Q2 2025 Matthews International Corp Earnings Call

Operator: Greetings and welcome to the Matthews International second quarter fiscal 2025 financial results. At this time, all participants are in a listen-only mode.

Greetings and welcome to the Matthews International second quarter fiscal 2025 financial results.

At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. Please press star zero on your telephone keypad.

Operator: A question-and-answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.

Speaker Change: As a reminder, this conference is being recorded it is now my pleasure to introduce Steven Nicola Chief Financial Officer. Please go ahead.

Operator: It is now my pleasure to introduce Steven Nicola, Chief Financial Officer. Please go ahead. All right, good morning. Thank you, Paul.

Steve Nicola: Alright. Good morning, Thank you Paul I'm, Steve Nicola Chief Financial Officer of Matthews and with me today is Joe BARDA Lacy, our company's President and Chief Executive Officer.

Steven Nicola: I'm Steven Nicola, 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 company's website, www.matw.com, in the investor section last night. The presentation for our call can also be accessed in the investor section of the website under presentation. 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 periodic filings with the SEC.

Steve Nicola: Before we start I would like to remind you that our earnings release was posted on the company's website www Dot MH tw dot com in the investors section last night.

Steve Nicola: The presentation for our call can also be accessed in the investors section of the website under presentations.

Steve Nicola: 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 periodic filings with the SEC.

Steven Nicola: 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.

Steve Nicola: We will be discussing non-GAAP financial metrics and encourage you to read our disclosures and reconciliation tables carefully as you consider these metrics.

Steve Nicola: 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.

Joseph Bartolacci: Now I will turn the call over to Joe. Thank you, Steve. Good morning.

Joe: Now I will turn the call over to Joe.

Joe: Thank you Steve.

Joe: Good morning.

Joseph Bartolacci: Let me begin today's call by providing an update on our energy solutions business and the recent developments impacting its growth. As you are aware, we recently firmly established our ability and right to market, offer, and sell dry battery electrode technology solutions to third parties. However, during certain intervals of our dispute regarding our ownership rights with Tesla, we are intentionally cautious in our efforts to promote our technology to third parties other than Tesla. As we discussed in our last earnings call, we now have clarity regarding our right to sell DBE solutions, and we have built an extensive and highly valuable portfolio of intellectual property, technology, and know-how related to the critical components of the dry battery electrode offering.

Joe: Let me begin today's call by providing an update on our energy solutions business and the recent developments impacting its growth.

Joe: As you are aware, we recently firmly established our ability and right to market offer and sell dry battery electrode technology solutions to third parties.

Joe: However, during certain intervals of our dispute regarding our ownership rights with Tesla.

Joe: We are intentionally cautious in our efforts to promote our technology to third parties other than Tesla.

Joe: As we discussed on our last earnings call.

Joe: We now have clarity regarding our right to sell DB solutions, and we have built an extensive and highly valuable portfolio of intellectual property technology and knowhow related to the critical components of the dry battery electrode outbreak.

Joseph Bartolacci: With that said, I can share some positive news. From the time that we reopened our doors for business in mid-February after receiving the desired clarity on our ownership rights, we have reengaged with multiple battery manufacturers and auto OEMs and have issued quotes in excess of $100 million. These opportunities represent DBE and market solutions comprised of a mix of our proprietary calendaring equipment and primer coating machines used in the electrode production process.

Joe: With that said I can share some positive news.

Joe: From the time that we reopened our doors for business in mid February after receiving the desired clarity on our ownership rights.

Joe: We have re engaged with multiple battery manufacturers and auto Oems and have issued quote in excess of $100 million.

Joe: These opportunities represent DB and market solutions comprised of a mix of our proprietary calendar new equipment.

Joe: And primer coating machines used in the electrode production process.

Joseph Bartolacci: in the pipeline. Mass production lines represent the bulk of the total, and interest for our equipment is coming from major geographies for EV battery production, including South Korea, Europe, and North America. This activity confirms that the demand for our innovative engineering solutions that enable cost-efficient production of EV batteries is significant and continues to create opportunities for Matthews. It is important to note, however, that the sales lead time in this industry is long. The investments in new gigafactories which contemplate using our equipment are very large and require extensive planning. Therefore, in order to expand the market opportunity for our equipment, we are building solutions that allow existing facilities to retrofit their current wet process or expand existing production technology with our dry battery electrode solution.

Joe: In the pipeline mass production lines represent the bulk of the total and interests from the equipped for our equipment is coming from major geographies for EV battery production, including South Korea, Europe, and North America.

Joe: This activity confirms that the demand for our innovative engineering solutions that enable cost efficient production of EV batteries is significant and continues to create opportunities for Matthews.

Joe: Important to note however that the sales lead time in this industry as law the.

Joe: The investments in new Giga factories, which contemplate using our equipment are very large and require extensive planning.

Joe: Therefore in order to expand the market opportunity for our equipment. We are building solutions allow existing facilities to retrofit their current wet process or expand existing production technology with our dry battery electrode solution.

Joseph Bartolacci: This retrofit, we believe, can open up material opportunities beyond the markets only for new gigafactors.

Joe: This retrofit we believe could open up material opportunities beyond the markets only for new Giga factories.

Joseph Bartolacci: Moving on to SGK News. As we announced earlier this month, all regulatory approvals for the transaction have been secured, and we expect to close the transaction any day now. As we reported on last quarter's earnings calls, we will receive $350 million in consideration up front, including $250 million in cash, the retention of receivables totaling about $50 million, which will be used to pay back our securitization, and a $50 million preferred instrument, which we hope to convert to cash in 12 to 18 months. The cash component will be primarily applied to reducing debt. We are also proceeding well with the divestiture of our remaining German SGK assets that were not merged with SGS.

Moving on to ask GK news as we announced earlier this month all regulatory approvals for the transaction have been secured and we expect to close the transaction transaction any day now.

Joe: As we reported on last quarter's earnings call, we will receive $350 million in consideration upfront <unk>.

Joe: Including $250 million in cash.

Joe: Retention of receivables totaling about $50 million, which will be used to pay back our securitization and a $50 million preferred instrument, which we hope to convert to cash in 12 to 18 months.

Joe: Cash component will be primarily applied to reducing debt.

Joe: We are also proceeding well with the divestiture of our remaining German S. G. K assets that were not merged with SGS.

Joseph Bartolacci: This transaction is expected to close before fiscal year end. Together with the initial consideration for SGK, we expect total initial consideration from the sale of our brand solution segment to approach $400 million. In addition to the initial consideration for SGK, we received a 40% interest in the combined SGK-SGS entity. This entity will start out with approximately $900 million in revenue and about $100 million of EBITDA and $300 million of bank debt. Our current projections expect over $50 million of synergies to be achieved post-integration, at which time we intend to exit our ownership. Our current expectation is that we will receive an additional $300 million from this investment as well.

Joe: This transaction is expected to close before fiscal year end together.

