MATTHEWS INTERNATIONAL CORP 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued The reconciliation of net income to adjusted EBITDA is as follows: Three Months Ended March 31, Six Months Ended March 31, 2026 2025 2026 2025 (Dollar amounts in thousands) Net (loss) income $ (21,834) $ (8,916) $ 21,795 $ (12,388) Income tax (benefit) provision (6,217) (2,728) 34,572 (5,086) (Loss) income before income taxes (28,051) (11,644) 56,367 (17,474) Propelis depreciation, amortization, interest and other items (1) 18,776 — 33,979 — Interest expense, including RPA and factoring financing fees (2) 10,424 17,010 25,725 33,864 Loss on debt extinguishment 16,343 — 16,343 — Depreciation and amortization * 11,508 18,231 24,204 40,735 Acquisition and divestiture related items (3)** 194 13,701 1,312 14,278 Strategic initiatives and other items (4)**† 6,394 5,373 21,644 5,988 (Gain) loss on divestitures, net 3,945 2,072 (109,264) 2,072 Highly inflationary accounting losses (primarily non-cash) (5) — 520 16 711 Stock-based compensation 5,136 6,018 9,543 10,997 Non-service pension and postretirement expense (6) 75 133 113 266 Total Adjusted EBITDA $ 44,744 $ 51,414 $ 79,982 $ 91,437 (1) Represents the Company's portion of depreciation, intangible amortization, interest expense, and other items incurred by Propelis (see Note 7, "Investments" for further information with respect to the equity-method investment in Propelis). (2) Includes fees for receivables sold under the RPA and factoring arrangements totaling $382,000 and $1.1 million for the three months ended March 31, 2026 and 2025, respectively, and $1.1 million and $2.3 million for the six months ended March 31, 2026 and 2025, respectively. (3) Includes certain non-recurring items associated with recent acquisition and divestiture activities. ( 4) Includes certain non-recurring costs associated with commercial, operational and cost-reduction initiatives, and costs associated with global ERP system integration efforts. Also includes legal costs related to an ongoing dispute with Tesla, which totaled $2.2 million and $1.8 million for the three months ended March 31, 2026 and 2025, respectively, and $11.2 million and $8.6 million for the six months ended March 31, 2026 and 2025, respectively (see Note 18, "Legal Matters" in Item 1 - "Financial Statements and Supplementary Data") . Fiscal 2025 includes costs related to the Company's 2025 contested proxy which totaled $4.5 million for the three months ended March 31, 2025 and $4.9 million for the six months ended March 31, 2025. Fiscal 2025 includes net gains on the sales of certain significant property and other assets of $8.7 million for the six months ended March 31, 2025. Fiscal 2025 also includes loss recoveries totaling $1.2 million for the six months ended March 31, 2025 which were related to a previously disclosed theft of funds by a former employee initially identified in fiscal 2015. (5) Represents exchange losses associated with highly inflationary accounting related to certain Turkish subsidiaries which were recently divested (see Note 2, "Basis of Presentation" in Item 1 - "Financial Statements and Supplementary Data"). (6) Non-service pension and postretirement expense includes interest cost, expected return on plan assets, amortization of actuarial gains and losses, curtailment gains and losses, and settlement gains and losses. These benefit cost components are excluded from adjusted EBITDA since they are primarily influenced by external market conditions that impact investment returns and interest (discount) rates. Curtailment gains and losses and settlement gains and losses are excluded from adjusted EBITDA since they generally result from certain non-recurring events, such as plan amendments to modify future benefits or settlements of plan obligations. The service cost and prior service cost components of pension and postretirement expense are included in the calculation of adjusted EBITDA, since they are considered to be a better reflection of the ongoing service-related costs of providing these benefits. Please note that GAAP pension and postretirement expense or the adjustment above are not necessarily indicative of the current or future cash flow requirements related to these employee benefit plans. * Depreciation and amortization was $8.0 million and $7.2 million for the Memorialization segment, $3.0 million and $5.6 million for the Industrial Technologies segment, and $501,000 and $699,000 for Corporate and Non-Operating, for the three months ended March 31, 2026 and 2025, respectively. Depreciation and amortization was $16.2 million and $14.4 million for the Memorialization segment, $6.4 million and $11.3 million for the Industrial Technologies