Matthews International Corporation (NASDAQ:MATW) Q2 2025 Earnings Call Transcript

Matthews International Corporation (NASDAQ:MATW) Q2 2025 Earnings Call Transcript May 1, 2025

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. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Steven Nicola, Chief Financial Officer. Please go ahead.

Steven Nicola: All right. Good morning. Thank you, Paul. I’m Steve 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 Investors section last night. The presentation for our call can also be accessed in the Investors section of the website under Presentations. Any forward-looking statements in connection with this discussion are being made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Factors that could cause the company’s results to differ from those discussed today are set forth in the company’s annual report on Form 10-K and other periodic filings with the SEC.

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

Joe Bartolacci: Thank you, Steve. Good morning. 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 on 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.

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 end market solutions comprised of a mix of our proprietary calendaring equipment and primer coating machines used in the electrode production process. In the pipeline, mass production lines represent the bulk of the total and interest from the equipment — 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 continue 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. This retrofit, we believe, can open up material opportunities beyond the markets only for new gigafactories. 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 call, we will receive $350 million in consideration upfront, 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. 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 Solutions 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. 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. 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. 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 ’24. Adjusted EBITDA for the second quarter of ’25 was higher than anticipated and primarily reflected the benefits gained from our recent cost reduction efforts. Adjusted EBITDA was $51 million — $51.4 million in the second quarter of 2025 compared to $56.8 million in the 2024 corresponding period. 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’ complementary assets and anticipated synergies.

Integrating some of these businesses such as the respective Flexo platforms will enable the new entity to take full advantage of scale and grow. 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. 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 are 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. 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. 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 granite businesses. The primary driver of the lower revenue was the decline in casketed 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 SGK transaction to our revolver. Additionally, given the current levels where our shares are trading, we believe it makes sense to utilize a proportion 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. Regarding tariffs, we believe that we have put actions in place to mitigate the impact of tariffs as they currently are contemplated. New sourcing and pricing in areas of the business with 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 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 a turn. Additionally, our cost reduction initiative is ongoing and on track to generate cost savings in excess of our initial projection of $50 million.

With regard to SGK, as I’ve stated, we expect the transaction to close soon. Therefore, assuming five months of our proportional ownership of SGK and SGS, 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. Finally, regarding our strategic initiatives that 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. 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. Now, I’ll turn it over to Steve to deliver the financials for the quarter’s results.

Steven Nicola: Thank you, Joe. For the financial review, let’s begin with Slide 7. 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. 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 impact 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. 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 year ago primarily due to lower unit volumes. Estimated U.S. casketed 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. The decrease primarily reflected declines in the Industrial Technologies and Memorialization segments. Adjusted EBITDA for the SGK Brand Solutions 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. 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.

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 the 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. Please move to Slide 9. 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 Solutions 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 Olbrich 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. Adjusted EBITDA for the Industrial Technologies 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.

Please move to Slide 10. Sales for the SGK Brand Solutions 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 markets. 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 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 and the segment’s recent cost reduction actions, offset partially by the impacts of higher labor related costs.

Please move to Slide 10. 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. 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. 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 repurchases. 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.

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 Solutions 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. 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 standalone 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 pro forma results during this period. Finally, the Board declared yesterday a quarterly dividend of $0.25 per share on the company’s common stock. The dividend is payable May 26, 2025 to stockholders of record May 12, 2025. This concludes the financial review, and we will now open the call for questions. Paul?

Q&A Session

Operator: Thank you. We’ll now be conducting a question-and-answer session. [Operator Instructions] 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? 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 by geography and end market, where you’re seeing customers come back to you?

Joe Bartolacci: A lot of questions in there, Dan. Good morning. So let me kind of parse through and if I missed something, let me please re-ask. 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. 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. There was — I mean, there was no time other than when we were dealing with Tesla where we have in quotes of that significance. So this is all a super very good news for us and frankly, shows what we think is the interest in our solution. Secondly, where is it coming from? We’re not giving names, it — but you can pick the geographies.

It’s South Korea, it’s — which is a large part of it. I mean, the battery operators in that part of the world are extremely interested in this solution. 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.

So we’re only scratching the surface of where this opportunity can go.

Daniel Moore: All right. That does cover a lot of those. Thank you. Memorializations, just maybe talk about the cadence of year-over-year, the declines over the past couple of months and what are your expectations for organic growth overall for the segment fiscal Q3 and the balance of the year?

Steven Nicola: 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 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.

Joe Bartolacci: 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.

Daniel Moore: Okay. One more and I’ll jump back in queue. Just remind me, Steve, the cost reduction actions, $50 million and I think teasing could be a little higher. Just remind us how much is in the fiscal ’25 guide and what would be left sort of for incremental benefit to ’26?