Joe: Together with the initial consideration breast G. K, we expect total initial consideration from the sale of our brand solutions segment to approach $400 million.

Joe: In addition.

Joe: And the initial consideration breast UK, we received a 40% interest in the combined S. G. K S. G S entity.

Joe: This entity will start out with approximately $900 million in revenue and about $100 million of EBITDA and $300 million of bank debt.

Joe: Our current projections, we expect over $50 million of synergies to be achieved post integration at which time, we intend to exit our ownership.

Joe: Our current expectation is that we will receive an additional $300 million from this investment as well.

Joseph Bartolacci: Also of note during the quarter, our warehouse automation business entered into an agreement with Teradyne Incorporated to market autonomous robotic solutions for the next generation of warehouse automation. This partnership uniquely positions us to promote autonomous vehicles or robotic picking solutions, which will be controlled by our highly recognized warehouse execution software.

Joe: Also of note during the quarter, our warehouse automation business entered into an agreement with teradyne incorporated to market autonomous robotic solutions for the next generation of warehouse automation.

Joe: This partnership uniquely positions us to promote autonomous vehicles or robotic picking solutions, which will be controlled by our highly recognized warehouse execution software.

Joseph Bartolacci: Together, we will offer further cost and efficiency enhancements to new and existing warehouses, while again distinguishing our software as a market leader in the warehouse execution software space.

Joe: Together, we will we will offer further cost and efficiency enhancements to new and existing warehouses, well again distinguishing our software as a market leader in the warehouse execution software space.

Joseph Bartolacci: As for our second quarter results, consolidated sales came in generally as expected, but lower on a year-over-year basis, primarily due to the challenge faced by our energy solutions business. Overall, we reported $428 million in consolidated sales in the fiscal 2025 second quarter, compared to $471 million in the second quarter of 2024. adjusted even over the second quarter of 25 was higher than anticipated and primarily reflected the benefits gained from our recent cost reduction effort. adjusted EBIT that was $51.4 million in the second quarter of 2025 compared to $56.8 million in the 2024 corresponding period.

Joe: As for our second quarter results consolidated sales came in generally as expected, but lower on a year over year basis, primarily due to the challenges faced by our energy solutions business.

Joe: Overall, we reported $428 million in consolidated sales in the fiscal 2025 second quarter compared to $471 million in the second quarter of 'twenty four.

Joe: Adjusted EBITDA for the second quarter of 25 was higher than anticipated and primarily reflected the benefits gained from our recent cost reduction efforts.

Joe: Adjusted EBITDA was 51 million $51.4 million in the second quarter of 2025 compared to $56 8 million in the 2024 corresponding period.

Joseph Bartolacci: With respect to the businesses, SGK reported another solid quarter highlighted by its best sales quarter since the fourth quarter of fiscal 22. The strong performance was primarily driven by new account growth in the Americas and some benefit from price realization. We believe that the business is well positioned to reach a higher level of performance once coupled with SGS given each business's complementary assets and anticipated synergy. Integrating some of these businesses, such as the respective Flexo platforms, will enable the new entity to take full advantage of scale and grow.

Joe: With respect to the businesses SDK reported another solid quarter highlighted by its best sales quarter since the fourth quarter of fiscal 'twenty two.

Joe: Strong performance was primarily driven by new account growth in the Americas, and some benefit from price realization.

Joe: We believe that the business is well positioned to reach a higher level of performance once coupled with SGS, giving each business is complementary assets and anticipated synergies.

Joe: Integrating some of these businesses such as the respective flexible platform will enable the new entity to take full advantage of scale and grow. Additionally.

Joseph Bartolacci: Additionally, the new entity's combined creative business, which will focus on packaging, e-commerce, and other brand-related marketing efforts, will generate approximately $200 million in revenue and will be a formidable competitor to other agencies given its size, geographic breadth, and access to low-cost support.

Joe: Additionally, the new entities combined creative business, which will focus on packaging E Commerce and other brand related marketing efforts will generate approximately $200 million in revenues it will be a formidable competitor to other agencies, given the size geographic breadth and access to low cost support.

Joseph Bartolacci: Moving on to industrial technologies, let me add some color to our energy solutions performance in the quarter. We still have a backlog of about $70 million in equipment. We're also working on a number of opportunities which will involve our innovative solutions as applied towards solid-state battery development and energy grid storage. Grid storage represents the fastest growing area for battery development, with a significant available market for our innovative solutions, which is in addition to the market opportunity for electric vehicles.

Joe: Moving on to industrial technologies, let me add some color to our energy solution. The performance of the quarter, we still have a backlog of about $70 million in equipment.

Joe: We're also working on a number of opportunities, which will involve our innovative solution as applied towards solid state battery development in energy grid storage.

Joe: Grid storage represents the fastest growing area for battery development with a significant available market for our innovative solutions, which is in addition to the market opportunity for electric vehicles.

Joseph Bartolacci: Moving on to warehouse automation, sales in the second quarter were lower year over year, reflecting slow market recovery. However, We saw encouraging signs during the quarter with very strong order intake, indicative of a turn in the market, which we expect will be realized in the second half of this fiscal year. Those signs included an active quoting market and record orders from prominent brands, resulting in a backlog that has returned to healthy levels.

Joe: Moving on to warehouse automation.

Joe: Sales in the second quarter were lower year over year, reflecting slow market recovery. However.

Joe: We saw encouraging signs during the quarter with very strong order intake indicative of a turn in the market, which we expect will be realized in the second half of this fiscal year.

Joe: Those signs included in the active quoting market and record orders from prominent brands, resulting in a backlog that has returned to healthy levels.

Joseph Bartolacci: Product identification reported relatively flat year-over-year results for the second quarter of 2025, and we remain on track with our new product launch for later this summer. Memorialization revenues were down by 7% in the second quarter compared to the prior year, primarily due to volume declines in our bronze and grant businesses. The primary driver of the lower revenue was the decline in cascaded deaths during the quarter and the closure of our UK cremation facility earlier this year. We did receive benefit from pricing actions, but not enough to offset these events. As for our balance sheet, our debt position increased modestly during the quarter, but as I highlighted earlier in our discussion, we expect to apply proceeds from the STK transaction to our revolvers.

Joe: Product identification reported relatively flat year over year results.

Joe: Our second quarter of 2025, and we remain on track with our new product launch for later this summer.

Joe: Memorial is Asian revenues were down by 7% in the second quarter compared to the prior year, primarily due to volume declines in our bronze and granite businesses.

Joe: Primary driver of the lower revenue was the decline in casket a desk during the quarter and the closure of our UK cremation facility earlier this year.

Joe: We did receive benefit from pricing actions, but not enough to offset these events.

Joe: As for our balance sheet, our debt position increased modestly during the quarter, but as I highlighted earlier in our discussion we expect to apply proceeds from the SDK transaction to a revolver.

Joseph Bartolacci: Additionally, given the current levels where our shares are trading, we believe it makes sense to utilize a portion of the proceeds towards repurchasing our stock. Note also that our bonds are not callable until September. At that time, we will evaluate whether or not to address those notes contingent on market conditions.

