Mativ Holdings, Inc.

Welcome to Mative's third quarter earnings conference call. Hosting the call today from Mative is Julie Chertel, Chief Executive Officer. She is joined by Andrew Wamser, Chief Financial Officer, and Mark Checkernell, Director of Investor Relations. Today's call is being recorded and will be available for replay later this afternoon. At this time, all participants have been placed in a listen-only mode, and the floor will be open for your questions following the presentation. If you would like to ask a question at that time, please dial star 1 on your touchtone phone. If at any point your question has been answered, you may remove yourself from the queue by pressing star two. If you should require operator assistance, please press star zero. We ask that you please pick up your handset to allow optimal sound quality. It is now my pleasure to turn the floor over to Mr. Chekhanow, so you may begin.

Thank you. Good morning. I'm Mark Chekhanow, Director of Investor Relations at Madoff. Thank you for joining us to discuss our third quarter 2022 earnings results. Before we begin, I'd like to remind you that the comments included in today's conference call include forward-looking statements. Actual results may differ materially from the results suggested by these comments for a number of reasons, which are discussed in more detail in our Securities and Exchange Commission filings, including our annual report on Form 10-K and our quarterly reports on Form 10-Q. Some financial measures discussed during this call are non-GAAP financial measures, Reconciliations of these measures to the closest gap measures are included in the appendix of this presentation and the earnings release. Unless stated otherwise, financial and operational metric comparisons are to the prior year period and relate to continuing operations. The earnings release is available on our website at ir.madiv.com, as are the slides for today's presentation. You can download the slides and or click through these slides at your own pace during the call using the webcast interface. To clarify some aspects of how MADD results were reported and how we will be discussing them, we would first remind everyone that the SWM and NENA merger closed on July 6, 2022. Thus, the third quarter is our first quarter presenting combined results. Given the accounting treatment of the transaction, the SWM legal entity was the acquirer, and thus the financial results for periods prior to the third quarter of 2022 represent only those of legacy SWM. As a result, Year-over-year comparisons reflect the addition of the NENA operations and typically resulted in large reported year-over-year increases in sales and profits. On today's call, though, we will provide some comments referring to comparable performance to illustrate how our results compare to prior year periods on a like-for-like basis, such as organic growth trends and margins. These figures are shown in tables in our earnings release and the appendix of this presentation. As previously disclosed, MATF reports results in two reporting segments, Advanced Technical Materials, or ATM, and Fiber-Based Solutions, or FBS. ATM is essentially comprised of the legacy SWM Advanced Materials and Structures segment and the legacy NENA Technical Products segment, while FBS is essentially comprised of the legacy SWM Engineered Papers segment and the legacy NENA Fine Papers and Packaging segment. Please follow up with us for any further needed clarifications, as we want to make sure you understand our business trends, financial results, and reporting processes. With that, I'll turn the call over to Julie.