segment, $609,000 and $13.6 million for the Brand Solutions segment, and $1.0 million and $1.5 million for Corporate and Non-Operating, for the six months ended March 31, 2026 and 2025, respectively. Depreciation and amortization was $4.7 million for the Brand Solutions segment for the three months ended March 31, 2025. ** Acquisition costs, ERP system integration costs, and strategic initiatives and other charges were $380,000 and $2.4 million for the Memorialization segment, $2.7 million and $192,000 for the Industrial Technologies segment, income of $91,000 and charges of $416,000 for the Brand Solutions segment, and $3.6 million and $16.1 million for Corporate and Non-Operating, for the three months ended March 31, 2026 and 2025, respectively. Acquisition costs, ERP system integration costs, and strategic initiatives and other charges were $449,000 and $3.7 million for the Memorialization segment, $13.1 million and $4.3 million for the Industrial Technologies segment, $3.4 million and $1.1 million for the Brand Solutions segment, and $6.0 million and $11.1 million for Corporate and Non-Operating, for the six months ended March 31, 2026 and 2025, respectively. † Strategic initiatives and other items includes charges for exit and disposal activities (including severance and other employee termination benefits) totaling expenses of $782,000 and income of $2.5 million for the three months ended March 31, 2026 and 2025, respectively, and expenses of $2.3 million and income of $1.3 million for the six months ended March 31, 2026 and 2025, respectively. Refer to Note 10, "Restructuring" in Item 1 - "Financial Statements and Supplementary Data" for further details. 35 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued LIQUIDITY AND CAPITAL RESOURCES: Net cash used in operating activities was $67.4 million for the first six months of fiscal 2026, compared to $18.7 million for the first six months of fiscal 2025. Operating cash flow for both periods principally included net income (loss) adjusted for deferred taxes, depreciation and amortization, stock-based compensation expense, net gains (losses) on divestitures and sales of assets, and other non-cash adjustments, and changes in working capital items. Net changes in working capital items decreased operating cash flow by $38.0 million and $43.4 million in fiscal 2026 and fiscal 2025, respectively. The fiscal 2026 change in working capital principally reflected incentive compensation-related payments, a settlement payment related to a contractual licensing matter (see Legal Matters above), changes in contract assets and liabilities related to revenue recognized using the over time method, increased accrued income taxes primarily related to the warehouse automation divestiture (see Acquisitions and Divestitures below), and changes in other accounts. Cash provided by investing activities was $239.7 million for the six months ended March 31, 2026, compared to cash used in investing activities of $3.9 million for the six months ended March 31, 2025. Investing activities for the first six months of fiscal 2026 primarily reflected capital expenditures of $9.3 million, acquisitions, net of cash acquired, of $524,000, proceeds from sale of assets of $3.5 million, proceeds from sale of investments of $3.0 million, and proceeds from divestitures (net of divested cash) of $243.4 million. Investing activities for the first six months of fiscal 2025 primarily reflected capital expenditures of $18.3 million, acquisitions, net of cash acquired, of $2.2 million, proceeds from sale of assets of $14.6 million, and proceeds from divestiture of $2.0 million. Capital expenditures reflected reinvestment in the Company's business segments and were made primarily for the purchase of new production machinery, equipment, software and systems, and facilities designed to improve product quality, increase manufacturing efficiency and capacity, lower production costs and meet regulatory requirements. Capital expenditures for the last three fiscal years were primarily financed through operating cash. Capital spending for property, plant and equipment has averaged $43.9 million for the last three fiscal years. Capital spending for fiscal 2026 is currently estimated to be in the range of approximately $20 million to $30 million . The Company expects to generate sufficient cash from operations to fund all anticipated capital spending projects. Cash used in financing activities for the six months ended March 31, 2026 was $168.4 million, primarily reflecting repayments, net of proceeds, on long-term debt of $130.4 million, treasury stock purchases of $5.7 million, dividends of $17.5 million, payment of debt redemption premium