Greetings. And welcome to the Matthews International First Quarter Fiscal 2025 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Steve Nicola, Chief Financial Officer. Thank you, sir. You may begin.

Thank you, Christine, and good morning. I'm Steve Nicola, Chief Financial Officer of Matthews International Corporation, 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 company's website www.matw.com in the Investors section last night. The presentation for our call can also be accessed in the investor section of the website under presentations. Any forward-looking statements in connection with this discussion are being made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Factors that could cause the company's results to differ from those discussed today are set forth in the company's annual report on Form 10-Ks, 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 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. To start our discussion today, I want to provide some color around an important development related to the company's energy business from earlier this week. On Wednesday, an arbitrator in a proceeding that we initiated against Tesla over one year ago issued a ruling in which the arbitrator acknowledged our company's long history, extensive research and development, and growing patent portfolio in advanced dry battery electrode technology and confirmed our right to continue marketing, offering, and selling that technology to others. This ruling effectively clarifies our rights in this groundbreaking technology and reestablishes what we've been saying for years. We have valuable solutions founded on extensive know-how and intellectual property to support the advancement of dry battery electrode technology, and we have the right to sell it to others.

Was $40 million compared to $45.5 million a year ago. The decrease primarily reflected a decline in the industrial technology segment. Adjusted EBITDA for the memorialization and brand solution segments remained relatively steady compared to last year. In addition, corporate and other non-operating costs were lower than a year ago, partly reflecting the company's ongoing cost reduction efforts. Please see the reconciliations of adjusted EBITDA and non-GAAP adjusted earnings per share provided in our earnings release. Please move to slide eight. To review our segment results. Sales for the memorialization segment for the fiscal 2025 first quarter were $190.5 million compared to $208.1 million for the same quarter a year ago. The decrease primarily reflected lower Granite Memorial sales and a decline in casket unit volumes. Granite sales were higher last year as in addition to regular volume, the business was working down backlogs, which had built up during the pandemic. The unit volume declines for caskets primarily reflected lower US casket. Bronze memorial sales were also lower for the quarter. In addition, memorialization sales for the current quarter were unfavorably impacted by the disposal of the company's unprofitable European cremation and incineration equipment operations. These decreases were partially offset by higher price realization and incremental sales from the acquisition of a casket distributor in January 2024. Memorialization segment adjusted EBITDA for the current quarter was $36.6 million, which is relatively unchanged from $36.7 million a year ago. The unfavorable impact of the decline in sales was partially offset by the elimination of losses in the European cremation and incineration equipment operations as a result of the disposal of the business. In addition, benefits from cost savings initiatives and improved pricing also contributed to the current quarter, which were partially offset by higher US healthcare costs. Please move to slide nine. Sales for the industrial technology segment for the fiscal 2025 first quarter were $80.5 million compared to $111.4 million a year ago. The engineering business reported significantly lower sales for the current quarter compared to a year ago, primarily reflecting the slowdown in the Tesla project and the impact of the litigation on work with other customers. Sales for the warehouse automation business were also lower for the quarter. In addition, sales for the current quarter were unfavorably impacted that was acquired in connection with the Ulbrich transaction a few years ago. The product identification business reported modestly higher sales compared to last year. Adjusted EBITDA for the industrial technology segment for the current quarter was $1.8 million compared to $9.6 million a year ago. The decrease primarily reflected the impact of lower sales for the engineering business. The adjusted EBITDA decline also reflects the declines were partially offset by higher sales and adjusted EBITDA for the product identification business, lower bad debt and bonus expenses, and benefits from recent cost reduction actions in Germany. Please move to slide ten. The SGK Brand Solutions segment reported sales of $130.8 million for the quarter ended December 31, 2024, compared to $130.5 million a year ago, representing an increase of $282,000. The increase primarily reflected improved pricing to mitigate the impacts of inflationary cost increases and higher sales for our private label business, our European cylinder business, and in the Asia Pacific brand market. These increases were partially offset by a decline in brand experience sales and lower sales in the segment's European brand markets. Currency rate changes had an unfavorable impact of $700,000 on current quarter sales compared to a year ago. Adjusted EBITDA for the SGK Brand Solutions segment was $12.3 million for the current quarter compared to $12.9 million a year ago. The decrease primarily reflected higher wages and benefits for the current quarter, including increased US healthcare costs. These increases were substantially mitigated by the benefits of improved pricing to mitigate inflationary cost increases and the segment's recent cost reduction actions. Please move to slide eleven. Cash flow utilized in operating activities for the fiscal 2025 first quarter was $25 million compared to $27.3 million a year ago. Our first fiscal quarter is typically our slowest, generally reflecting a net operating cash outflow due primarily to seasonally lower earnings and the payment of year-end accruals, taxes, and insurance and other annual payment items. The current quarter also reflected payments in connection with litigation costs and upfront costs related to our cost reduction actions, which will be partially offset by proceeds from asset sales. Outstanding debt was $809 million at December 31, 2024, compared to $776 million at the end of September, representing an increase of $32.7 million during the fiscal 2025 first quarter. The company's net debt, which represents outstanding debt less cash, was $776 million at the end of the current quarter. At December 31, 2024, the company's net debt leverage ratio was 3.88, which is based on net debt and trailing twelve months adjusted EBITDA. Again, the company's first fiscal quarter is generally the slowest cash flow quarter, and similar to prior years, we expect cash flow and our net leverage ratio to improve over the remainder of the fiscal year. In addition, the $250 million cash proceeds from the SGK transaction, which is expected to close mid-2025, will be substantially applied to debt reduction upon receipt. For the fiscal 2025 first quarter, the company purchased approximately 171,000 shares under its stock repurchase program. These purchases were solely related to withholding tax on equity compensation vesting. We remain primarily focused on debt reduction. There were approximately 31 million shares outstanding at December 31, 2024. As we disclosed last quarter, we recently initiated cost reduction programs that span several of our business units and corporate functions. These programs are expected to result in annual consolidated savings of up to $50 million, and today, we are on track to achieve and potentially exceed this target. The most significant portions of the estimated savings will be from our engineering and tooling operations in Europe and our general and administrative. Finally, the board declared last week a quarterly dividend of $0.25 per share on the company's common stock. The dividend is payable February 24, 2025, to stockholders of record, February 10, 2025. This concludes the financial review. And we will now open the call to any questions. Christine? Thank you.

