an update on beta testing for the new Printhead solution? What are the key steps before you can commercialize it more broadly? And how should we think about the TAM for that product over the next 2 to 3 years?

So I mean, key steps is, it's in market. So we will start deliveries here in December. Recognize that we had literally 2 trade shows where our trade -- our booth was overwhelmed, both with competitors as well as with customers. Comments like this is finally an alternative to continuous inkjet. The 2D code thing that I mentioned on my call, getting GS1 certification is big, but we're still early in the process. So the steps that we are going through right now is we have limited chips, so we will begin that process of selling that, but it will be a limited amount. The market TAM that we're going after is over $2 billion. I don't need to have a lot of that TAM to be successful for this part of our business. So I'm looking forward to where this goes. And we'll continue to refine the yield that we're receiving on those -- the chips as we move forward. So multiple steps to really creating the value that this opportunity is for us.

And looking at the balance sheet, the $300 million 5-8 bonds aren't due for another 2 years. What are your options to call or refinance early if you were to choose to do so?

Well, we're in a call period right now that started October 1. And so that will last, obviously, through the end of the term of the bonds. So as you would expect with the proceeds that we're seeing from some of the divestitures not only the SGK divestiture that's closed, but the warehouse divestiture and the packaging and tooling that are pending. Looking at that 5 and 5-8 bond is something that is definitely on our radar in terms of evaluating the alternatives for it.

Our next question comes from Justin Bergner with Gabelli Funds.

Just to start, could you elaborate the solid-state opportunities for energy storage, which end markets are those primarily feeding?

So I'll give you an example. We're not going to name the names of the customer that we already -- that we received the order for. That is -- they have demonstrated the capacity for motorcycles as an example. But imagine anything from small appliances to larger vehicles. I think if you spoke to people that are highly focused on the energy space, they would expect solid state to be long term, solution for all batteries, but I think we're still a while away. At the end of the day, the application of solid-state better density, lighter weight, more safety, a faster charge, all the things that have been the challenges to adoption is addressed by solid state.

Okay. When you say there's excess capacity in the battery side as it relates to the automotive opportunity for energy storage, is what you're saying effectively that even though you have a better solution with the wet, I guess, capacity already installed, you need to see incremental capacity before customers come to you independent of the legal dynamics?

Well, clearly, as capacity expands and more importantly, as capacity localized, meaning whether it's produced in North America, right now, China has an overcapacity of battery production capabilities. But as both governments and clients demand localized support, that will change the demand for it as well. But depending on your projections on what battery needs will be over time, we're only scratching the surface of where total capacity for batteries needs to be.

I mean, adoption rates are going to determine that. But if you believe what you hear, the trend towards electrification is only just beginning. It's just where we are today relative to adoption of EVs and other energy storage solutions that is EVs and other energy users like that, that our current capacity is overcapacity. So what I'm saying in my comment is not necessarily that there's -- we have to wait for expansion. We have to wait also for localization and also have to kind of deal with the fact that the economics of our solution are better. And as they amortize existing footprints, we can make an easier discussion about replacing their current technology with new technology.

And then just the certification for the new chip head -- product ID solution. What is the significance of that certification?

It's massive because GS1 -- if you think about -- I'll try to put it in the simplest terms. So when barcodes came out, you had multiple different readers and everybody had their own solutions. GS1 certification is the standardization so that there'll be one reader capability and one standard for adoption across. So now we all have one individual -- one standardized reader that allows many manufacturers to produce it. Our equipment today is the only equipment that can -- that allows that reader to read at speeds that allow them to remain at current levels.

When you walk into a Walmart, I'll give you an example. When you walk into a Walmart, you can scan self-service yourself, and it doesn't really matter to you how long that reader takes to read that barcode. But when you have what they call professional scanners, I mean those are the people standing behind the cash register and actually taking your orders and running them through. If you notice how fast they swipe it, that is critical for efficiency at a retailer. The retailers demand that standard in order to be effective. Our technology, because of our ability to print in multiple sizes, and that's the biggest, we get -- we can produce at multiple size prints with highly, highly defined marks are the only ones that can operate at the speed. So you can swipe just as fast as you do with a barcode.

