Executive Summary / Key Takeaways

• Strategic Transformation Underway: Matthews International is actively reshaping its portfolio, divesting the majority of its Brand Solutions segment into Propelis Group (retaining a 40% stake) and acquiring The Dodge Company to strengthen Memorialization, aiming to simplify its structure, reduce debt, and focus on higher-growth, higher-margin industrial technologies.
• Technological Leadership in Industrial Tech: A recent arbitration ruling reaffirmed Matthews' proprietary Dry Battery Electrode (DBE) technology rights, unlocking a pipeline exceeding $150 million in quotes. The upcoming Axiom printhead launch, offering ~30% lower total cost of ownership and 2D barcode capabilities, further underscores its innovation-driven growth.
• Solid Financial Rebalancing: The SGK divestiture generated $228 million in cash proceeds, contributing to a $120 million debt reduction in Q3 FY25. This deleveraging, coupled with cost-reduction programs targeting over $50 million in annual savings, is strengthening the balance sheet and improving profitability.
• Resilient Core, Emerging Growth: The Memorialization segment continues as a stable cash generator, bolstered by strategic acquisitions. Industrial Technologies, despite past challenges, is poised for a strong recovery in warehouse automation and significant long-term opportunities in battery production and product identification.
• Value Unlocking Potential: An ongoing strategic alternatives review, expected to conclude by November, aims to highlight the intrinsic value of the company's growth businesses, which management believes is significantly undervalued by the market.

A Conglomerate's Strategic Evolution and Core Strengths

Matthews International Corporation, founded in 1850, has long stood as a global provider across diverse sectors: Memorialization, Industrial Technologies, and Brand Solutions. This venerable history has shaped a company with deep operational expertise, now embarking on a significant strategic transformation. The overarching strategy is clear: simplify the corporate structure, aggressively reduce costs, and pivot towards higher-growth, higher-margin industrial technologies. This strategic reorientation is not merely reactive but a deliberate effort to unlock shareholder value by focusing on its most promising assets.

The company's journey has seen it make strategic investments in advanced rotary processing and calendaring technology as early as 2007, initially for its packaging business, which later diversified into dry battery electrode (DBE) technology. This foundational expertise in precision engineering now underpins much of its future growth narrative. Broad industry trends provide a fertile ground for this pivot. The U.S. e-commerce market, for instance, is projected to grow by 10% in 2025 from $1.4 trillion in 2024, potentially reaching $2.5 trillion by 2030, driven by mobile adoption and AI-driven user experience. This fuels demand for warehouse automation. Simultaneously, the global shift towards 2D barcodes, mandated by the Sunrise 2027 initiative, and the localization of EV battery production, coupled with the rapid expansion of energy grid storage, present substantial market opportunities for Matthews' specialized industrial solutions.

Technological Differentiators: The Engine of Future Growth

Matthews' investment thesis is increasingly anchored in its differentiated technological capabilities, particularly within its Industrial Technologies segment. These innovations are not just incremental improvements but represent significant competitive advantages.

Dry Battery Electrode (DBE) Technology: A Proprietary Edge

At the core of Matthews' energy solutions is its market-leading calendering process for Dry Battery Electrode (DBE) technology. This process is critical for cost-efficient production of EV batteries and is applicable across all battery forms, from consumer electronics to large-scale grid storage solutions. For grid storage, DBE technology enables the production of thicker electrodes, offering a superior solution compared to current wet processes.

Matthews holds a unique competitive position in this space. Management asserts it is "probably the only Western world company able to do what we're doing right now," possessing "leading technology and the fastest lines," backed by patents on key productivity-facilitating components. This technological moat is further evidenced by a recent arbitration ruling in February 2025, which definitively clarified Matthews' rights to market and sell its proprietary DBE solutions to third parties, despite ongoing legal challenges from Tesla (TSLA). The company's pipeline for DBE solutions now exceeds $150 million in quotes, including a recently converted first production line order for a leading solid-state battery producer. Furthermore, Matthews is developing solutions to allow existing wet process facilities to retrofit or expand with its DBE technology, broadening its addressable market. A significant order for a battery separator coating line for a U.S. customer is also in the works, with this line operating at up to "2x the speed" of competitive offerings, significantly enhancing productivity in the highly competitive battery space. For investors, this technological leadership translates into a strong competitive moat, enabling participation in high-growth markets with superior cost structures and performance metrics.

Axiom Printhead: Revolutionizing Product Identification

In product identification, Matthews is preparing to launch its new Axiom printhead chip product in Fall 2025 across the U.S. and EMEA markets. This innovative printhead incorporates a patented silicon-based print engine and disposable printhead technology. It offers customers an approximately "30% lower total cost of ownership" and significant environmental benefits.