Will now be conducting a question and answer session. A confirmation tone will indicate your line is in the question queue.

Thank you.

Our first question comes from the line of Liam Burke with B. Riley. Please proceed with your question.

Thank you. Good morning, Joe. Good morning, Steve. Good morning.

Morning, Liam.

Joe, could you give us a sense is I know this is going to be difficult, but you were building momentum in the DBE technology and sales prior to the Tesla lawsuit. Do you have any sense about how quickly you can reestablish momentum either in backlog or sales growth and any kind of general time frames? I mean, as I said in the press release, you're reinitiating marketing initiatives immediately.

Sure, Liam. I'll be glad to address that. First, let me address the fact that it was not just the beginning of the lawsuit. There's been a private dispute for almost two years at this point in time. That has slowed our marketing efforts out in the marketplace. So that delay has significantly curtailed a lot of other companies' development in the marketplace. There's no shortage of people that have knocked on our door over the last eighteen months or so, twenty months or so. I expect that they have been doing a lot of work internally without our equipment. But as of today, we believe we're the only people that can provide proprietary DB solution equipment. We expect that ramp to be slow at first because of the nature of, I would call it, automotive EV production development. But as you saw in the last scale that we had with Tesla, we went from twenty to fifty to eighty to a hundred and twenty pretty quickly with a two hundred million dollar order or so for a number of people at that time. I expect that as we expand the portfolio of customers, we can expand pretty quickly.

Okay. Fair enough. But, I mean, this is not a twenty-five a bad. This is a multi-year event. Right?

It's clearly we expect to have some benefit coming out in the twenty-five, but it'll be more around the announcements of with whom we're working with perhaps, and their levels. We have, you know, we've had lab machines in the market we've told you this before. We've had lab machines sold for years. So people have been testing and developing their own formulation without our help for many, many, many years. We expect that to ramp up more quickly. So but I think key to that, Liam, is that it'll be multiple customers whether rather than one. And that's what we've been inhibited from doing for the last several years.

Great. And then very quickly, you have the new printer.