Got you. All right. And then one last cleanup question, if I may. So you mentioned $160 million net proceeds from Warehouse Automation and $30 million of net proceeds from European packaging and tooling, both to close in the first quarter. Just how much liability reduction should we also factor in whether it's pension or securitized receivables on top of that $160 million and $30 million?

Yes. With respect to the packaging and tooling business, Justin, that number is going to be close to $10 million. And with respect to the Warehouse Automation business, that's a little less than $10 million. That's the difference between the $230 million and the $223 million.

Yes. So it's already included in our calculation. The net of $160 million is what we expect to apply.

Okay. So the $160 million would be the debt reduction, but then there would be, I guess, the $7 million or a little bit less than $10 million of liability reduction on top of that?

That's right. So again, if I just quickly run through the math, $230 million was the total value, about $7 million of assumed liabilities. So the cash portion was $223 million. And then there's a significant tax bite out of that plus transaction fees and some other costs to take it down to $160 million.

At this time, there are no further questions in queue. I will now turn the meeting back to Mr. Nicola for final comments.

Okay. Thank you very much. I'm going to take this off of Steve for a second before he kind of closes out here. For those of you that have been fortunate enough to hear Mr. Nicola speak for the last 20-odd years, many of you know that Steve has announced his retirement effective here December 1. On behalf of Matthews International Corporation, its Board of Directors and its shareholders, I want to thank Steve for his over 25 years of service to this corporation and to the shareholders and wish him well in his retirement. So I'll turn it over to Steve to close it, but then say goodbye.

All right. Thank you, Joe, and thank you, everyone, for listening and your support all these years. So have a wonderful day and a great weekend. Take care.

Thank you. And this brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.

Good day, everyone, and welcome to today's Matthews International Third Quarter Fiscal 2025 Financial Results. [Operator Instructions] Please note, this call may be recorded. [Operator Instructions]

It is now my pleasure to turn the conference over to CFO, Steve Nicola. Please go ahead.

All right. Thank you, Stephanie, and good morning. I'm Steve Nicola, Chief Financial Officer of Matthews. And with me today is Joe Bartolacci, our company's President and Chief Executive Officer; and Dan Stopar, our Senior Vice President, Operations Controller and Head of Global Business Services.

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 Investors section. The presentation for our call can also be accessed in the Investors section of the website under Presentations.

Any forward-looking information -- 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 information 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, everyone, and thanks for joining us to discuss the financial results for the fiscal 2025 third quarter. We're pleased with our results this quarter, which saw initial benefits from our value creation plan that was implemented late last year, including a gain from the divestiture of SGK, now known as Propelis Group, of which we own 40%, consolidated savings from a cost reduction program initiated last year, lower corporate and nonoperating costs and improved EBITDA performance year-over-year by our Memorialization and our Industrial Technologies business segment.

Consolidated sales were $349 million in the third quarter of fiscal 2025 compared to $428 million in the third quarter of fiscal '24. The lower revenue result was primarily attributable to the divestiture of SGK in May of this year. Thus, current results only include 1 full month of SGK, excluding adjusted EBITDA of the divested SGK business from both the current and prior year quarter results and a year-over-year increase of 37%.

Steve will provide greater detail on Propelis, but let me say that the merger of SGS and SGK is moving along smoothly and as expected. As we detailed in our last earnings call, Propelis has come out of the gate projecting initial annual adjusted EBITDA of about $100 million and has just initiated the process of synergy capture. In fact, the management team expects to be at a run rate of synergies of $10 million by year-end and a $40 million run rate of synergies by the end of calendar '26. Moreover, the team has identified $60 million of total targeted synergies higher than originally expected.

All in all, we expect this transaction to create significant value as we exit in the future. Early market feedback on the deal has been positive and confirmed by the addition of new business that neither of the 2 predecessor companies had before the merger. We'll continue to share progress on Propelis' performance with you each quarter. As I mentioned earlier, since the third quarter of last year and as demonstrated by the divestiture of SGK, in addition to an ongoing strategic alternatives review, we have implemented a value creation plan geared towards simplifying the company's corporate structure, reducing costs and expanding our work in higher growth and higher-margin businesses.

