Detailed narrative
Q3 FY26 Performance and Identified Risks
The third fiscal quarter of 2026 was challenging, with all four previously identified risks—pace of engineering orders, tariff discussions, Propelis synergy timing, and geopolitical challenges🌐—negatively impacting results. The company acknowledged these risks were known but did not anticipate all of them to materialize unfavorably.
This led to delays in engineering order conversions, a softer-than-modeled death rate rebound in memorialization, higher input costs, and slower Propelis synergy capture.
Energy Storage Solutions and DBE Technology
Delays in the energy storage solutions business are expected to continue through the fiscal year due to industry overcapacity in battery production. However, a new mass production machine for testing chemistry formulas is commissioning, attracting significant interest from OEMs and battery suppliers in Europe, Japan, Korea, and the U.S.
Auto industries. Accelerated interest is noted for the commercialization of DBE solution by auto manufacturers, who recognize the need to own their battery manufacturing capabilities. The long-term thesis for DBE technology is strengthening, with LG publicly stating intent to pursue strategic DBE applications.
Engineering Business Restructuring and Strategic Alternatives
The engineering business experienced delays in anticipated orders, losing two significant ones and expecting others later than planned. In response, the company initiated difficult but necessary actions to reduce the cost base by $10 million annually in its European operations.
Management is also evaluating strategic alternatives for this business, a process expected to continue through Q4. The ultracapacitor capabilities are in early stages of qualifying DBE electrode with potential partners, with optimism for future opportunities.
Memorialization Segment Headwinds and Mitigation
The Memorialization segment faced headwinds from a record low death rate (down 4.6% YoY) and significantly higher input costs, including copper prices rising from $4.50 to $6.60 per pound and steel prices up 21% YoY. While price increases have been implemented, they have been outpaced by the speed and magnitude of cost escalations, especially with fixed contracts.
The Dodge acquisition continues to contribute meaningfully and is accretive, with most targeted cost synergies realized. The company plans further pricing actions later in the calendar year.
Propelis Synergy Delays and Exit Strategy
While total anticipated synergies for Propelis remain clear, the timing of📎 their realization has been delayed, causing an estimated $5 million shortfall to the full-year forecast. This delay is attributed to the SAP implementation project taking longer than expected, particularly in migrating work from legacy systems.
Despite this, the company still expects to exit calendar year 2026 with an annualized EBITDA run rate of about $130 million, which will trigger the marketing process for its sale within the next 12 months.
Product Identification Innovation and Partnerships
The product identification business is seeing strong commercial response to its new printhead product, Axion, and the Imperia Axion inkjet systems. These technologies offer superior print quality, lower solvent consumption, and reduced maintenance costs, expanding the addressable market. A strategic partnership with Lynx Printing Technologies was announced to broaden customer access in key markets like the UK and France, and also provides Matthews access to Lynx's products in North America.
Strategic Review and CEO Transition
The Board remains actively engaged in a strategic review to improve shareholder value and align with the organization's underlying value, exploring various alternatives. CEO Joe Bartolese announced his intention to retire, with the timing tied to the hiring of a replacement. He emphasized his continued engagement until a successor is found, highlighting the positive momentum in strategic initiatives and partnerships.