Where wait. You think? We are in the midst that we're in the midst of productions ramp-up as we speak. That'll be in market this year. We sold interestingly enough, we've spoken off and about two d coding. We landed our first two d code project in Europe for a consumer products company. Two d code is coming, folks. And our technology is primed to take advantage of that. Two d code, if you don't know what that is, it's similar to a scaled-down QR code which will replace many of the barcodes that sit on consumer products. Can contain a lot more data, and our ability to produce that unlike anybody in the marketplace today, is going to be an advantage for us going forward.

Great. Thank you, Joe.

Yep.

Our next question comes from the line of Daniel Moore with CJS Securities. Please proceed with your question.

Good morning. Thanks, Joe. Thanks, Steve. Memorialization, hey there. Typically.

Good morning.

Typically ebbs and flows. Though, you know, the decline this quarter is a little bit larger than typical. What was the impact in Granite of kind of working down backlogs last year? And, you know, how would you quantify the impact of exiting the European cremation business?

Yeah, Dan. So the decline in revenues was actually more weighted to the granite. So I can't give you the I shouldn't give you the specific number, but I would tell you it's more weighted to granite volume. But, again, the European cremation and incineration business, which was a nonprofit business for us, also was a significant contributor to that decline. So those were the more significant pieces.

Yeah. And, Dan, as we as Steve referenced to you, the most of the decline in the granite business had to do with work down of backlog post-COVID, that occurred last year this quarter. So we're back to a steady state volume at the Granite business as well. It was the last of the normalization.

Okay. So that was the going forward, that shouldn't be a big headwind? For the next several quarters. That's correct. European exit. It was there much in the remind me of the timing of exiting the European business.

We exited the European business in Q4. Last year.

Got it. Helpful. And then industrial, obviously, energy storage, you know, obviously, clearly on pause for, you know, for obvious reasons. How much of the thirty million dollar decline in the quarter year on year relates to energy storage? How much is just general softness in warehouse automation, marketing products? I'm just trying to get a sense for the trajectory of the, you know, the other non-energy storage businesses and when we expect those to return to growth.

My the warehouse business was a modest part of it. The vast majority of the decline was in our energy business. Due to delays we've referenced before in probably some implication from the lawsuits that we've been referring to. The warehouse business is seeing a great uptick in interest as you might expect as others are seeing it as well. So we're expecting going forward to have a pretty good recovery in that business. It is a lumpier business when it comes to investments in warehouses, and that business is seeing that opportunity grow. So on the energy side, you know what's going on, and, we still have a fairly significant backlog to deliver. Timing of that delivery is somewhat out of our control, but we expect to deliver that over time.

Great. And as it relates to the arbitration ruling, you know, this may be a no comment answer, but I'll ask the question anyway. Just what are the next steps that Tesla could take if there are any? Is an appeal likely? You know, I realize I'm asking you to speculate, so no worries. Not possible.

Look, Dan. This is a highly confidential matter, but I can tell you this. We have a definitive ruling for everything we had asked for. I can't tell you what they will do and what they might try. We have a very, very strong opinion, which is exactly what we were seeking. We have we own the rights to sell our proprietary internally developed solutions, and we have the right to market and sell it to others. What they choose to do is outside our control, but we will continue to we will continue to vigorously defend this highly valuable asset as we go forward.

And then as it relates to conversations with your potential non-Tesla customers, what are you hearing from them in terms of you know, will this ruling be enough to give them comfort to move forward from your.

To be honest with you, Dan, we got the ruling two days ago. We just opened the doors for business again yesterday. I can't tell you yet what they're saying and what they're not.

Understood. Last one for me, Steve. Just remind us the fifty million run rate cost savings sounds like could be a little upside. How much of that is expected to be achieved in fiscal twenty-five, and how much is there any, that remains beyond, you know, into twenty-six and beyond. Thanks again for the color.

Sure. We expect to be at a run rate of twenty-five million dollars to thirty million dollars by the end of this year and the rest achieved by the end of next fiscal year. Our next question comes from the line of Justin Bergner with Gabelli. Please proceed with your question.

Good morning, Joe. Good morning, Steve.

Good morning, Justin. Good morning.

Way to fight battles on multiple fronts at the same time.

Well, we can we can chew gum and walk.