Although we are seeing the early results of those efforts in our reduced corporate costs, there is more to come as our transition services agreement with Propelis is expected to occur by the end -- excuse me, although -- let me start that from the beginning. Although we are seeing the early results of these efforts in our reduced corporate costs, there is more to come as our transition service agreement with Propelis is expected to come to an end in the fiscal '26 calendar year. In addition, we expect to close on the sale of the remaining SGK German assets, which will further simplify our structure. These actions will further reduce our overall debt levels and help drive the continued growth of our Industrial Technologies business segment, anchored by the financial strength and consistency of our Memorialization segment.

With respect to the strategic alternatives review, we're pleased with its progress, and I can say that several opportunities have been identified and presented to the Board for consideration. We expect to complete the process and announce our conclusions about the time earnings are released in November. We will provide updates as we proceed. Memorialization is the bedrock of our portfolio and maintains leading positions across all of its markets. This segment's financial stability enables continued and consistent investment in innovation across the portfolio.

Memorialization reported a modest revenue increase and strong margin results in the third quarter of fiscal '25, driven by the Dodge acquisition, which closed in early May and the divestiture of our European cremation business last year. Inflationary pricing benefited the third quarter, offsetting a modest decline in volumes. Note that the volume declines primarily relating to our granite business continued to be largely due to the release of buildup in COVID-related backlog in fiscal 2024, leading to a negative comparison of about $3 million on a year-over-year basis. We are expecting the segment to return to a normal cadence in revenue and pricing for the remainder of the year.

Regarding tariffs, we believe Memorialization may be the most susceptible. Although the team has done a great job of finding sourcing alternatives for impacted products, the tariffs are also impacting the cost of materials which are produced domestically as suppliers are price adjusting to reflect the higher competitive pricing resulting from tariffs. We have generally been able to pass along these higher costs and do not expect significant impact to our results for the remainder of the year.

With respect to the Dodge acquisition, the deal closed in May, and we're excited about its long-term prospects and fit within our portfolio of Memorialization products. The addition of the #1 supplier of fluids and other products used by funeral directors was a logical extension of our portfolio, which comes along once in a generation and offers both cost synergies and revenue synergies as we extend the combined product offering to more clients.

The transition has been smooth so far with synergy being quickly captured and our expectations for EBITDA improvement are high. It is already accretive, and we expect to eventually add around $12 million of annual EBITDA from this transaction as we integrate the business into our system. When you consider that we paid $57 million for the business, you can understand how accretive it will be.

Our Industrial Technologies segment reported lower revenues in the third quarter, primarily due to engineering and the impact of our dispute with Tesla, which I'll discuss shortly. However, other business units in this segment were up year-over-year. We are quite pleased with the performance of our warehouse automation business as we saw a continuation of positive order trends for warehouse automation solutions driven by an improvement in market dynamics.

Order rates and order size are picking up, including continuing orders from Lands' End and other leading retailers resulting in a significant increase in backlog. Order activity is typically high at this time of year as companies prepare for peak season in the October to December holiday period. However, we believe that we will enter fiscal '26 with very strong backlogs. Late last year, we spoke of signs of a recovery in the warehouse business. After a period of softness highlighted by supply chain recalibrations and lower capital investment, the recovery is being driven by renewed interest in AI-driven automation, predictive analytics and autonomous robots.

Big box retailers are reinvesting in their warehouse infrastructure, and this is reflected in positive growth forecast for global e-commerce growth. Interactive Analytics projects U.S. e-commerce to grow by 10% in 2025 from $1.4 trillion in 2024 and further continue to grow to $2.5 trillion by 2030. Continued mobile adoption, supply chain innovations and AI-driven user experience are seen as the core growth levers. Moreover, recent changes in tax law allowing for accelerated depreciation of capital investments will further drive automation investments across the value chain.

We are well positioned to take advantage of these opportunities. Investing in innovation has been an essential part of our value creation plan, and we're pleased to see the progress being made at our product identification business, the company's oldest business. We expect our new printhead chip product, [ Axiom ], to launch this fall, focusing on the U.S. and EMEA markets. [ Axiom ] incorporates a patented silicon-based print engine using disposable printhead technology and offers an approximately 30% lower total cost of ownership for the customer as well as other environmental benefits. We have identified a total addressable market of approximately $2 billion built on fast-moving consumer goods in which [ Axiom ] is ideally suited to participate. [ Axiom ] is perfectly placed to benefit from global implementation of the Sunrise 2027 initiative, a measure aimed at transitioning traditional 1D barcodes to more advanced 2D barcodes by the end of 2027.