Joe: Additionally, given the current levels, where our shares are trading we believe it makes sense to utilize a portion of the proceeds towards repurchasing our stock.

Joe: Note also.

Joe: That our bonds are not callable until September at that time, we will evaluate whether or not to address those notes contingent on market conditions.

Joseph Bartolacci: regarding terror. We believe that we have put actions in place to mitigate the impact of terrorists as they currently are contemplated. New sourcing and pricing in areas of the business with the most impact should manage the consequences and we should see very little impact in our fiscal 25 results. Looking to the balance of the year, we expect another stable year results from our memorialization. Based on recent order rates, we expect our warehouse automation segment to show improved results in the second half of the year as that market begins to turn. Additionally, our cost reduction initiative is ongoing and on track to generate cost savings in excess of our initial projection of $50 million.

Joe: Regarding tariffs, we believe that we have put actions in place to mitigate the impacts of tariffs I think currently our contemplated new sourcing and pricing in areas of the business with the most impact should manage the consequences and we should see very little impact in our fiscal 'twenty five results.

Joe: Looking to the balance of the year, we expect another stable year results from our Memorialization business based on recent order rates, we expect our warehouse automation segment to show improved results in the second half of the year as that market begins to turn.

Joe: Additionally, our cost reduction initiative is ongoing and on time on track to generate cost savings in excess of our initial projection of $50 million.

Joseph Bartolacci: With regard to SGK, as I've stated, we expect the transaction to close soon. Therefore, assuming five months of our proportional ownership of SGKSGS, we have updated our adjusted EBITDA guidance to at least $190 million. It is important to note, however, that our new guidance of $190 million would be equal to our original guidance of $205 million, but for the sale of SGK.

Joe: With regard to S. G K as I've stated, we expect the transaction to close soon.

Joe: Therefore, assuming five months of our proportional ownership of S. G. K S. Yet we've updated our adjusted EBITDA guidance to at least $190 million.

Joe: It is important to note, however that our new guidance of $190 million would be equal to our original guidance of $205 million, but for the sale of S. G K.

Joseph Bartolacci: Finally, regarding our strategic initiatives that we began several quarters ago, it continues, as we believe that the company's intrinsic value is significantly higher than where the stock currently trades. We are committed to finding ways to unlock shareholder value through this process and all possibilities are being considered. Unfortunately, current market turbulence has made our efforts somewhat more challenging, but we hope that the markets will calm in the near future, and we expect our efforts will be successful. Like we did with SGK, we are determined to prudently highlight the fair value of our businesses, and we are sure that we will.

Joe: Finally regarding our strategic initiatives.

Joe: We began last several quarters ago. It continues as we believe that the company's intrinsic value is significantly higher than where the stock currently trades.

Joe: We are committed to finding ways to unlock shareholder value through this process and all possibilities are being considered.

Joe: Unfortunately current market turbulence has made our efforts somewhat more challenging, but we hope that the markets will come in the near future and we expect our efforts will be successful.

Joe: Like we did with S. G. K, we are determined to prudently highlight the fair value of our businesses and we assure that we will.

Steven Nicola: Now I'll turn it over to Steve to deliver the financial for the quarter's results. Thank you, Joe. For the financial review, let's begin with slide seven.

Steve Nicola: Now I'll turn it over to Steve to deliver them.

Steve Nicola: For the quarter's results.

Speaker Change: You Joe for the financial review, let's begin with slide seven for.

Steven Nicola: For the fiscal 2025 second quarter, the company reported a net loss of $8.9 million, or $0.29 per share, compared to net income of $9 million, or $0.29 per share, a year ago.

Speaker Change: For the fiscal 2025 second quarter, the company reported a net loss of $8 $9 million or 29 cents per share compared to net income of $9 million or 29 cents per share a year ago.

Steven Nicola: On a non-GAAP-adjusted basis, net income attributable to the company for the current quarter was $10.5 million, or $0.34 per share, compared to $21.8 million, or $0.69 per share last year. The decline primarily reflected the impacts of lower-adjusted EBITDA, which I will discuss in a few minutes, higher interest expense for the current quarter, and an unfavorable tax impact from losses in our German operations.

Speaker Change: On a non-GAAP adjusted basis net income attributable to the company for the current quarter was $10 5 million or <unk> 34 per share compared to $21 $8 million or <unk> 69 per share last year.

Speaker Change: The decline primarily reflected the impacts of lower adjusted EBITDA, which I will discuss in a few minutes higher interest.

Speaker Change: <unk> for the current quarter and an unfavorable tax impact from losses in our German operations.

Steven Nicola: Consolidated sales for the fiscal 2025 second quarter were $427.6 million, compared to $471.2 million a year ago. The decline primarily reflected lower sales for the industrial technology segment, mainly reflecting lower engineering sales. Additionally, sales for the memorialization segment declined compared to a year ago, primarily due to lower unit volume. Estimated U.S. cascaded deaths declined from the same quarter a year ago. Sales for the SGK Brand Solutions segment were modestly higher than the second quarter last year, primarily reflecting increases in the U.S. and Asia-Pacific markets. Consolidated adjusted EBITDA for the fiscal 2025 second quarter was $51.4 million compared to $56.8 million a year ago.

Speaker Change: Consolidated sales for the fiscal 2025 second quarter were $427 $6 million compared to $471 $2 million a year ago. The decline primarily reflected lower sales for the industrial technology segment, mainly reflecting lower engineering sales.

Speaker Change: Additionally, sales for the memorial Ovation segment declined compared to a year ago, primarily due to lower unit volumes.

Speaker Change: Estimated U S casket of deaths declined from the same quarter a year ago.

Speaker Change: Sales for the S. G. K brand solutions segment were modestly higher than the second quarter last year, primarily reflecting increases in the U S and Asia Pacific markets.

Speaker Change: Consolidated adjusted EBITDA for the fiscal 2025 second quarter was $51 $4 million compared to $56 $8 million a year ago. The decrease primarily reflected declines in the industrial technologies and memorial <unk> segment's adjusted EBITDA for the S. G K brand solutions segment increased.

Steven Nicola: The decrease primarily reflected declines in the industrial technologies and memorialization segments. Adjusted EBITDA for the SGK brand solution segment increased modestly compared to last year. Please see the reconciliations of adjusted EBITDA and non-GAAP adjusted earnings per share provided in our earnings release.

Speaker Change: Modestly compared to last year.

Speaker Change: Please see the reconciliations of adjusted EBITDA and non-GAAP adjusted earnings per share provided in our earnings release.

Steven Nicola: Please move to slide 8 to review our segment results. Sales for the memorialization segment for the fiscal 2025 second quarter were $205.6 million compared to $222.2 million for the same quarter a year ago. Sales volumes for bronze and granite cemetery memorials and caskets were lower for the quarter compared to last year, primarily resulting from lower U.S. casketed deaths. Cremation equipment sales were also lower for the quarter. In addition, the recent disposal of our unprofitable cremation and incineration equipment operations in Europe unfavorably impacted sales for the current quarter. These declines were partially offset by improved price realization.