Just two quick questions here. The arbitration ruling what does that do to the strategic review process as it relates to, you know, some of your growth businesses particularly energy storage. Does that open up a set of possibilities that might have not been open before.

Wonderful question, Justin. You know, we announced strategic alternatives here in October, but we have been evaluating that for the better part of eighteen to twenty-four months. Most of our actions were already anticipated when this dispute began eighteen months ago. And, you know, what we have looked for is opportunities to in to highlight for the investing community the undervaluation of these smaller business particularly our energy business, by bringing in external investments or ultimately perhaps even a spin of the whole entity or whatever it may be, that is the evaluation that was going on before the dispute. I expect that now with clarity on what we can do with this ruling. We'll pick it up again. Can't tell you it's gonna happen overnight, as we have demonstrated, we will be patient to maximize the value for our shareholders as we did with SGK we'll do the same with these other businesses.

Gotcha. Just so you had just to make sure I understood what you said correctly, so you had been evaluating a spin.

I won't say we are evaluating a spin. We were I mean, to be to be blunt, we were looking at ways to highlight its value for.

Okay. Gotcha. And then just secondly, just any comment on product ID and warehouse automation kind of trends and demand looking forward. The next couple of quarters?

I could tell you product identification is steady and growing as we have seen for the last several years. The launch of our new product will give us a modest uptick this year, but we expect that to be a better contributor next year. Warehouse is seeing great interest again. As we've said before, last year for everybody in the industry was relatively slow. We have a number of comparables that we look at. But warehouse right now, quote activity and order intake is better than last year and expecting a strong year for the year.

Great. Thank you.

Thank you, Justin.

Our next question comes from the line of Colin Rusch with Oppenheimer. Please proceed with your question.

Thanks so much, guys. You know, can you speak to whether it's all in the can you speak to whether Tesla is still a customer here? Given the fact that there isn't any real alternative for them from the equipment or process side, I assume that you guys are still engaged with those guys, but would just love to get any sort of update on that relationship. Outside of the arbitration.

Look, Colin. I can't speak for them. We consider them a customer. We still have significant backlog to deliver of their product as we go forward. We expect to deliver that product in due course. And to be paid for it as we move forward. I can't tell you whether they will remain a customer or not. That'll be a choice that they make. But we're our doors are always open.

Okay. Awesome. And then from a technology perspective, you know, you guys continue to make progress. With the DB, you know, Velocity. And your ability to move new materials through those tools. Can you talk a little bit about the cadence of that development and how we should think about that going forward?

Sure. I mean, as you might expect, I mean, we've been working working on, as we said, on battery technology for over a decade. This is not a novel idea for us. So we've been working on this for a while. And our team over there has continued to evolve. The both the equipment as well as its capabilities. We see we see nothing but upside from Canadian development. We're prepared to kind of launch those new technologies as soon as our customers are willing to accept. But I would tell you that we have great hope. One of the reasons you're seeing the depressed results in our industrial technology segment is we continue to invest in that development. We're not going to let it die in the vine. This ruling that we received gives us the clarity necessary to begin to speak more freely about those developments with our new customers. And with our old but we expect that to be nothing but upside for us going forward.

Great. Thanks so much, guys. I'll take the rest offline.

Our next question comes from the line of Steve Bercoco with LARC Research. Please proceed with your question.

Thank you. A couple from from me. Number one, what's your outlook for restructuring expenses during this year? Going forward. I know at the end of the fourth quarter, you had you booked elevated strategic expenses. Is so was that was the restructuring cost booked in the fourth quarter and now we'll just be paying down the liabilities or do you anticipate any additional restructuring costs during the course of the year?

So you're correct, Steve. So that we did accrue some significant restructuring costs in our Q4. That will be, you know, that will be paying this year. I do expect additional restructuring costs as we continue down the path of our program. But they should continue to decline.

Okay. And in total savings, I know you're saying fifty, but you also said I if I've got my number right, fifteen million dollars in. So is that sixty-five in total that we're looking at? And what if the fifteen is additional, when do you think that that will be realized?