of $12.9 million, and payment of debt issuance costs of $1.6 million. Cash provided by financing activities for the six months ended March 31, 2025 was $33.6 million, primarily reflecting proceeds, net of repayments, on long-term debt of $50.2 million, treasury stock purchases of $4.4 million, dividends of $17.0 million, proceeds from net investment hedge of $15.0 million, and $10.2 million of holdback and deferred purchase price payments related to acquisitions from prior years. The Company has a domestic credit facility with a syndicate of financial institutions that was amended and restated in February 2026 and includes a $700.0 million secured revolving credit facility and a $150.0 million secured amortizing term loan. The term loan requires scheduled principal payments of $7.5 million per year, payable in quarterly installments. The balance of the revolving credit facility and the term loan are due on the maturity date of January 31, 2029, subject to the terms and conditions of the amended and restated facility. The obligations under the domestic credit facility are secured by a first priority lien on substantially all of the assets of the Company and certain of its domestic subsidiaries. A portion of the revolving credit facility (not to exceed $350.0 million) can be drawn in foreign currencies. Borrowings under both the revolving credit facility and the term loan bear interest at the Secured Overnight Financing Rate ("SOFR"), plus a 0.10% per annum rate spread adjustment, plus a factor ranging from 1.00% to 2.00% (1.50% at March 31, 2026) based on the Company's leverage ratio. The leverage ratio is defined as total indebtedness divided by EBITDA (earnings before interest, income taxes, depreciation and amortization) as defined within the domestic credit facility agreement. The Company is required to pay an annual commitment fee ranging from 0.15% to 0.30% (based on the Company's leverage ratio) of the unused portion of the revolving credit facility. The Company incurred debt issuance costs of $1.6 million in connection with the amended and restated agreement, which were deferred and are being amortized over the term of the facility. Unamortized costs were $4.6 million and $3.9 million at March 31, 2026 and September 30, 2025, respectively. The domestic credit facility requires the Company to maintain certain leverage and interest coverage ratios. A portion of the facility (not to exceed $55.0 million) is available for the issuance of trade and standby letters of credit. Outstanding U.S. dollar denominated borrowings on the revolving credit facility at March 31, 2026 and September 30, 2025 were $404.8 million and $384.2 million, respectively. Outstanding borrowings on the term loan at March 31, 2026 were $148.8 million. The weighted-average interest rate on outstanding borrowings for the domestic credit facility (including the effects of interest rate swaps) at March 31, 2026 and 2025 was 4.18% and 4.29%, respectively. 36 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued The Company previously had $300.0 million aggregate principal amount of 8.625% senior secured second lien notes due October 1, 2027 (the "2027 Senior Secured Notes"). The 2027 Senior Secured Notes bore interest at a rate of 8.625% per annum with interest payable semi-annually in arrears on April 1 and October 1 of each year. The Company's obligations under the 2027 Senior Secured Notes were secured by a second priority lien on substantially all of the assets of the Company and certain of its domestic subsidiaries. The Company was subject to certain covenants and other restrictions including cross default provisions in connection with the 2027 Senior Secured Notes. The Company incurred direct financing fees and costs in connection with 2027 Senior Secured Notes. Unamortized costs related to the Company’s notes were $3.9 million at September 30, 2025. In January 2026, the Company redeemed all of the outstanding 2027 Senior Secured Notes for a redemption price of 104.313% of the outstanding principal amount of the 2027 Senior Secured Notes, plus accrued and unpaid interest on such notes as of the redemption date. The total amount paid to redeem the 2027 Senior Secured Notes was $320.9 million, which was primarily funded using proceeds from recent divestitures, and additional borrowings under the Company’s domestic credit facility. In connection with this redemption, the Company recognized debt extinguishment charges of $16.3 million during the second quarter of fiscal 2026, which included the write-off of the remaining unamortized direct financing costs of $3.4 million. The Company and certain of its domestic subsidiaries sell, on a continuous basis without recourse, their