Speaker Change: Please move to slide eight to review our segment results.

Speaker Change: Sales for the Memorial <unk> segment for the fiscal 2025 second quarter were $205 $6 million compared to $222 2 million for the same quarter a year ago sales.

Speaker Change: Sales volumes for bronze and granite cemetery memorials and caskets were lower for the quarter compared to last year, primarily resulting from lower U S. Casted deaths cremation equipment sales were also lower for the quarter.

Speaker Change: In addition, the recent disposal of our unprofitable cremation and incineration equipment operations in Europe unfavorably impacted sales for the current quarter.

Speaker Change: These declines were partially offset by improved price realization chain.

Steven Nicola: Changes in foreign currency rates had an unfavorable impact of $422,000 on the segment's current quarter sales compared to a year ago. Memorialization segment adjusted EBITDA for their current quarter was $45 million compared to $46.6 million for the same quarter last year. The decrease primarily resulted from the impact of lower sales and increases in material and labor related costs. These increases were partially offset by the favorable impacts of improved pricing, benefits from cost savings initiatives, and the disposal of the European operations which were generating operating losses.

Speaker Change: Changes in foreign currency rates had an unfavorable impact of $422000 on the segment's current quarter sales compared to a year ago.

Speaker Change: Memorial <unk> segment adjusted EBITDA for their current quarter was $45 million compared to $46 6 million for the same quarter last year.

Speaker Change: The decrease primarily resulted from the impact of lower sales and increases in material and labor related costs. These.

Speaker Change: These increases were partially offset by the favorable impacts of improved pricing benefits from cost savings initiatives and the disposal of the European operations, which were generating operating losses.

Steven Nicola: Please move to slide nine. Sales for the industrial technology segment for the fiscal 2025 second quarter were $80.8 million compared to $116.1 million a year ago. The decline mainly resulted from lower sales for the segment's engineering business, principally energy storage solution sales. Warehouse automation sales were also lower for the quarter. In addition, the shutdown of our unprofitable R&S automotive business, which was acquired in connection with the Olberg acquisition in 2022, contributed to the segment's year-over-year sales decline. Changes in currency rates had an unfavorable impact of $1.5 million on the segment's current quarter sales compared to a year ago.

Speaker Change: Please move to slide nine.

Speaker Change: Sales for the industrial technology segment for the fiscal 2025 second quarter were $88 million compared to $116 $1 million a year ago. The decline mainly resulted from lower sales for the segments engineering business, principally energy storage solution sales.

Speaker Change: Warehouse automation sales were also lower for the quarter.

Speaker Change: In addition, the shutdown of our unprofitable rns automotive business, which was acquired in connection with the <unk> acquisition in 2022 contributed to the segment's year over year sales decline.

Speaker Change: Changes in currency rates had an unfavorable impact of $1.5 million on the segment's current quarter sales compared to a year ago.

Steven Nicola: Adjusted EBITDA for the industrial technology segment for the current quarter was $6 million, compared to $10 million for the same quarter a year ago. The decrease primarily resulted from the segment's sales decline, offset partially by the benefits of recent cost reduction actions.

Speaker Change: Adjusted EBITDA for the industrial technology segment for the current quarter was $6 million compared to 10 minutes for the same quarter a year ago. The decrease primarily resulted from the segment's sales decline offset partially by the benefits of recent cost reduction actions.

Steven Nicola: Please move to slide 10. Sales for the SGK brand solution segment increased to $141.2 million for the quarter ended March 31, 2025, compared to $132.9 million a year ago. The increase primarily reflected higher merchandising sales and increases in the U.S. and Asia-Pacific brand market. European packaging cylinders and brand sales declined from a year ago. Currency rates had an unfavorable impact of $2.5 million on the segment's current quarter sales compared to a year ago. Adjusted EBITDA for the SGK brand solution segment was $15.6 million for the current quarter compared to $15.4 million a year ago. The increase primarily reflected the benefits of higher sales, improved pricing, and the segment's recent cost reduction actions, offset partially by the impacts of higher labor-related costs.

Speaker Change: Please move to slide 10.

Speaker Change: Sales for the S. G. K brand solutions segment increased to $141 $2 million for the quarter ended March 31, 2025, compared to $132 $9 million a year ago. The.

Speaker Change: The increase primarily reflected higher merchandising sales and increases in the U S and Asia Pacific brand markets.

Speaker Change: European packaging cylinders and brand sales declined from a year ago.

Speaker Change: Currency rates had an unfavorable impact of $2 $5 million on the segment's current quarter sales compared to a year ago.

Speaker Change: Adjusted EBITDA for the S. G. K brand solutions segment was $15 $6 million for the current quarter compared to $15 $4 million a year ago. The increase primarily reflected the benefits of higher sales improved pricing.

Speaker Change: And the segment's recent cost reduction actions offset partially by the impacts of higher labor related costs.

Steven Nicola: Please move to slide 10.

Speaker Change: Please move to slide 10.

Steven Nicola: Cash flow provided by operating activities for the fiscal 2025 second quarter was $6.3 million, compared to $57.1 million a year ago. Costs in connection with the SGK transaction, the contested proxy, and our restructuring actions were significant contributors to the decrease from a year ago. On a year-to-date basis, cash utilized in operating activities was $18.7 million for the current year, compared with cash provided by operating activities of $29.8 million last year. In addition to the current quarter items, the year-to-date change also reflected payments in connection with litigation costs. Outstanding debt was $822 million at March 31, 2025, compared to $809 million at December 31, 2024.

Speaker Change: Cash flow provided by operating activities for the fiscal 2025 second quarter was $6 $3 million compared to $57 $1 million a year ago costs in connection with the SG cake transaction the contested proxy and our restructuring actions were significant contributors to the decrease from a year ago.

Speaker Change: On a year to date basis cash utilized in operating activities was $18 $7 million for the current year compared with cash provided by operating activities of $29 $8 million last year.

Speaker Change: In addition to the current quarter items the year to date change also reflected payments in connection with litigation costs.

Speaker Change: Outstanding debt was $822 million at March 31, 2025, compared to $809 million at December 31, 2024, the company's net debt, which represents outstanding debt less cash was $782 million at the end of the current quarter compared to 700.

Steven Nicola: The company's net debt, which represents outstanding debt less cash, was $782 million at the end of the current quarter, compared to $776 million at December 31, 2024. Upon the closing of the SGK transaction, we expect a significant reduction in debt.

Speaker Change: $76 million at December 31, 2024.

Speaker Change: Upon the closing of the SDK transaction, we expect a significant reduction in debt.

Steven Nicola: For the fiscal 2025 second quarter, the company purchased approximately 5,900 shares under its stock repurchase program. These purchases were related to withholding taxes on equity compensation vesting. As we make, we remained primarily focused on debt. However, as we previously indicated, with the stock price at its current levels, we intend to use some of the SGK proceeds for stock repurchase. As we previously disclosed, 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 up to $50 million, and we currently remain on track to achieve and potentially exceed this target.