This shift is driven by the need to support supply chains that are becoming increasingly more complex and demanding and will enable higher levels of traceability, data capacity and improved customer engagement. The standard barcode has about 20 characters of information, whereas the 2D barcodes can hold thousands of characters, allowing manufacturers to include detailed product data such as expiration dates, batch numbers and other crucial and essential information used for traceability and compliance.

[ Axion's ] competitive advantage is its ability to print regular barcodes and 2D barcodes at production speeds. An even greater advantage is that the existing open flow systems that are used today tend to result in ink drying and nozzles clogging, thereby requiring lines to be shut down for repair and maintenance. But with [ Axiom ] its printhead is disposable. Rather than shutting down lines, all that needs to be done is replacing the printhead in minutes.

Additionally, the product has embedded technology that requires the use of Matthews ink, which offers an attractive margin opportunity for us. Both of these features of [ Axiom ] create high-margin recurring revenue streams as more product is rolled out. We'll continue to share updates on our progress as we approach the launch date.

Let's now move on to engineering, the final piece of our Industrial Technologies business. Over the last 1.5 years, our expertise in leveraging our market-leading calendering process to produce dry battery electrodes or DBE, has been challenged by Tesla. As we have discussed before, we have built an extensive and highly valuable portfolio of intellectual property and know-how related to the DBE offering.

In February, we received a positive ruling from an arbitrator that reaffirmed our proven history in the space and provided absolute clarity regarding our right to sell DBE solutions. We have established our right that is no longer subject to dispute. Tesla recently filed a motion in the U.S. District Court for the Northern District of California seeking to vacate the favorable ruling obtained by Matthews in the confidential arbitration.

Here's what you should know. The recent filing is further evidence of the value of the technology and strength of the order that we received in February. The likelihood of a judge overturning the order of an arbitrator in a proceeding mandated by Tesla's own contract is highly unlikely. Why is Tesla looking to overturn the order? Because it clearly states that the core proprietary intellectual property is owned by Matthews and is rooted in its advanced rotary processing and calendaring technology.

Matthews has been developing a next-generation rotary processing and calendaring equipment for over 2 decades. The company is widely recognized as a leader in calendaring technology. As early as 2007, Matthews made strategic investments in this technology to support its packaging business. Recognizing the unique capabilities of its calendaring systems, Matthews later continued to innovate and diversify its applications to explore alternative uses, including DBE.

Our well-established reputation in advanced rotary processing and calendaring has attracted interest from global battery manufacturers, EV manufacturers, emerging solid-state battery players and technology leaders seeking innovative solutions for DBE. The continued stream of baseless lawsuits filed by Tesla only serves to underscore the strength and the value of Matthews' proprietary technology. Market interest in our solutions continue to grow as we have an increasing number of opportunities, highlighted by several in the United States -- U.S. -- in the U.S. driven by the localization of supply chains and the production of battery components.

Our pipeline now consists of over $150 million in quotes with one recently converted to our first production line order for a leading player in solid-state battery production. We are also -- we also are working on a significant order for a U.S. customer for a battery separator coating line, a significant part of our overall energy business. The coating line operates at up to 2x the speed of competitive lines, further increasing productivity in the highly competitive battery space.

We recognize the fact that others are trying to enter the DBE calendering market, but Matthews possesses both the leading technology and the fastest lines, and we own patents on some of the most important parts of the technology that facilitates productivity. We will continue to focus on innovation and maintaining our competitive advantage in this important market.

As for our balance sheet, our debt position decreased during the quarter as we applied proceeds from the SGK transaction to our revolver. We expect our debt position to decrease further by 2025. As we look to our full year results, when we consider our 40% interest in Propelis, we expect our adjusted EBITDA guidance to remain unchanged and to be at least $190 million. Again, note that we will have lost 60% of the remaining 5 months of SGK earnings.

Now I'll turn it over to Steve for a discussion on the quarter's financial results.