Yeah. So, Steve, you cut out a little bit there, but I think what you're referencing is Joe's remarks related to the SGK transaction and future impact on corporate. So you would be correct that our expectations are that those are additive, meaning that the current program, our expectation is fifty million. And as I said in my remarks, we're on track for that. And on track to potentially exceed that amount. The additional reference that Joe made, the fifteen million dollars, would be once once once the SGK transaction closes and once we get past that integration period, and our transaction services obligation, that should result in meaningful reduction of corporate.

Okay. And then in terms of cash flow, you had as a result of it, at least in part of this strategic expenses that you booked in the fourth quarter, some your other liability accounts compensation, accrued compensation account, was elevated at the end of the year, you know, well above previous year levels. During the course of the year, do you see yourself paying those down? And if so, you know, or it will that return back to, you know, levels that we saw before the fourth quarter of last year? And then in in that case, you know, what's the impact on your operating cash flow during the course of the year? Do you still think that you can have positive cash flow from operating activities during the course of the year?

Yes, Steve. So I'll start with the last part of that. We expect the operating cash flow between now and the end of the year to be positive for some of the reasons you just mentioned. We typically in our first fiscal quarter, that's seasonally our slowest from a cash flow perspective. We see seasonally lower earnings but also we're paying year-end related payments such as taxes and year-end compensation related items. Annual insurance payments and the like. And then in addition, as you mentioned, our other liabilities at the end of the year were higher, but that had a lot to do with, or partly, I should say, to do with those cost reduction programs and accruals you noted earlier. So I do expect as the year progresses, that our working capital improves and that improves cash flow. And you see that seasonally. That's not just that's that's not just something specific to this year. That's typical for us.

Okay. But the cash flow from operating activities, do you think that it will be some.

You're breaking you broke up a little bit there, Steve. Hello? Hello? I didn't hear the end of it.

Yeah. We did not hear it.

Alright.

Okay.

Christine, I think you could move on to the next question.

Thank you. Our next question comes from the line of Ethan Kallis with Bank of America.

Good morning. Just a few questions on the capital structure here. I guess first off, which debt would you look to pay look to repay with the proceeds? Would you look at maybe the revolver and how much is currently drawn as of today or quarter end?

So Ethan so yes. I mean, our initially and it and obviously, it's dependent on the timing of the closing, but our expectation is that we're gonna be closing the SGK transaction midyear. So my expectation is that we will take the substantial amount of those proceeds and immediately applied to our revolver debt. And when I say substantially, I mean, we do expect a little bit of tax leakage, but really not a significant amount. So a substantial portion of that will go to debt. One of the things that I think it's important to understand I'll take you back to last year. Last year, we refinanced our bonds, and we refinanced during a tough period of time. If you recall, during that period of time, and since then, we've been under the overhang of the litigation. Well, that litigation overhang, you know, caused higher than higher rates than we thought we could have achieved in normal market conditions. So what we did was we set ourselves up instead of a typical five, seven, or eight-year bond. We set up a short-term shorter-term bond, three-year bond with a one-year no call. So that one-year no call expires here at the end of September and the interest rate on those bonds are eight and five eights. That's the coupon rate. So we expect to be taking a hard look at that when that no call expires with those proceeds from the SGK transaction.

That's very helpful. And that kind of leads me into my next question. How are you thinking about the first call price today versus waiting to waiting for the bond to step down to par. Late next year. I believe they'd be called by later this year at, like, one zero four and change.

Yeah, Ethan. That's that's an analysis we'll do at the time.

But like I said before, that's obviously something that's on our radar. And when we set up the bond, we set it up to be short term. We set it up to be callable in a shorter term. So that's something that we'll take a look at.

Yeah, even it's I mean, it's important for the market to understand. We knew this SGK transaction was in the works. We also knew about the Tesla litigation as well. We anticipated a closing on SGK during that time period. So it was intentional. To have a one-year call.

Very helpful. And then finally, last one for me. So post SGK, you expect net leverage of sub three times. Do you have a leverage target in mind and maybe a timeline for when you think you would achieve that?

Ethan, yeah. Our publicly stated long-term target is three or less on a leverage ratio. So this transaction we expect that to accomplish that. But we also expect to continue with a delevering emphasis post that.

Very helpful. Thank you.

You're welcome.

Mister Nicola, we have no further questions at this time. I'd like to turn the floor back over to you for closing comments.

Thank you, Christine, and thank you, everyone, for participating this morning. Have a great day.