Speaker Change: For the fiscal 2025 second quarter. The company purchased approximately 5900 shares under its stock repurchase program. These purchases were related to withholding taxes on equity compensation vesting as we may we remain primarily focused on that.

Speaker Change: However, as we previously indicated with the stock price at its current levels, we intend to use some of the SDK proceeds for stock repurchases.

Speaker Change: As we previously disclosed 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 up to $50 million and we currently remain on track to achieve and potentially exceed this target.

Steven Nicola: The most significant portions of the estimated savings will be from our engineering and tooling operations in Europe and our general and administrative costs. With respect to our fiscal 2025 earnings expectations, we previously projected adjusted EBITDA of at least $205 million for fiscal 2025, which contemplated the SGK brand solution segment and our consolidated results for the full year. Based on an SGK transaction closing date in early May, our pro forma consolidated adjusted EBITDA projection for fiscal 2025 has been updated to at least $190 million. This projection is subject to adjustment based on the actual closing date.

Speaker Change: The most significant portions of the estimated savings will be from our engineering and tooling operations in Europe, and our general and administrative costs.

Speaker Change: Yeah.

Speaker Change: With respect to our fiscal 2025 earnings expectations. We previously projected adjusted EBITDA of at least $205 million for fiscal 2025, which contemplated the SDK brand solutions segment in our consolidated results for the full year.

Speaker Change: Based on an S. GK transaction closing date in early May.

Speaker Change: Our pro forma consolidated adjusted EBITDA projection for fiscal 2025 has been updated to at least $190 million. This projection is subject to adjustment based on the actual closing date. This project replaces the full results of S. GK for the remaining five months of fiscal 2025.

Steven Nicola: This projection replaces the full results of SGK for the remaining five months of fiscal 2025 with a pro forma projection for our 40% interest in the new entity. The updated amount maintains our original projection of the $205 million for the year, modified only for the pro forma impact of the SGK transaction. Please note that, as a result of the integration process of the new entity and transition to its own stand-alone reporting systems, we plan to report our 40% interest in the earnings of the new entity on a one-quarter lag. As a result, our actual reported adjusted EBITDA will differ from proforma results during this period.

Speaker Change: With a pro forma projection for our 40% interest in the new entity.

Speaker Change: The updated amount maintains our original projection of the $205 million for the year modified only for the pro forma impact of the SDK transaction.

Speaker Change: Please note that as a result of the integration process of the new entity and transitioned to its own standalone reporting systems.

Speaker Change: We plan to report our 40% interest in the earnings of the new entity on a one quarter lag.

Speaker Change: As a result, our actual reported adjusted EBITDA will differ from pro pro forma results during this period.

Steven Nicola: Finally, the board declared yesterday a quarterly dividend of 25 cents per share on the company's common stock. The dividend is payable May 26, 2025 to stockholders of record May 12, 2025.

Speaker Change: Finally, the board declared yesterday, our quarterly dividend of 25 cents per share on the Companys common stock.

Speaker Change: The dividend is payable May 26, 2025 to stockholders of record May 12 2025.

Operator: This concludes the financial review, and we will now open the call for questions. Paul. Thank you.

Speaker Change: This concludes the financial review and we will now open the call for questions.

Speaker Change: Paul.

Speaker Change: Thank you well now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.

Operator: We'll now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing your start key. One moment, please, while we poll for questions.

Speaker Change: A confirmation tone will indicate your line is in the question queue. You May press star two to remove your question from the queue.

Speaker Change: For participants using speaker equipment and may be necessary to pick up the handset before pressing your sarkies.

Speaker Change: One moment, please while we poll for questions.

Daniel Moore: Our first question is from Daniel Moore with CJS Security. Thank you. Good morning, Joe. Good morning, Steve. Start with energy storage. How does the 100 million plus in customer quotes since early February compare to, you know, where we were this time for the same period last year? And you touched on it in the prepared remarks, but where are you seeing the most renewed interest? I assume that's all outside of Tesla, but, you know, by geography and market, you know, A lot of questions in there, Dan. Good morning. So let me kind of parse through. And if I missed something, let me, please, please re-ask.

Speaker Change: Our first question is from Daniel Moore with CJS Securities.

Daniel Moore: Thank you good morning, Joe Good morning, Steve start with energy storage, how does the 100 million plus in customer quotes since early February compare to where we were this time for the same period last year.

Speaker Change: And you touched on it in the prepared remarks, but where are you seeing the most renewed interest.

Daniel Moore: Assume that's all outside of Tesla, but.

Speaker Change: By geography, and end market, where you're seeing customers come back to you.

Dan: Lot of questions in there Dan good morning, So let me kind of parse through them, but if I Miss something let me. Please please re ask so as it relates to a year ago, you would notice in my comments I said we are.

Joseph Bartolacci: So as it relates to a year ago, you noticed in my comments, I said we were relatively out of the market from a marketing standpoint a year ago.

Dan: We're relatively out of the market from a marketing standpoint, a year ago. So I would tell you that the 100 million plus of quotes that we have out today is dramatically higher.

Joseph Bartolacci: So I would tell you that the 100 million plus of quotes that we have out today is dramatically higher than the same period last year. I mean, there was no time other than when we were dealing with Tesla were we having quotes of that significance. So this is all very good news for us and frankly shows what we think is the interest in our solution. Secondly, where is it coming from? Without giving names, but you can pick the geographies, it's South Korea, which is a large part of it. I mean, the battery operators in that part of the world are extremely interested in this solution.

Dan: Than the same period last year. There was I mean, there was no time other than when we were dealing with Tesla.

Dan: We have and closer to that significant so this is all.

Dan: Very.

Dan: Good news for Us and frankly shows what we think is the interest in our solution secondly, where is it coming from.

Dan: Not giving names.

Dan: But you can pick the geographies it south in South Korea.

Dan: Which is a large part of it is I mean, the battery operators in that part of the world are extremely interested in this solution.

Joseph Bartolacci: We have several OEMs in North America and in Europe also talking to us, but we also have a growing interest in what we call the energy, the grid storage side of this business as people are starting to look for expansions into other areas for the use of electric storage devices. What is important to understand, and we've been trying to emphasize this over the last several quarters, this particular solution, what dry battery is, dry battery electrode, is applicable to all forms of battery storage. Whether it's a cell phone that you're holding in your hand or whether it's a flashlight or an automobile or energy storage device, it's applicable to all those technologies.

Dan: We have several Oems in North America and in Europe also talking to us, but we also have a growing interest in what we called the energy the grid storage side of this business as people are starting to look for expansion into other areas for the use of electric storage devices.

Dan: What is important to understand that we've been trying to emphasize this over over the last several quarters. This particular solution what dry battery is dry battery electrode is applicable to all forms of battery storage, whether it's a cell phone that you're holding in your hand, or whether it's a flashlight or an automobile or energy.