Thanks, Mark. Good morning, everyone, and thank you for joining today's call. We have several very positive performance trends to highlight during the quarter as it relates to organic sales growth, profit growth of the comparable businesses, overall price versus cost dynamics, and synergies. I'm pleased with our year-over-year performance in revenue and EBITDA. There are also some headwinds at play, both macro and within our operations, that will cause our profitability to be less than what we originally expected during the back half of this year. Some of these issues are macro in nature, some we can counter with offsetting actions, and some are just temporary and will pass as we enter 2023. Before we dive into each of the positive drivers and the challenges, I want to reiterate our management teams and the board's confidence in the fundamentals of our business. The value creation of the strategic combination, including our cost synergy plan and our long-term outlook for accelerated growth together, all of which remain fully intact despite a turbulent operating environment for global manufacturers. Let me hit some of the third quarter highlights, which reflect the combined businesses compared to last year's quarter. First, organic constant currency sales growth was 12%, led by filtration, protective solutions, release liners, and packaging. Second, adjusted operating profits were up nearly 25% on a comparable basis, which we view as a very strong result. and indicative of significantly improved fundamentals compared to last year, especially with respect to improved price cost recovery. Price versus input cost was favorable by about $23 million in the quarter. To date, we have been successful with aggressive price actions, and as inflationary pressures persist, we are executing on further actions. And third, our $65 million cost synergy plan is well underway, and we expect to exceed our $20 million year-end target run rate. In short, our teams are working vigorously to implement and accelerate our synergy savings. To proactively address the question of upside, we view this acceleration as a timing benefit as we believe we can execute some savings planned for early to mid-2023 during the fourth quarter and realize the benefits earlier in the year. When we release fourth quarter results and issue guidance, we will provide further details on synergies and expected plans and timing. As we've said previously, the early state synergies are primarily related to SG&A reductions, while the later state synergies will be driven by procurement, supply chain, and overall operating efficiencies. We remain committed and confident in achieving the $65 million of synergies as originally communicated. Now, to elaborate on some of the challenges we are currently facing, which have escalated or emerged since mid-year, I'll comment at a high level, and Andy will add some financial context shortly. Starting with the macro environment impact, which we view as global demand and currency. we are generally seeing some demand slowdown from peak levels earlier this year as economic conditions soften. The potential for recessionary conditions is causing customers to be more conservative with order patterns and inventory management as we close out the year. Simply put, the general outlook and sentiment in the marketplace is not quite as optimistic as it was just a few months ago. A more conservative view on the top line growth is appropriate to assume in the back half of 2022 which we consider to be a few percentage points lower than our original forecast. Also, since mid-year, there has been a decline in the euro. Looking at inflation, the geopolitical crisis in Russia and Ukraine has been a key driver of the ramp-up in energy costs in Europe. Since our last call, the situation has accelerated. While other inflationary pressures persist in areas like specialty chemicals, packaging, and freight, Energy is the most impactful, and we are taking both operational and pricing actions in response to mitigate these new cost levels. As a reminder, our pricing more than recovered input cost inflation in the third quarter. And despite the inherent lag, we expect to ultimately recover these latest increases as well. Lastly, we were impacted by cybersecurity attacks during the third quarter. It temporarily disrupted our operations, resulting in higher waste, additional costs, and some missed sales. At this point, we have resumed normal operations. This was not related to the merger integration, as the incident was contained within certain operations. And we have put in place additional remediation measures designed to help prevent future similar attacks. The bottom line is that while there are many positive takeaways from the quarter, there are also some challenges that give us a more conservative view. At the end of the day, we delivered nearly 25% operating profit growth compared to last year on a like-for-like basis, and we expect strong year-over-year growth to continue into the fourth quarter. Additionally, we have a healthy pipeline and execution path on synergies to continue to fuel margin expansion and bottom line growth next year. Let's shift to our operating segments, starting with Advanced Technical Materials, or ATM. Organic sales were up 6% or 12% on a constant currency basis. Gains were primarily driven by strong pricing execution. Our best performing sales growth came from release liners, protective solutions, and filtration. You will continue to hear us talk about these categories as our accelerated growth platform. These are the areas where we will bias our investments and resources to accelerate top-line and bottom-line growth. For release liners, the ETASA acquisition from early 2021 continues to outperform original expectations. Price increases have been significant and effective at offsetting higher costs and volumes continued to grow well above market. Product lines showing the most strength were self-adhesive tapes, shipping labels, and medical applications. Release liners is a highly strategic area for us, and we are in the process of adding capacity in our Mexico facility to serve the Americas. In protective solutions, we saw gains in industrial films and coatings led by strong pricing actions and increases in demand for paint protection films. Protective solutions is another area where we see promising long-term opportunities to invest in to expand our capacity and leverage our capabilities in emerging technologies like smart glass applications. Lastly, filtration's delivered solid growth during the quarter, led by water and transportation filtration. With strong pricing versus last year, We expect continued strong macro trends for water, air, and industrial process filtration. We are pleased to see input costs for certain commodity grade resins like polypropylene coming down versus last year, though still above historical levels. We have not, however, seen pricing relief in specialty resins, like those used in many of our films, as supply remains tight. For key actions, it's fair to say that pricing remains a top priority, if not the top priority in our businesses. We have continued to raise prices and implement surcharges to reflect the still elevated inflationary environment with energy cost offsets at the forefront of our customer discussions. Lastly, and regardless of the external environment, we're keeping a company-wide focus on cost synergy execution within both operating segments and at the corporate level, With high confidence in our ability to deliver on our savings commitments, it takes a tremendous effort across the organization to do so while maintaining smooth operations. We talk about this as two important and related efforts, running the business and changing the business. It's critical that we do both, and we have the talent that is demonstrating they are up to the task. Moving to the Fiber-Based Solutions, or FBS, I'd note that many of the themes from ATM apply here as well, particularly around pricing, input costs, and synergies. Organic sales were up 7% or 12%, excluding negative currency impacts. Our gains in this segment were primarily driven by price. Our best performing sales growth came from packaging and specialty papers, including commercial print, which is delivering outstanding performance. and packaging and consumer products also showing double-digit growth. Regarding input costs, we continue to experience higher costs for wood pulp versus last year, with the pulp index reaching multi-year highs. Pulp indices are projected to trend lower throughout 2023. However, year-over-year comparisons aren't expected to turn lower until mid-year next year. Energy costs are also up significantly, again, especially in Europe. Similar to ATM, this is a key focus of discussion with customers. We're pleased to say that pricing in SBS has more than offset input cost inflation compared to the prior year. For key action items, we are continuing to activate price levers. Some of these will be effective in late 2022 and others in early 2023. We are especially focused on engineered papers, where we believe we have opportunities to better recover inflation. Specifically in engineered papers, we have a number of adjusters in place with our customers that will help recover energy, pulp, and other inflationary costs starting in Q1. I'd like to comment on the nature of our customer agreements, and these comments apply to those in our ATM segment as well. As a general theme, global manufacturers have seen inflationary pressures on a number of fronts over the past two years, which has caused tremendous pressure on profitability as well as brought contract pricing and input cost escalators to the forefront of supply negotiations. Without commenting specifically on any particular contracts or customers, I would say that we are migrating toward more dynamic contract pricing across our entire enterprise. Whereas the agreements of years past typically had a single raw material which may have reset annually, we are progressing toward agreements that are more inclusive of other costs, such as energy or certain chemicals, and reset more frequently, like semi-annually or quarterly. We are also working with customers to be flexible on other surcharges, some of which could be energy-related, but also could be geared to freight and logistics. As this past year has shown, those cost buckets can be very volatile as well when global supply chains tighten. Lastly, similar to ATM, we remain highly focused on synergy execution, both for near-term cost savings as well as longer-term commercial opportunities. Now I'll turn it over to Andy to discuss Q3 results in more detail.