Thank you, Joe. Before starting the financial review, let's discuss the financial reporting with respect to SGK. As you're aware, the divestiture of SGK closed on May 1, 2025, and as such, our consolidated financial information reflects the financial results of the SGK business through the closing date. As part of this transaction, the company received a 40% ownership interest in the newly formed entity, Propelis Group. Please note that as a result of the integration process of Propelis and transition to its own stand-alone reporting systems, our 40% portion of the financial results of Propelis will be reported on a 1-quarter lag.

As a result, except as otherwise noted, the consolidated financial information presented in the earnings release yesterday and discussed today does not include our 40% interest in the financial results of Propelis for the 2 months ended June 30, 2025. Similarly, our quarterly report on Form 10-Q will not reflect the results of Propelis.

Now let's begin the financial review with Slide 7. For the fiscal 2025 third quarter, the company reported net income of $15.4 million or $0.49 per share compared to net income of $1.8 million or $0.06 per share a year ago. The increase primarily reflected a gain on the divestiture of the SGK business, which was partially offset by higher income taxes and interest expense. The increase in income tax expense primarily reflected the impact of favorable tax benefits discrete to last year that did not repeat in the current year.

Consolidated sales for the fiscal 2025 third quarter were $349 million compared to $428 million a year ago. The decrease primarily reflected the divestiture of SGK on May 1, 2025. The consolidated sales impact of the SGK divestiture was $80.2 million for the current quarter. Sales for the Industrial Technologies segment were lower for the quarter, offset partially by higher sales for the Memorialization segment. SGK also reported sales growth for the current quarter prior to its divestiture.

Consolidated adjusted EBITDA for the fiscal 2025 third quarter was $44.6 million compared to $44.7 million a year ago. Despite the divestiture of SGK, consolidated adjusted EBITDA remained relatively steady year-over-year as a result of increases in the Industrial Technologies and Memorialization segment and lower corporate and other nonoperating costs. On a non-GAAP adjusted basis, net income attributable to the company for the current quarter was $9.2 million or $0.28 per share compared to $17.3 million or $0.56 per share last year. The decline primarily reflected the impact of higher interest expense and income taxes for the current quarter as adjusted EBITDA was relatively consistent.

With respect to Propelis, based on preliminary financial projections that they provided to us, their current estimate of adjusted EBITDA for May and June 2025 was $16.8 million. Please note that these projections are unaudited and subject to review and, as a result, may change. Our 40% portion of this amount would be $6.7 million. Accordingly, with the addition of our 40% interest in Propelis, the company's pro forma consolidated adjusted EBITDA for the fiscal 2025 third quarter would be $51.3 million compared to $44.7 million a year ago, representing an increase of 14.8% (sic) [ 14.6% ]. 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 fiscal 2025 third quarter were $203.7 million compared to $202.7 million for the same quarter a year ago. Acquisitions, primarily The Dodge Company, contributed sales of approximately $6 million to the current quarter, which were offset partially by the disposition of the European cremation equipment business. Sales volumes for cemetery memorials and caskets declined for the quarter compared to last year, primarily resulting from lower U.S. casketed deaths, offset partially by inflationary price realization and higher mausoleum sales. Additionally, granite memorial sales a year ago had the favorable impact from working down backlog that accumulated during the pandemic. Cremation equipment sales also declined from a year ago.

Memorialization segment adjusted EBITDA for the current quarter was $42.8 million compared to $38.7 million for the same quarter last year. The increase primarily resulted from the benefits of cost savings initiatives and price realization, offset partially by the impact of lower sales volumes and higher material costs. Acquisitions and the disposition of the unprofitable European cremation equipment business also contributed to the increase in segment's adjusted EBITDA.

Please move to Slide 9. Sales for the Industrial Technologies segment for the fiscal 2025 third quarter were $87.9 million compared to $91.7 million a year ago. The decline mainly resulted from lower sales for the segment's engineering business, offset partially by higher sales for the warehouse automation business. Lower engineering sales reflected declines for both the energy and coating and converting businesses. Order rates for warehouse automation improved during the quarter, reflecting continued recovery in this market. Sales for the Product Identification business were relatively unchanged compared to the same quarter a year ago. In addition, the shutdown of the R+S Automotive business, which was part of the OLBRICH acquisition in 2022, contributed to the segment's year-over-year sales decline.