trade receivables to Matthews Receivables Funding Corporation, LLC (“Matthews RFC”), a wholly-owned bankruptcy-remote subsidiary of the Company. Matthews RFC has a receivables purchase agreement (“RPA”) to sell up to $75.0 million of receivables to certain purchasers (the “Purchasers”) on a recurring basis in exchange for cash (referred to as “capital” within the RPA) equal to the gross receivables transferred. The parties intend that the transfers of receivables to the Purchasers constitute purchases and sales of receivables. Matthews RFC has guaranteed to each Purchaser the prompt payment of sold receivables, and has granted a security interest in its assets for the benefit of the Purchasers. Under the RPA, each Purchaser’s share of capital accrues yield at a floating rate plus an applicable margin. The Company is the master servicer under the RPA, and is responsible for administering and collecting receivables. The RPA matures in April 2027. The proceeds of the RPA are classified as operating activities in the Company’s Consolidated Statements of Cash Flows. Cash received from collections of sold receivables may be used to fund additional purchases of receivables on a revolving basis, or to reduce all or any portion of the outstanding capital of the Purchasers. The fair value of the sold receivables approximated book value due to their credit quality and short-term nature, and as a result, no gain or loss on sale of receivables was recorded. As of March 31, 2026 and September 30, 2025, the amount sold to the Purchasers was $55.8 million and $65.6 million, respectively, which was derecognized from the Consolidated Balance Sheets. As collateral against sold receivables, Matthews RFC maintains a certain level of unsold receivables, which was $66.3 million and $63.7 million as of March 31, 2026 and September 30, 2025, respectively. The following table sets forth a summary of receivables sold as part of the RPA: Six Months Ended March 31, 2026 Six Months Ended March 31, 2025 (Dollar amounts in thousands) Gross receivables sold $ 79,656 $ 167,708 Cash collections reinvested (89,456) (164,908) Net cash (reinvested) received $ (9,800) $ 2,800 The Company, through a former U.K. subsidiary, previously participated in a non-recourse factoring arrangement. In connection with this arrangement, the Company periodically sold trade receivables to a third-party purchaser in exchange for cash. These transfers of financial assets were recorded at the time the Company surrendered control of the assets. As these transfers qualified as true sales under the applicable accounting guidance, the receivables were de-recognized from the Company's Consolidated Balance Sheets upon transfer. As a result of the sale of the Company's interest in the SGK Business, this arrangement no longer exists for the Company at March 31, 2026. The principal amount of receivables sold under this arrangement was $38.8 million during the six months ended March 31, 2025. The discounts on the trade receivables sold are included within administrative expense in the Consolidated Statements of Income. The proceeds from the sale of receivables are classified as operating activities in the Company's Consolidated Statements of Cash Flows. See Note 16, "Acquisitions and Divestitures" in Item 1 - "Financial Statements and Supplementary Data" for further information with respect to the sale of the Company's interest in the SGK Business. 37 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued The Company facilitates a voluntary supply chain finance program (the "Program") to provide certain suppliers with the opportunity to sell receivables due from the Company to participating financial institutions at the sole discretion of both the suppliers and the financial institutions. The amounts owed to a participating financial institution under the Program and included in trade accounts payable were $4.6 million and $6.1 million at March 31, 2026 and September 30, 2025, respectively. The Company, through certain of its European subsidiaries, has a credit facility with a European bank, which is guaranteed by Matthews. The maximum amount of borrowing available under this facility is €6.0 million ($6.9 million). The facility also provides €14.0 million ($16.1 million) for bank guarantees. This facility has no stated maturity date and is available until terminated. Outstanding borrowings under the credit facility totaled €659,000 ($774,000) at September 30, 2025. There were no outstanding borrowings under the credit facility at March 31, 2026. The weighted-average interest rate on outstanding borrowings under this facility was 4.60% at March 31, 2025. Other borrowings totaled $6.4 million and $7.2 million at