Speaker Change: George device is applicable to all those technologies so.

Daniel Moore: So we're only scratching the surface of where this opportunity can go. All right, that does cover a lot of those, thank you.

Speaker Change: We are only scratching the surface of where the opportunities can go.

Speaker Change: Right and it does cover a lot of those thank you memorials Asian, just maybe talk about the cadence of year over year.

Daniel Moore: Memorialization, just maybe talk about the cadence of year over year. for the past couple of months, and what are your expectations? for organic growth overall for the segment, you know, fiscal Q3 and the balance.

Speaker Change: Declines over the past couple of months and what are your expectations for.

Speaker Change: For organic growth overall for the segment, you know fiscal Q3 and the balance of the year.

Joseph Bartolacci: Dan, I'll start with that and I'll let you finish the question. But one of the other factors in the year-over-year comparability was we did have another quarter where we were weak. The comparable last year included higher than normal granite-related sales. As a year ago in this past quarter, we were still working off significant backlogs from the pandemic. So that was one other comparable that contributed to the reported decline year-over-year. Yeah, I would tell you that the reality is, Dan, we saw some normalization, continued normalization on a comparative basis over prior years, so we saw higher death rates than we would have expected last year, and I think we're seeing a little bit of that pullback this quarter.

Speaker Change: Dan I'll start with that and I'll, let Joe finish the question, but one of the other factors in the year over year comparability was we did have another quarter, where we were weak the comparable.

Speaker Change: Last year included higher than normal granite related sales are as a year ago. In this past quarter, we were still working off a significant backlogs from the pandemic. So that was one other comparable that contributed to the reported decline year over year.

Speaker Change: Yeah, I would tell you that thoughts become reality.

Speaker Change: We saw some normalization.

Speaker Change: It continued normalization on comparative basis over prior year. So we saw higher higher death rates than we would've expected last year and I think we're seeing a little bit of that pullback this quarter.

Speaker Change: Okay.

Daniel Moore: One more and I'll jump back.

Speaker Change: One more and ill jump back in queue, just remind me Steve the cost reduction actions 50 million.

Steven Nicola: Just remind me, Steve, the cost reduction action, $50 million, you know. be a little higher. Just remind us how much is in the fiscal 25 guide and what would be left sort of for incremental Right now it's running about 20 this year, 30 next year. Roughly.

Speaker Change: I think teasing it could be a little higher just remind us how much is into fiscal 'twenty five guide and what would be left sorted for incremental benefit to 'twenty six.

Speaker Change: Right now it's running about 20 this year 30 next year.

Daniel Moore: I'll jump back to the new follow-ups. Thank you.

Speaker Change: Okay, roughly I'll jump back with any follow ups. Thank you.

Colin Rusch: Our next question is from Colin Rusch with Oppenheimer. Thanks so much guys.

Speaker Change: Our next question is from Colin Rusch with Oppenheimer.

Colin Rusch: Thanks, so much guys.

Colin Rusch: You know, with the customer engagement on the battery side, can you talk about the maturity of the testing process? You know, and evaluation from those customers as well as their interest and potential for you guys to aggregate a turnkey line for any of these folks, particularly Again, a couple of questions.

Speaker Change: The customer.

Speaker Change: Customer engagement on the battery side can you talk about the maturity of the testing process.

Speaker Change: You know an evaluation from those customers as well as their interest and potential for you guys to aggregate a turnkey line for any of these folks.

Speaker Change: Really in North America.

Speaker Change: Again, a couple of questions good morning Collyn.

Joseph Bartolacci: Good morning, Colin. I would tell you, as I said in my comments, the vast majority of the volume of that, of those hundred million plus in quotes, is mass production. So these are not, these are people that are well beyond their testing phase, and they're into the development of the specs associated with mass production lines. Unlike our friends that we've done work with over the last several years, who had been working on multiple years, these folks have been working on the testing. They worked on it for multiple years and then put a mass order in.

Speaker Change: I would tell you as I said in my comments.

Speaker Change: Vast majority of the volume of that of.

Speaker Change: Of those 100 million plus in quotes is mass production. So these are not these are people that are well beyond their testing phase and they are into the development of the specs associated with mass production lines. Unlike our friends that we've done work with over the last several years, who had been working on it for multiple years.

These folks have been working on the testing.

Speaker Change: It worked out it for multiple years, and then put a mass order in these folks have been working in the background on our test equipment for quite a while and the machinery that we're talking about right now is what they would call them their mother equipment, which is the primary machine that represents.

Joseph Bartolacci: These folks have been working in the background on our test equipment for quite a while. And the machinery that we're talking about right now is what they would call their mother equipment, which is the primary machine that represents the example of what they expect their production equipment to look like. So the first one to go out with a less finality as to what it's going to be, and then ultimately they'll tweak that machine to what they want in a more significant order thereafter, as they start to see it run.

Speaker Change: For example, what they expect their production equipment to look like so the first one to go out with a little bit less finality as to what it's going to be and then ultimately they'll tweak that machine to what they want in a more significant order thereafter as they start to see it run.

Joseph Bartolacci: You, the other part of your question, Colin, I lost that. It was about turnkey, your ability to offer turnkey solutions. Yeah, so starting here, we expect that by September, we've talked about this before with the street, that we expect to have a machine here September, October-ish, that we will allow some of our customers to come in and to operate on a production level piece of equipment, rather than having to design from scratch what they're looking for. We will have a production level piece of equipment, including material handling on the front end side of it, but right now that is not our proprietary solution.

Speaker Change: Hugh.

Speaker Change: Part of your question Collyn I lost.

Speaker Change: It was about turnkey.

Speaker Change: Your ability to guarantee.

Speaker Change: Offer a turnkey solution.

Speaker Change: Yes, so starting here, we expect that by September we've talked about this before with our with the street that we expect to have a machine here September October ish.

Speaker Change: We will allow some of our customers to come in and to operate on a production level piece of equipment, rather than having the design from scratch what theyre looking for we will have a production level piece of equipment, including material handling on the front end side of it right now that is not our proprietary solution. We've got a couple of partners we're bringing in.

Joseph Bartolacci: We've got a couple of we're bringing in to work with that. So the intent is to allow large battery manufacturers and other OEMs to come in with their materials, run through the process on our equipment at production rates, and see what that looks like, and tweak their final specs to that.

Speaker Change: To work with that so the intent is to allow large battery manufacturers.

Speaker Change: Other Oems to come in with their materials run through the process on our equipment at production rates and see what that looks like and tweak their final specs to that.

Colin Rusch: Super helpful.

Speaker Change: That's super helpful. And then just switching gears to warehouse automation and given what we're seeing in terms of deteriorating labor productivity and warehouses.