Changes in foreign currency rates had a favorable impact of $2.9 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 $9 million compared to $4.2 million for the same quarter a year ago. The increase primarily reflected the benefits from the segment's cost reduction actions, which were initiated in our fiscal 2024 fourth quarter. Additionally, the segment's adjusted EBITDA benefited from higher warehouse automation sales.

Please move to Slide 10. Sales for the Brand Solutions segment were $57.7 million for the quarter ended June 30, 2025, compared to $133.4 million a year ago. The decrease resulted from the divestiture of the SGK business, which excluded the European packaging business on May 1, 2025. The consolidated sales impact of the SGK divestiture was $80.2 million for the current quarter. Prior to the divestiture, sales were higher than a year ago, principally reflecting a combination of organic growth and favorable currency impacts. Adjusted EBITDA for the SGK Brand Solutions segment was $5 million for the current quarter compared to $16.1 million a year ago. Excluding the impact of the divestiture, adjusted EBITDA was relatively consistent with last year.

Please move to Slide 11. Cash flow used in operating activities for the fiscal 2025 third quarter was $15.2 million compared to cash provided by operating activities of $13.5 million a year ago. Costs in connection with the SGK transaction and our restructuring actions were significant factors in the change from a year ago. Additionally, legal costs and working capital impacts from the ongoing dispute with Tesla unfavorably impacted operating cash flow.

Year-to-date, cash used in operating activities was $33.9 million for the current year compared with cash provided by operating activities of $43.3 million last year. Outstanding debt was $702 million at June 30, 2025, representing a reduction of $120 million during the current quarter. The reduction reflected net proceeds from the SGK divestiture, offset partially by the acquisition of The Dodge Company, settlement of currency hedges in connection with SGK-related assets and transaction-related costs.

Based on our current operating cash flow projections and the potential sale of our European packaging business, we expect further debt reduction in the fiscal 2025 fourth quarter. For the fiscal 2025 third quarter, the company purchased approximately 386,000 shares under its stock repurchase program at an average cost of $19.96 per share. Year-to-date repurchases totaled approximately 562,000 shares.

As I referenced earlier, we initiated cost reduction programs in the fourth quarter last year that spanned several of our business units and corporate functions. We initially projected annual consolidated savings from these programs to be up to $50 million. We are currently on track to exceed this projection. The most significant portions of the savings are targeted from our engineering and tooling operations in Europe and our general and administrative costs. As I noted earlier, we have begun to realize these savings as indicated through the improved adjusted EBITDA margins for our Industrial Technologies segment and lower corporate and other nonoperating costs.

Current quarter adjusted EBITDA margin for the Industrial Technologies segment was 10.3% compared to 4.6% a year ago, and our corporate and other nonoperating costs declined 13.6%. Lastly, based on our results through June 30, 2025, and our fourth quarter projections, we are maintaining our previous earnings guidance of adjusted EBITDA of at least $190 million for fiscal 2025, which includes our estimated 40% share of Propelis adjusted EBITDA from May 1, 2025, through September 30, 2025.

Please note that this projection maintains our original guidance as provided in November 2024, adjusted only for the SGK divestiture and 40% interest in Propelis. Finally, the Board declared last week a quarterly dividend of $0.25 per share on the company's common stock. The dividend is payable August 25, 2025 to stockholders of record August 11, 2025.

This concludes the financial review, and we will now open the call to any questions. Stephanie?

[Operator Instructions] And our first question will come from Dan Moore with CJS Securities.

It's Pete Lucas for Dan. Starting with the Dodge Company, I think you had said sales of $6 million and a goal of $12 million EBITDA. What was the EBITDA contribution this quarter? And what are you looking for in terms of sales and EBITDA in Q4?

Okay, Peter. So with respect to the Dodge Company acquisition, so for this quarter, the EBITDA contribution was approximately $1 million on the $6 million sales number. If you recall, when we announced the acquisition, we had talked about the current run rate for the Dodge Company being in the $6 million range. So it was pretty much consistent with that estimate. And right now, similar run rate into the fourth quarter.

Helpful. And then on the industrial side, performed well. Revenue is still down a bit, but closer to flat year-over-year. What was energy storage-related revenue for the quarter? And what was it in fiscal Q3 last year? Same question for warehouse automation. Really just trying to see where did you see declines? And what are the key areas where you can offset those declines with growth?