March 31, 2026 and September 30, 2025, respectively. The weighted-average interest rate on these borrowings was 1.90% and 2.16% at March 31, 2026 and 2025, respectively. The Company operates internationally and utilizes certain derivative financial instruments to manage its foreign currency, debt and interest rate exposures. The following table presents information related to interest rate swaps entered into by the Company and designated as cash flow hedges: March 31, 2026 September 30, 2025 (Dollar amounts in thousands) Notional amount $ 300,000 $ 225,000 Weighted-average maturity period (years) 1.9 2.7 Weighted-average received rate 3.66 % 4.13 % Weighted-average pay rate 3.76 % 3.80 % The Company enters into interest rate swaps in order to achieve a mix of fixed and variable rate debt that it deems appropriate. The interest rate swaps have been designated as cash flow hedges of future variable interest payments, which are considered probable of occurring. Based on the Company's assessment, all of the critical terms of each of the hedges matched the underlying terms of the hedged debt and related forecasted interest payments, and as such, these hedges were considered highly effective. The fair value of the interest rate swaps reflected a net unrealized loss of $820,000 ($621,000 after tax) and $2.3 million ($1.8 million after tax) at March 31, 2026 and September 30, 2025, respectively, that is included in shareholders' equity as part of accumulated other comprehensive income (loss) ("AOCI"). Unrecognized gains of $1.0 million ($757,000 after tax) and $1.6 million ($1.2 million after tax) related to previously terminated London Interbank Offered Rate ("LIBOR") based swaps were also included in AOCI as of March 31, 2026 and September 30, 2025, respectively. Assuming market rates remain constant with the rates at March 31, 2026, a gain (net of tax) of approximately $392,000 included in AOCI is expected to be recognized in earnings over the next twelve months. The Company utilizes certain cross currency swaps as net investment hedges of foreign operations and assesses effectiveness for these contracts based on changes in fair value attributable to changes in spot prices. The following table presents information related to cross currency swaps entered into by the Company and designated as net investment hedges: Notional Amount Unrealized Losses Recognized in AOCI Swap Currencies Maturity Date March 31, 2026 September 30, 2025 March 31, 2026 September 30, 2025 (Dollar amounts in thousands) USD/EUR September 2027 $ 81,392 $ 81,392 $ (7,929) $ (9,443) USD/SEK June 2026 20,000 20,000 (1,730) (2,571) USD/EUR August 2026 25,000 25,000 (424) (1,689) $ 126,392 $ 126,392 $ (10,083) (1) $ (13,703) (1) (1) Total unrealized gains (losses) are presented net of tax of $3,376 and $4,652 as of March 31, 2026 and September 30, 2025, respectively. 38 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued In connection with certain of these cross currency swaps, the Company received cash from the counterparties, representing partial advance payments of amounts due under the U.S. dollar leg of the swaps. Outstanding advance payment amounts totaled $40.2 million at both March 31, 2026 and September 30, 2025, all of which were included in other current liabilities on the Consolidated Balance Sheet. The Company has a stock repurchase program, which is designed to increase shareholder value, enlarge the Company's holdings of its Class A Common Stock, and add to earnings per share. Repurchased shares may be retained in treasury, utilized for acquisitions, or reissued to employees or other purchasers, subject to the restrictions set forth in the Company's Restated Articles of Incorporation. On November 21, 2025, the Company announced that its Board of Directors approved the continuation of the stock repurchase program and increased the authorization for stock repurchases by an additional 5,000,000 shares during fiscal year 2025. Under the current authorization, 4,814,491 shares remained available for repurchase as of March 31, 2026. Refer to Item 2 - "Unregistered Sales of Equity Securities and Use of Proceeds" in Part II - "Other Information" for further details on the Company's repurchases in fiscal 2026. On March 11, 2025, in connection with the filing of an automatic shelf registration statement on Form S-3 pursuant to which the Company re-registered 3,000,000 shares of Class A Common Stock, the Company entered into an Equity Distribution Agreement for an At-The-Market equity offering program ("ATM Program") pursuant to which the Company may issue and sell, from time to time, up to 1,250,000 shares of its Class A Common Stock under the shelf registration. For the six