Joseph Bartolacci: And then just shifting gears to warehouse automation, given what we're seeing in terms of, you know, deteriorating labor productivity in warehouses, you know, some of the slowdown and overall build out. But then a lot of work being focused on optimizing throughput on these facilities. Can you talk a little bit about your strategy around evolving that part of the business? Obviously, you've got a nice set of customer engagements, but supplementing that with technology from other folks and being able to aggregate more robust solutions seems like an area where you could start accelerating growth. Just want to get a sense of your overall thought process on how much more you need to augment the offering and how you see that opportunity emerging on the next.

Speaker Change: Some of the slowdown in overall build out.

Speaker Change: But then a lot of work being focused on optimizing throughput on these facilities can you talk a little bit about your strategy around evolving in that part of the business, obviously, you've got a nice set of customer engagements, but.

Speaker Change: Supplementing that with technology from other folks and being able to aggregate more robust solutions. It seems like an area, where you could start accelerating growth just want to get a sense of your overall thought process on how much.

Speaker Change: Augment the offering and how you see that opportunity.

Speaker Change: Emerging out of the next several years.

Joseph Bartolacci: Sure. I mean, you heard me on my comments talk about our partnership with Teradyne. Teradyne is the owner of MIR Robotics. MIR is a leading provider of robotics into a lot of industries from autos and other associated. This is an area they do not sell into at all right now. We've got a couple of other partnerships as well. We seem to be quite the bell of the ball. We've been uniquely positioned because we don't have reliance on hardware. So, in other words, we don't sell conveyors and heavy sorters and all the heavy equipment associated with warehouses.

Speaker Change: Sure I mean, you heard me on my comments talked about our partnership with Teradyne Teradyne is the owner of mirror robotics.

Speaker Change: Mir is a leading provider of robotics into a lot of industries from autos and other associated this is an area. They do not sell into at all right now we've got a couple of other partnerships as well.

Speaker Change: We seem to be a quite the bell of the ball we've been uniquely positioned because of our we don't have reliance on hardware. So in other words, we don't sell conveyors and heavy sorters and they all the heavy equipment associated with.

Speaker Change: With with warehouses, so our ability to come in and offer robotic solutions is unique.

Joseph Bartolacci: So, our ability to come in and offer robotics solutions is unique, and our ability to go back to our existing customers and augment their productivity with our partnership with Teradyne is a significant opportunity in our view. We'll continue to expand those relationships. We don't have any great intention of acquiring any kind of robotics associations with this, but there are other small investments we'll make to the portfolio to allow us to be a unique provider in the space. Remember, we sell warehouse execution software. Warehouse execution runs the inside of a warehouse. We're now going to be running the robotics that we've talked about, and now we have a partnership with one of the leaders in the space.

Speaker Change: Our ability to go back to our existing customers and augment their productivity with our partnership with teradyne.

Speaker Change: As a significant opportunity in our view, we will continue to expand those relationships.

Speaker Change: And have any great intention of acquiring any kind of robotics associations with this but there are other small investments we will make to the portfolio to allow us to be a unique provider in this space remember, we sell warehouse execution software warehouse execution runs the inside of a warehouse, we're now going to be running.

Speaker Change: Robotics that we've talked about them now we have a partnership with one of the leaders in this space. So that's where we're going thank.

Joseph Bartolacci: So, that's where we're going.

Justin Bergner: Thank you so much, guys.

Thank you so much guys.

Speaker Change: Okay.

Justin Bergner: Our next question is from Justin Bergner with Cabelli Fund.

Speaker Change: Our next question is from Justin Bergner with Gabelli funds.

Justin Bergner: Good morning, Joe. Alright, thanks guys.

Speaker Change: Good morning, Joe Good morning, Steve.

All right.

Justin Bergner: See you soon. um Lots of moving parts, mostly good.

Speaker Change:

Speaker Change: Lots of moving parts, mostly good.

Steven Nicola: So I had a few questions, just some kind of quick cleanup questions. The cost out, the $50 million cost out, is any of that tied to SGK? No. This is, to be perfectly frank, it is associated with the downsizing of the volumes, associated with the volumes that are energy business in Europe and at corporate.

Speaker Change: So I had a few questions just some kind of quick cleanup questions.

Speaker Change: The cost out the $50 million cost out is any of that tied to S. K.

Speaker Change: No. This is this has to be.

Speaker Change: Perfectly Frank it is associated with the downsizing of the volumes associated with the volumes in our energy business in Europe and at corporate.

Steven Nicola: Okay, gotcha. And then, the SGK accounting post-close, you'll be including their equity income on a one-quarter lag in your EBITDA? 40% of the vote. No, Justin, what we'll do is on a GAAP basis, we'll be including our equity income, our equity portion of their net income in our GAAP net income. It'll be one line item on our income statement. For purposes of the adjusted EBITDA amount, we'll include their actual adjusted EBITDA on a one quarter lag, but also provide a pro forma for that one quarter lag. So we will have, we will be presenting our pro forma full period results, if you will.

Speaker Change: Okay Gotcha.

Speaker Change: Then the S T a K accounting post close you'll be including their equity income on a one quarter lag in your EBITDA.

Speaker Change: 40% of that no.

Speaker Change: No just and what we'll do is on a GAAP basis will be including.

Speaker Change: Our equity income or equity portion of their net income and our GAAP net income it'll be one line item on our income statement for purposes of the adjusted EBITDA amount.

Speaker Change: We'll include their actual adjusted EBITDA on a one quarter lag, but also provide a pro forma for that one quarter lag. So we will have we will be presenting.

Speaker Change: Our pro forma full.

Speaker Change: We'll period results. If you will remember Justin they're integrating onto our systems. We hope this is not a permanent or long long term.

Steven Nicola: Yeah, remember, Justin, they're integrating onto our systems. We hope this is not a permanent, a long, long term situation. But as they migrate onto our systems, it's going to be a little bit choppy from a reporting standpoint.

Speaker Change: Situation, but as they migrate onto our systems, it's going to be a little bit choppy from a reporting standpoint. So it will hopefully several quarters like this and then will be real time.

Steven Nicola: So it'll hopefully several quarters like this, and then we'll be real time. Gotcha, um... That makes sense. So you're going to actually be showing an estimate for the current quarter EBITDA. Proforma. and then the actual gap accounting is a one quarter lag just to make sure that. correct given the changes That's correct.

Speaker Change: Gotcha.

Speaker Change: That makes sense, so you're going to actually be showing an estimate for the current quarter EBITDA in the pro forma.

Speaker Change: And then the actual GAAP accounting as a one quarter lag just to make sure that.

Speaker Change: It's correct given the changes taking place within the joint venture.

Speaker Change: That's correct.

Speaker Change: Okay.

Justin Bergner: Thank you. In terms of the share we're purchasing, your current authorization is fairly modest. Would you then be considering once SGK closes? changing or expanding the share repurchase authorization. You're anticipating what's coming, so yes.

Speaker Change: Thank you.

Speaker Change: In terms of the share repurchase I mean, your current authorization is fairly modest.

Speaker Change: Would you then be considering once S. G K closes.

Speaker Change: Changing our expanding the share repurchase authorization.