Steven Nicola: Right now, it’s running about $20 million this year, $30 million next year.

Daniel Moore: Okay.

Steven Nicola: Roughly.

Daniel Moore: I’ll jump back for any follow-ups. Thank you.

Operator: Our next question is from Colin Rusch with Oppenheimer.

Colin Rusch: Thanks so much, guys. With the customer engagement on the battery side, can you talk about the maturity of the testing process 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 in North America?

Joe Bartolacci: Again, a couple of questions. Good morning, Colin. I would tell you, as I said in my comments, the vast majority of the volume of that — 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’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 it for multiple years, these folks have been working on the testing — they worked on 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 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 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. Will you — your other part of your question, Colin? I lost that.

Colin Rusch: What about turnkey, your ability to offer turnkey solutions.

Joe Bartolacci: Yeah. So starting here, we expect it 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 that right now that is not our proprietary solution. We’ve got a couple of partners 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.

Colin Rusch: That’s super helpful. And then just shifting gears to warehouse automation, given what we’re seeing in terms of deteriorating labor productivity in warehouses, some of the slowdown in 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 augment the offering and how you see that opportunity emerging over the next several years?

Joe 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 associates. 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 belle of the ball. We’ve been uniquely positioned because of our — we don’t have a reliance on hardware. So in other words, we don’t sell conveyors and heavy sorters and all the heavy equipment associated with warehouses. So our ability to come in and offer robotic 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 will 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. So that’s where we’re going.

Colin Rusch: Thank you so much, guys.

Operator: Our next question is from Justin Bergner with Gabelli Funds.

Justin Bergner: Good morning, Joe. Good morning, Steve.

Joe Bartolacci: Hi, Justin.

Justin Bergner: Lots of moving parts, mostly good. 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?

Joe Bartolacci: No. This is — to be perfectly frank, it is associated with the downsizing of the volumes — associated with the volumes in our energy business in Europe and at corporate.

Justin Bergner: Okay. Got you. And then the SGK accounting post close, you’ll be including their equity income on a one quarter lag in your EBITDA or 40%, I don’t know.

Steven Nicola: No, Justin. What we’ll do is on a GAAP basis, we’ll be including their — our equity income, our equity portion of their net income in our GAAP net income. It will 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.

Joe Bartolacci: Remember, Justin, they’re integrating onto our systems. We hope this is not a permanent or long, long term 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 we’ll be real time.

Justin Bergner: Got you. That makes sense. So you’re going to actually be showing an estimate for the current quarter EBITDA in the pro forma and then the actual GAAP accounting is a one quarter lag just to make sure that it’s correct given the changes taking place within the joint venture?

Joe Bartolacci: That’s correct.

Justin Bergner: Okay. Thank you. In terms of the share repurchase, I mean, your current authorization is fairly modest. Would you then be considering once SGK closes changing or expanding the share repurchase authorization?

Joe Bartolacci: You’re anticipating what’s coming. So, yes.

Justin Bergner: Okay. Got you. 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 wet. (ph)

Joe Bartolacci: 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 100 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, a far more electrode than you can with a wet production cycle right now. 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. 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.

Justin Bergner: Okay. And would you expect a similar size and price tag as a mass production system or would this be a smaller version?

Joe Bartolacci: Okay. 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.

Justin Bergner: Okay. So what’s different versus a new battery factory, for example.

Joe Bartolacci: New battery — In a retrofit, frankly, I mean if you — to produce the amount of electrode necessary that — if I had a gigafactory 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. So what that’s what changes essentially is the efficiencies that are generated by using dry battery electrode.

Justin Bergner: Okay. But what would you be supplying that’s different in a retrofit situation versus new factory situation.

Joe Bartolacci: Now I understand. Nothing. It’s the same — it’s the same equipment we would sell to others, but what we’d have to sell is what — that’s part of the strategy of developing our own solution turnkey that allows customers to come in. They don’t have — they won’t have to go through the process of having to 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…

Justin Bergner: Okay. That makes…

Joe Bartolacci: It’s the same machine here. Yeah, I’m sorry.

Justin Bergner: It makes sense. And then lastly, the grid storage opportunity, I mean, I understand how that could be attractive, but help me understand the business case for dry versus wet or whatever you’d be replacing there versus the business case in the EV world. It just — it doesn’t jump out as much.

Joe Bartolacci: 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 that — than EV batteries. And as a result, what you end up with is the better solution that’s less expensive for grid storage than current tech — 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 an addition to what we’re doing right now. So we think it’s a market expansion.

Justin Bergner: Got you. All right. Thank you for taking all my questions.

Joe Bartolacci: Sure.

Operator: 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.

Steven Nicola: All right. Thank you, Paul, and we’d like to thank everyone for participating in our call this morning 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.