Axiom's competitive advantage is particularly pronounced in its operational efficiency. Unlike existing open flow systems where ink drying and nozzle clogging necessitate line shutdowns for repair, Axiom's printhead is disposable and can be replaced in minutes, minimizing downtime. Moreover, the product features embedded technology that requires the exclusive use of Matthews ink, creating attractive, high-margin recurring revenue streams as adoption grows. Axiom is strategically positioned to capitalize on the global "Sunrise 2027 initiative," which aims to transition traditional 1D barcodes to more advanced 2D barcodes. Matthews' technology is "primed to take advantage" of this shift, with the ability to produce 2D barcodes "unlike anybody in the marketplace today," offering enhanced data capacity and traceability. This innovation is expected to be a modest revenue contributor in fiscal 2025 but a "better contributor" in fiscal 2026, driving both top-line growth and margin expansion.

Warehouse Automation: Software-Driven Efficiency

Matthews' warehouse automation business is also leveraging technological differentiation, particularly through its "highly recognized warehouse execution software." The company recently partnered with Teradyne Incorporated (TER) to market autonomous robotic solutions, which will be controlled by Matthews' software. This collaboration offers further cost and efficiency enhancements to new and existing warehouses, distinguishing Matthews' software as a market leader in the warehouse execution software space. The recovery in the warehouse automation market, driven by renewed interest in AI-driven automation and autonomous robots, positions Matthews to capture significant backlog and future growth.

Strategic Portfolio Transformation: Sharpening the Focus

Matthews' strategic actions in fiscal 2025 underscore a clear commitment to portfolio optimization and debt reduction. The most significant move was the May 1, 2025, divestiture of the vast majority of its SGK Brand Solutions segment to a newly-formed entity, Propelis Group. Matthews retained a 40% ownership interest in Propelis, along with $228 million in cash proceeds (net of divested cash), $50 million in preferred equity, and $50 million in retained receivables. This transaction is expected to simplify the corporate structure and significantly reduce debt.

Propelis, the combined SGK-SGS (SGSN) entity, is projected to start with approximately $900 million in revenue and $100 million in annual adjusted EBITDA. Management anticipates achieving a $10 million run rate in synergies by year-end and a $40 million run rate by the end of calendar 2026, with total targeted synergies identified at $60 million. Matthews intends to eventually exit its ownership in Propelis, expecting an additional $300 million from this investment. This strategic move allows Matthews to participate in the upside of a leading global brand solutions provider while focusing its internal resources.

Concurrently, the Memorialization segment, described as the "bedrock" of the company, continues to be a stable cash generator. In May 2025, Matthews acquired The Dodge Company for $57 million, a leading supplier of embalming chemicals and supplies with approximately $43 million in annual sales. This acquisition is a "logical extension" of Matthews' portfolio, expected to add around $12 million of annual EBITDA, offering both cost and revenue synergies. This accretive tuck-in reinforces the segment's market leadership and consistent financial performance.

Further enhancing its financial health, Matthews initiated cost reduction programs in Q4 FY24, primarily targeting European engineering and tooling operations and general and administrative functions. These programs are on track to exceed an initial projection of $50 million in annual consolidated savings, with a run rate of $25 million to $30 million expected by the end of fiscal 2025, and the remainder by the end of fiscal 2026. These savings are already contributing to improved adjusted EBITDA margins and lower corporate costs, demonstrating operational effectiveness. An ongoing comprehensive review of strategic alternatives for the entire portfolio, expected to conclude by November, aims to further unlock shareholder value, particularly in the Industrial Technologies segment, which management believes is significantly undervalued.

Financial Performance and Liquidity: A Snapshot of Transition

Matthews' financial results for Q3 FY25 reflect a company in transition, with strategic divestitures and cost-reduction efforts beginning to bear fruit. Consolidated sales for Q3 FY25 were $349.4 million, a decrease from $427.8 million in Q3 FY24, primarily due to the $80.2 million impact of the SGK divestiture. Despite this, net income saw a significant increase to $15.4 million from $1.8 million in Q3 FY24, largely driven by a gain on the SGK divestiture, partially offset by higher income taxes and interest expense.

Consolidated adjusted EBITDA remained relatively steady at $44.6 million in Q3 FY25 compared to $44.7 million a year ago. This stability, despite the divestiture, was a result of strong performance in the Memorialization and Industrial Technologies segments, coupled with lower corporate and non-operating costs. On a pro forma basis, including Matthews' 40% share of Propelis' estimated adjusted EBITDA ($6.7 million for May-June 2025), consolidated adjusted EBITDA would have been $51.3 million, representing a 14.6% increase year-over-year.

Segment-wise, Memorialization sales modestly increased by 0.5% to $203.7 million in Q3 FY25, with adjusted EBITDA growing 10.5% to $42.8 million, achieving an impressive 21.0% margin. Industrial Technologies, despite a 4.2% sales decline to $87.9 million, saw its adjusted EBITDA more than double to $9.0 million, pushing its margin to 10.3% from 4.6% a year ago, reflecting the benefits of cost reduction actions and higher warehouse automation sales. The Brand Solutions segment, post-divestiture, reported sales of $57.7 million and adjusted EBITDA of $5.0 million.