So Peter, yes, so without providing the numbers, our sales in the energy business and the total engineering business were down from a year ago. And as I mentioned earlier, it's related to the ongoing issues that we've had that Joe discussed before as well as what we talked about in the press release. So -- but those reductions were mitigated by nice improvement in our -- partially mitigated, I should say, by nice improvements in our warehouse automation business.

Our next question will come from Colin Rusch with Oppenheimer.

The new printhead business and the warehouse automation business. It seems like both are really focused on velocity of goods through warehouses and production facilities. I just want to understand how much synergy you guys see over the next, call it, 3 to 5 years.

Colin, hold on just a second. We just -- I don't think we caught the early part of that call -- early part of that question.

Yes. Can we -- just want to hear what sort of synergies you guys are seeing between the new printhead business and the warehouse automation business. It seems like both are focused on improved velocity and accuracy through both warehouses and manufacturing. I just want to understand how much you guys see those 2 supporting each other over the next 3 to 5 years or so.

Okay. Joe, are you connected?

There I am. I thought I understood the question. And so let me kind of phrase it this way. At the end of the day, when you walk into an automated warehouse, aside from the fact that robotics will become more and more a part of an autonomous warehouse, product has still moved and will continue to be moved through conveyors for a long period of time. Those conveyors read barcodes as they move that along the process. So we think the connection between the warehouse -- automated warehouses and our new printhead where we currently don't operate in warehouses today is significant. So it's a great question, and we look forward to talking more about that as we start to roll it out.

And then the second question is really around potential incremental acquisitions. Obviously, you guys have a long history of tuck-ins that are pretty effective. But given kind of the early days of automation and the push towards faster delivery times and e-commerce still being relatively nascent despite the concept being around for a fair amount of time, there is a lot of technology that's been developed in kind of early stage.

I'm just curious about how you guys are approaching some augmentation for that automation business and opportunities for you guys to accelerate some of the growth there?

Another good question. So one of the things that we're really focused on, obviously, we're laser-focused on getting our debt positions reduced. So that will be our primary focus. However, there are other ways to participate in the start-up situations. And one of the most particular ones that we're interested in is embedding our software into driving the automated warehouse and the autonomous robots that are associated with that.

Last quarter, we announced a partnership with the Teradyne folks embedding our software into managing the robots. We have several other start-up kind of situations like that, where our software is being embedded into the hardware to be able to drive that. So although we may not be looking necessarily for any significant investment in acquisitions in these start-up spaces, we are playing in a different way because at the end of the day, software drives a robot.

We'll take our next question from Liam Burke with B. Riley Securities.

Joe, obviously, Tesla is still very anxious to -- the battery -- dry battery electrode is still an important part of their overall strategy. But are you sensing any change in urgency to develop this rival DBE platform to the existing battery processing?

We are seeing, obviously, there are participants around the world that are trying to develop solutions and no one has yet to develop a competitive solution as of yet. So right now, I would say there is a drive by many in the industry to reduce their costs. There are improvements in the wet process that are going on as well. Ultimately, we believe, and I think some of the largest players believe that dry is the next stage of further cost reductions. So I think although the market has slowed, I would say, for EV and demand, the desire to continue to lower the cost hasn't changed, Liam. So we think this is still an opportunity for years to come.

Super. And I'm sure I heard this right, but you said you did land a production size systems order on the DBE process.

We landed a smaller one for a solid-state player. Yes, we have. And we also are in the midst of proving out our coating line system, which is another piece of equipment that is highly specialized into what's called battery separator coatings that goes between the anode and cathodes. Our machine operates at twice the speed of current competitors. So as we demonstrate that in the marketplace, we think more and more will come our way.

Okay. And then just very quickly, on the legacy product identification business, is it just a quarterly lag? Or is there anything else going on there?

We had a pretty good quarter in product identification. I wouldn't say that there was anything significant there. We're ramping up as we speak with the launch of our [ Axiom ] product. So we'll have some costs associated with that as we move into next quarter. But product identification continues to move forward. And I would say that we've had some challenges, frankly, as tariffs have forced us to source elsewhere as well as some supplier issues that have slowed us down with the launch of other solutions that we put out in the marketplace. But I think that's just a temporary little glitch that we move forward. The product identification business is well positioned to have a pretty strong year.