Speaker Change: Youre anticipating what's coming so yes.

Justin Bergner: Okay, gotcha.

Speaker Change: Okay, Gotcha, and then more substantive questions. So this retrofit opportunity just can you provide a little bit more color as to how it would work to retrofit.

Justin Bergner: And then more substantive questions. So this retrofit opportunity, just can you provide a little bit more color as to how it would work to retrofit? Sure. So essentially, the process for building a battery is multiple steps. One of the steps is the electrode production itself. The electrode production right now in the wet process utilizes what we've described for a long time, a slurry containment system. You create the slurry, you coat it, you bake it off over a hundred meter oven, and then you wind it and you continue the rest of the process. Our equipment comes in and takes up a fraction of that space and generates far more battery, far more electrode than you can with a wet production cycle right now.

Speaker Change: Well sure.

Speaker Change: Yep.

Speaker Change: Sure so essentially the process for building a battery.

Speaker Change: <unk> has multiple steps one of the steps is the electrode production itself the electrode production right now.

Speaker Change: In the wet process utilizes what we've described for a long time.

Speaker Change: A slurry containment system, we create the slurry coded Hugh you bake it off over a 100 meter oven and then you wind it in.

Speaker Change: Continue the rest of the process.

Speaker Change: Our equipment comes in and takes up a fraction of that space.

Speaker Change: And generates far more battery.

Speaker Change: So far more electrode than you can with the wet production cycle right now so the opportunity is and we've got a cost justified for those.

Joseph Bartolacci: So the opportunity is, and we've got a cost justified for those customers as they're looking at it, we'll deliver that turnkey solution and drop it into your facility.

Speaker Change: Customers as they're looking at it we will deliver that turnkey solution and drop it into your facility you can run it simultaneous with or eliminate all your wet process and all of the solvent handling portions of that business, but nothing else in your factory needs to change.

Joseph Bartolacci: You can run it simultaneous with or eliminate all your wet process and all the solvent handling portions in that business, but nothing else in your factory needs to change. Okay, would you expect a similar size and price tag? This is a mass production. So this is mass production. It's just the elimination of their mass production of wet electrode for our mass production of dry. Okay, so what's different versus... a new A new battery factory, in a retrofit, frankly, I mean, if you, to produce the amount of electrode necessary that, if I had a gigafactor that needed to produce in wet today, the replacement of our equipment on this space could probably triple the amount of electrode being produced in that similar space.

Speaker Change: Okay and would you expect a similar size and price tag as a mass production system or would this be a smaller okay.

Speaker Change: This is a mass production. So this is mass production is just the elimination of their mass production of wet electrode for our mass production of dry.

Speaker Change: Okay, so what's different versus.

Speaker Change: A new battery factory for example.

Speaker Change: New battery.

Speaker Change: In a retrofit frankly, I mean, if you if.

Speaker Change: Produce the amount of electrode necessary.

Speaker Change: I had a giga factory that needed to produce in wet today.

Speaker Change: The replacement of our equipment on this space could probably triple the amount of electro being produced and that's similar space.

Joseph Bartolacci: So that's what changes, essentially, is the efficiencies that are generated by using dry battery electrodes.

Speaker Change: So what what that's what changes essentially is the efficiencies.

Speaker Change: That are generated by using dry battery electrode.

Joseph Bartolacci: Okay, but what would you be supplying that's different in a retrofit situation versus... Oh. Oh, now I understand. Nothing. It's the same equipment we would sell to others, but what we'd have to sell is, that's part of the strategy of developing our own solution, Turnkey, that allows customers to come in. They won't have to go through the process of developing their specs and ultimately testing. Our expectation is once they're able to run at speed, they can order it from our machine directly into their plant.

Speaker Change: Okay, but what would you be supplying that's different than a retrofit situation versus Oh, new factory situations, Oh, now I understand nothing nothing.

Speaker Change: It's the same it's the same equipment, we would sell to others, but what what we'd have to sell is that's part of the strategy of developing or our own solution turnkey that allows customers come in they don't have to but they won't have to go through the process of having to developing their specs and ultimately testing our expectation is.

Speaker Change: Once they are able to run at speed they can order it from our machine directly into their into their plan.

Justin Bergner: Okay, that makes more sense. Yeah, I'm sorry.

Speaker Change: Okay that makes a machine.

Speaker Change: Yes, I'm sorry, it makes sense.

Joseph Bartolacci: And then lastly, the grid storage opportunity, I mean, I understand how that could be attractive, but help me understand, you know, the business case for dry versus wet or whatever you'd be replacing there. versus the business case of the EVE world. It just, it doesn't jump out as much. It's exactly the same. Wet is a much less efficient process. Secondly, when you talk about grid storage, you could be talking about different thicknesses of the actual electrode itself. You can get a thicker electrode using dry electrode than you can with wet. So the chemistries that you use in grid storage are different than EV batteries.

Speaker Change: And then lastly, the grid storage opportunity.

Speaker Change: I understand how that could be attractive, but help me understand you know the business case for dry versus wet or whatever you'd be replacing there versus the business case.

Speaker Change: World It just it doesn't jump out as much.

Speaker Change: It's exactly the same wet.

Speaker Change: <unk> is a much less efficient process secondly, when you talked about grid storage you could be talking about different thicknesses of the actual electrode itself you can get a thicker electrode using dry electrode than you can with wet so.

Speaker Change: The Chemistries that you used in grid storage are different than back then and EV batteries and as a result, what you end up with a better solution that's less expensive for grid storage. The current textbook current technology. So the dynamics of the value propositions are exactly the same.

Joseph Bartolacci: And as a result, what you end up with is a better solution that's less expensive for grid storage than current technology. So the dynamics, the value propositions are exactly the same for EV and grid. The difference is, frankly, the opportunity for EV could probably be larger if the world went EV, but still, it's in addition to what we're doing right now.

Speaker Change: Four for EV and grid. The difference is frankly, the opportunity for EV could probably be larger if the world went E V. But still it's an addition to what we're doing right now so we think it's a market expansion.

Justin Bergner: So we think it's a market expansion. Gotcha.

Operator: All right, thank you for taking all my questions. Sure. Thank you.

Speaker Change: Got you all right. Thank you for taking all my questions.

Speaker Change: Sure.

Speaker Change: Thank you there are no further questions at this time I'd like to hand, the floor back over to Steven Nicola for closing remarks.

Operator: There are no further questions at this time.

Steven Nicola: I'd like to hand the floor back over to Steven Nicola for closing remarks. All right. Thank you, Paul. And we'd like to thank everyone for participating in our call this morning.

Speaker Change: Alright, Thank you Paul and we'd like to thank everyone for participating in our call. This morning.

Steven Nicola: And we look forward to our next call in July following the third quarter fiscal earnings. Have a great day.

Speaker Change: And we look forward to our next call in July following the third quarter fiscal earnings have a great day.

Operator: This concludes today's conference, you may disconnect your lines at this time. Thank you for your participation.

Speaker Change: This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.