months ended March 31, 2026, the Company did not sell any shares of its Class A Common Stock under its ATM Program. As of September 30, 2025, the Company had 1,250,000 shares remaining for sale under the ATM Program. The Company has no near-term intention to utilize the ATM Program. Consolidated working capital of the Company was $186.4 million at March 31, 2026, compared to $169.7 million at September 30, 2025. Cash and cash equivalents were $36.1 million at March 31, 2026, compared to $32.4 million at September 30, 2025. The Company's current ratio was 1.6 at March 31, 2026 and 1.5 at September 30, 2025, respectively. As of March 31, 2026 and September 30, 2025, the Company had net contract assets for projects recognized using the over time method totaling $98.5 million and $99.7 million, respectively, which primarily represent unbilled revenues, net of deferred revenues related to customer deposits and progress billings. Net contract assets at March 31, 2026 and September 30, 2025 predominantly related to ongoing projects with Tesla. Unbilled revenues are generally expected to be invoiced upon the attainment of certain contractual conditions and milestones. The Company continues to perform according to the general terms and conditions of its contractual arrangements with Tesla. Customer delays within the energy storage business have impacted the timing of projects, and consequently, have resulted in invoicing delays for this business. Long-Term Contractual Obligations: The following table summarizes the Company's contractual obligations at March 31, 2026, and the effect such obligations are expected to have on its liquidity and cash flows in future periods. Payments due in fiscal year: Total 2026 Remainder 2027 to 2028 2029 to 2030 After 2030 Contractual Cash Obligations: (Dollar amounts in thousands) Revolving credit facilities $ 404,750 $ — $ — $ 404,750 $ — Secured term loan 150,000 1,875 15,000 133,125 — Finance lease obligations (1) 20,812 4,319 12,758 3,677 58 Non-cancelable operating leases (1) 60,906 10,691 30,037 17,455 2,723 Cross-currency swaps 53,645 43,061 10,584 — — Other (2) 12,082 1,810 4,893 — 5,379 Total contractual cash obligations $ 702,195 $ 61,756 $ 73,272 $ 559,007 $ 8,160 (1) Lease obligations have not been discounted to their present value. (2) Includes $810 of severance and other employee termination benefit obligations, as well as $4,836 of deferred purchase price and contingent consideration obligations related to acquisitions completed in prior years. Unrecognized tax benefits are positions taken, or expected to be taken, on an income tax return that may result in additional payments to tax authorities. If a tax authority agrees with the tax position taken, or expected to be taken, or the applicable statute of limitations expires, then additional payments will not be necessary. As of March 31, 2026, the Company had unrecognized tax benefits, excluding penalties and interest, of approximately $2.9 million. The timing of potential future 39 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued payments related to the unrecognized tax benefits is not presently determinable. The Company believes that its current liquidity sources, combined with its operating cash flow and borrowing capacity, will be sufficient to meet its capital needs for the foreseeable future. REGULATORY MATTERS: The Company’s operations are subject to various federal, state and local laws and regulations requiring strict compliance, including, but not limited to, the protection of the environment. The Company has established numerous internal compliance programs to further enhance measures meant to ensure lawful satisfaction of the applicable regulations. In addition, the Company is party to specific environmental matters which include obligations to investigate and mitigate the effects on the environment of certain materials at operating and non-operating sites. The Company is currently performing environmental assessments and remediation at certain sites, as applicable. ACQUISITIONS AND DIVESTITURES: Refer to Note 16, "Acquisitions and Divestitures" in Item 1 - "Financial Statements" for further details on the Company's acquisitions and divestitures. FORWARD-LOOKING INFORMATION: Management routinely develops and reviews with the Company’s Board of Directors strategic plans with the primary objective of continuous improvement in the Company’s consolidated sales and operating results, with a view towards enterprise-level strategic transactions. Strategic plans are developed at the business segment level and generally contain strategies for organic growth and acquisitions. Organic growth primarily reflects the Company’s internal efforts to grow its