We'll take our next question from Justin Bergner with Gabelli Funds.

Nice quarter. I had a few clarification questions. To start, has the rotogravure sale closed?

It has not, Justin. We expect that to close before September 30. We have -- that is in the works as we speak. That should generate a little over $30 million of net cash and closer to $40-some million of consideration.

Okay. And what's the delta between the net cash and the consideration?

There are some long-term liabilities that they will assume like pensions, and we're going to have to carry a bit of a note on one of the pieces of the business we're selling of about $5 million.

All right. And then the European packaging sale that's contemplated, what are the metric -- can you provide any metrics around how large that business is?

Steve, can you give us that one?

Yes, Justin, that's about a $50 million, $60 million annual revenue run rate. And today, that EBITDA is relatively -- the last 12 months has been relatively breakeven operation.

Okay. That's helpful. But I assume you're still hoping to net something positive there.

Well, that is the business we're selling, Justin, just so you know. I mean the European packaging business is the rotogravure business.

Okay. Got you. Got you. I was just confused.

I want to make sure I can tell by your question, you had a little confusion there.

Okay. That's helpful. And then just on the debt bridge, what were the -- could you just provide any indication? I see the $228 million sale proceeds. Just what was the leakage on the transaction costs and, I guess, had derivative settlements?

Sure. So yes, let me walk through that. So the $228 million is primarily driven by cash that was embedded in subsidiaries, call it, trapped cash embedded in subsidiaries that went with the business, in addition, by the way, to some pension obligations that were assumed by the business. So that's the reason -- the primary reason for the number of $228 million versus the $250 million. The currency hedge amount is in the $35 million to $40 million range. And then the Dodge Company acquisition price was close to $60 million.

Okay. And then there was a small delta for transaction costs.

Yes, there are. And then -- yes, there are. And that's ultimately what gets you to the $120 million of debt reduction -- gross debt reduction for the quarter.

Okay. That's very helpful. Just to clarify and make sure. So when you reiterate your $190 million of adjusted EBITDA, that includes not the lagged Propelis, but your estimated number for these 2 months for the quarter just finished and then for the September quarter for your equity income portion?

That is correct.

Okay. Got you. And then just bigger picture. With respect to Tesla, has there been anything new in the legal front in the last couple of months? Or what the action we were referring to was in the spring?

No, no. I mean it was this spring, they did file 2 additional suits, one seeking to overturn the ruling that we received, Justin, which is quite interesting since the contract that they provided to us required arbitration. They just don't like the outcome. So that is one that they filed for those of you that are following that. And secondly, they're looking to try to reverse a patent that we have. Again, a very, very, very long shot effort, but it gives further evidence of the value of what we have.

Okay. But those initiatives were not in the last couple of weeks. Those were kind of...

No, no, no. Yes, yes.

Okay. Got you. And then just a bigger picture, the $150 million of interest in your energy storage business, what type of time frame could these convert around? And are you still delivering some backlog to Tesla for your energy storage business as we speak?

We're delivering some, but not a lot. For the most part, that has slowed. Their demand is slowed and they have slowed with that. With regard to the backlog, the order that we received for the solid-state manufacturer, we would expect that to be starting to realize here in the coming weeks, months at the most. We have a fairly significant order we're working on here in North America for the battery coating line. That is closer to $50 million, and that is looking to somewhere in the next 60 to 90 days at most. We're improving now at this point in time.

Next 60 to 90 days when you'd recognize it as an order?

No, and we will have received the order. Right now, that order is -- we are still in the testing phases. The processes for these as many of these companies that we're dealing with haven't produced anything yet. So this one in particular has a fairly significant support by the U.S. government. So they have the funding and they're proving out their processes. We are a critical part of that process. And as they test our equipment and test our solution, that's when we expect to have that order.

This does conclude our Q&A session today. I'd like to now turn the conference over to Steve Nicola for closing remarks.

Thank you, Stephanie, and thanks to everyone on the call, and we look forward to our fourth quarter earnings release and conference call in November 2025. Thank you again, and have a great day.

Thank you, ladies and gentlemen. This does conclude today's presentation. You may now disconnect.