Liquidity is a key focus. Net cash used in operating activities for Q3 FY25 was $15.2 million, impacted by SGK transaction costs, restructuring, and legal expenses related to the Tesla dispute. However, cash provided by investing activities for the nine months ended June 30, 2025, surged to $153.2 million, primarily due to the $228 million in proceeds from the SGK Business sale. This enabled a substantial $120 million reduction in outstanding debt, bringing the total to $702 million at June 30, 2025. The company's current ratio improved to 1.70 from 1.50. Capital expenditures for fiscal 2025 are estimated at $30 million to $40 million, expected to be fully funded by operating cash flow. The company's debt structure, including a $750 million revolving credit facility and $300 million in 8.62% Senior Secured Notes with a one-year call option, provides financial flexibility.

Competitive Landscape and Strategic Positioning

Matthews operates across diverse markets, each with its own competitive dynamics. In Memorialization, the company holds a strong brand and diversified portfolio, including growing cremation-related products and mausoleum constructions. While competitors like Hillenbrand (HIL) may offer advantages in operational scale, Matthews differentiates through its comprehensive product lines and historical expertise, fostering strong customer loyalty. The Dodge acquisition further solidifies its position by expanding its offerings to funeral homes.

In Industrial Technologies, Matthews' technological differentiators provide a formidable competitive stance. Its proprietary DBE technology, with its leading speed and patented processes, positions it uniquely against others attempting to enter the dry battery electrode market. The battery separator coating line, operating at "2x the speed" of rivals, highlights a clear performance advantage. The Axiom printhead's "30% lower total cost of ownership" and disposable design offer a significant operational edge over existing open flow systems, which suffer from clogging and downtime. This, coupled with the embedded ink technology, creates a high-margin recurring revenue stream. In warehouse automation, the partnership with Teradyne Incorporated and Matthews' recognized software capabilities allow it to compete effectively against larger industrial players like Dover (DOV), which typically offer more scalable, high-tech solutions. Matthews' strength lies in tailored, integrated systems that leverage its software leadership.

The Brand Solutions segment, now largely represented by the 40% equity interest in Propelis Group, is poised to become a "leading global provider of brand solutions." The combined entity, with its $200 million creative business, is expected to be a "formidable competitor" against peers like Avery Dennison (AVY) due to its enhanced size, geographic breadth, and access to low-cost support. While AVY may specialize in high-performance labeling materials, Propelis' integrated brand management approach offers a broader value proposition. Overall, Matthews leverages its long history, global reach, and a strategic focus on customization and integration to maintain its competitive standing, even as it addresses vulnerabilities in technological speed and cost efficiency against more specialized rivals.

Outlook and Key Risks

Matthews International maintains its adjusted EBITDA guidance of "at least $190 million" for fiscal 2025. This guidance, which includes its estimated 40% share of Propelis' adjusted EBITDA from May 1, 2025, through September 30, 2025, effectively maintains the company's original performance outlook when adjusted for the SGK divestiture. This projection is underpinned by several key assumptions: the successful realization of Propelis' ambitious synergy targets ($40 million run rate by end of calendar 2026), a return to "normal cadence" in revenue and pricing for the Memorialization segment, and a "strong recovery" in the warehouse automation business, expected to yield meaningful revenue impact in the latter half of fiscal 2025 and into fiscal 2026. The Axiom printhead launch is also anticipated to provide a modest revenue uptick in fiscal 2025, with greater contributions in fiscal 2026.

However, investors must consider several pertinent risks. The ongoing legal dispute with Tesla, involving allegations of trade secret misappropriation, continues to incur significant legal costs, totaling $14.4 million for the nine months ended June 30, 2025. While an arbitration ruling clarified Matthews' rights, Tesla's subsequent motion to vacate the ruling introduces continued uncertainty. The 40% minority ownership in Propelis Group also carries risks, including potential losses and restrictions on equity transfer. Furthermore, changes in U.S. or international trade policies, such as new tariffs, could impact operating results, particularly in the Memorialization segment, although the company has demonstrated an ability to mitigate these through sourcing alternatives and pricing adjustments. Economic conditions, foreign currency fluctuations, and material cost volatility remain inherent risks for a global enterprise.

Conclusion

Matthews International stands at a pivotal juncture, actively transforming its diversified portfolio to unlock substantial shareholder value. The strategic divestiture of SGK and the simultaneous acquisition of The Dodge Company exemplify a disciplined approach to streamlining operations and reinforcing core strengths. This rebalancing, coupled with aggressive cost-reduction programs and a significant deleveraging, is creating a more focused and financially robust enterprise.

The true catalyst for Matthews' future lies in its technological leadership within the Industrial Technologies segment. The validated proprietary DBE technology, with its high-speed production capabilities and growing pipeline, positions the company at the forefront of the burgeoning EV and grid storage battery markets. Similarly, the innovative Axiom printhead is set to capture significant recurring revenue in product identification, leveraging its superior economics and strategic alignment with global 2D barcode initiatives. As the company's strategic alternatives review progresses and these technological advantages translate into sustained financial performance, Matthews International is poised for a resurgence, offering investors a compelling narrative of innovation-driven growth and value creation.