businesses including commercial activities, cost structure and productivity improvements, new product development, and the expansion into new markets with existing products. Growth through acquisitions reflects the benefits from acquired businesses and also includes related integration activities to achieve commercial and cost synergy benefits. The significant factors influencing organic sales growth in the Industrial Technologies segment include economic/industrial market conditions, new product development, and the energy storage market trends. Sales within this segment are influenced by the timing of work with the Company's largest energy storage customer, which may be impacted by continuing disputes with such customer, as well as the level of advancement by existing and potential new customers towards adopting new production solutions. For the Memorialization segment, the Company expects that sales growth will be influenced by North America death rates and the impact of the increasing trend toward cremation on the segment's product offerings, including caskets, cemetery memorial products and cremation-related products. On May 1, 2025, the Company contributed its SGK Business to a newly-formed entity, Propelis, in exchange for a 40% ownership interest in Propelis and other consideration. Following the completion of this transaction, the SGK Business has been deconsolidated from the financial statements and is now accounted for as part of the Company's equity-method investment in Propelis. See Notes 7, "Investments" and 16, "Acquisitions and Divestitures" in Item 8 - "Financial Statements and Supplementary Data" for further information. The underlying business performance for the Company's investment in Propelis will be influenced by global economic conditions, brand innovation, the level of marketing spending by the investee's clients, government regulation, currency fluctuations, and the ability of the investee to effectively integrate and achieve anticipated synergy benefits from the joint venture. The Matthews Board of Directors has launched a comprehensive review of strategic alternatives for the Company’s entire portfolio of businesses, which was publicly announced in November 2024. The Board is dedicated to driving long-term value creation, and the strategic alternatives review process is a reflection of that commitment. In addition to the divestiture of the Company’s interest in the SGK Business, the Company also recently completed the divestitures of its warehouse automation and European roto-gravure packaging and tooling and flexographic print businesses during the first quarter of fiscal 2026. The Company's strategic alternatives review to enhance shareholder value creation remains ongoing. The Company also initiated cost reduction programs during the fourth quarter of fiscal 2024, which were primarily focused on the Company's engineering and tooling operations in Europe, as well as the Company's general and administrative functions. The Company is reviewing further cost reduction actions for fiscal 2026. 40 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued CRITICAL ACCOUNTING ESTIMATES AND POLICIES: The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Therefore, the determination of estimates requires the exercise of judgment based on various assumptions and other factors such as historical experience, economic conditions, and in some cases, actuarial techniques. Actual results may differ from those estimates. A discussion of market risks affecting the Company can be found in Item 7A - "Quantitative and Qualitative Disclosures about Market Risk" in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2025. A summary of the Company's significant accounting policies are included in the Notes to Consolidated Financial Statements and in the critical accounting policies in Management's Discussion and Analysis included in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2025. Management believes that the application of these policies on a consistent basis enables the Company to provide useful and reliable financial information about the Company's operating results and financial condition. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS: Refer to Note 2, "Basis of Presentation" in Item 1 - "Financial Statements," for further details on recently issued accounting pronouncements. Item 3. Quantitative and Qualitative Disclosures About Market Risk There have been no material changes in the Company’s market risk during the three and six months ended March 31, 2026. For additional information, see Item 7A - "Quantitative and Qualitative Disclosures About Market Risk" in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2025.