Mativ Holdings, Inc.

Good morning all, good afternoon all, and welcome to Martiv's first quarter earnings conference call. Hosting the call today for Martiv is Julie Chattel, Chief Executive Officer. She is joined by Greg Whitesell, Chief Financial Officer, and Mark Jackenow, VP 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 press 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. And 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. Sir, you may begin.

Thank you and good morning. I'm Mark Chekhanow, VP of Investor Relations at Madoff. Thank you for joining us to discuss our first quarter 2023 earnings results. Before we begin, I'd like to remind you that the comments included on 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 GAAP measures are included in the appendix of this presentation and the earnings release. Unless they did 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.mativ.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 MATTER 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 first quarter reported results reflect the combined company for the full period. However, the prior year results reflect only the legacy SWM results. On today's call, though, and in our earnings release, 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. These figures are shown in tables in our earnings release and the appendix of this presentation, as well as full reconciliations. 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. As we start discussing our first quarter results, I'd highlight that there are two key themes that encapsulate our financial performance. The first is that strong price increases and easing input costs resulted in a very favorable price-cost spread. We were very encouraged by this result as it demonstrates our success in addressing input cost inflation, one of the most pressing challenges manufacturers have faced over the past year. However, this very positive theme was more than offset by lower volumes and manufacturing challenges. Some site performance issues stemmed from strikes in our French facilities, some were driven by inefficiencies in our U.S. facilities, and some related to general overstaffing in relation to demand. These issues are improving as we move into Q2. During the quarter, we delivered 1% constant currency organic sales growth. We had strong pricing offset by softer volume. As we discussed last quarter, destocking across our customer base was and will continue to be a hurdle for the first half. Furthermore, our French operations were affected by strikes that continued throughout the first quarter. resulting in lost EBITDA and operational disruption. Of note, most of these issues were in our SBS segment, with the most significant impacts in engineered papers, which alone accounted for $15 million of our total year-over-year EBITDA decrease. We will elaborate on all these factors, but I want to emphasize that we are highly focused on better site operations so that our strong price-cost performance flows through to margins. Several other positive indications point to improving sequential EBITDA for the remainder of the year, including further realization of cost synergies, activation of additional cost reduction initiatives, an end to the destocking across our customer base, and easing input costs. While the macro environment remains uncertain, we expect strong sequential quarterly EBITDA growth beginning in Q2. We see a path toward $100 million EBITDA quarters in the second half of the year and believe we will exit 2023 with positive traction on many fronts. While we would typically go deeper into trends within our various end markets, we believe our results are currently less driven by specific trends within our categories and more by the broader themes of price versus cost, overall volume and destocking, and the manufacturing performance. Let's start with price versus input cost. With nearly $40 million of net favorability, we continued the strong momentum from the second half of 2022. Our price increases have proven successful in offsetting inflation, which has been a major focus of our commercial teams across the business. This highlights the stickiness of our pricing and the value of the solutions we provide to the markets in which we compete. These year-over-year pricing gains will start to anniversary and be less pronounced as the year progresses, but given the downward momentum recently seen for many input costs, we expect to maintain a positive spread. I also want to highlight that this price-cost performance was seen in both ATM and SBS. Working with customers through this unusual environment has been a collaborative effort filled with difficult but productive conversations, and ultimately we've landed in the right place. Next, I can reiterate that our merger synergy plans remain on track. With the actions we took in the second half of last year and the early actions in 2023, approximately $6 million of EBITDA savings were realized versus prior year in Q1. We continue to press forward to maximize synergy realization and continue to identify new opportunities to increase our long-term synergy potential. We said in February that we expect $25 million of incremental synergy realization in 2023, and that remains the case. Most of what is flowing through the P&L right now is the benefit of SG&A actions taken throughout the second half of 2022. While there will be further SG&A synergies we realize over the coming year, the bulk of our current actions are focused on procurement and supply chain. We are consolidating our purchase activities, leveraging our most favorable contract terms across the combined business, and ensuring we are benefiting from our increased scale and centrally led procurement process. While we acknowledge that current pressures across the business are clouding the read-through of synergies, These actions will continue to deliver real savings, decrease our cost structure, and be a driving force behind achieving our long-term profitability goals. Moving to destocking. It's apparent that this trend is widespread across industries and end markets and proved to be more of a first quarter headwind than we originally anticipated. Macro concerns over economic conditions, coupled with easing supply chain constraints, have led to broad-based customer inventory destocking, unwinding the excess inventories previously built to mitigate supply chain uncertainties. While this began late last year and was expected to continue into the first half, increased uncertainties have contributed to even tighter inventory management. In general, Our best customer indications are that this inventory unwind will carry into the second quarter and that more normalized order patterns will resume in the second half. Visibility, however, remains limited as to what the normal order pattern implies as there continues to be signals of potential recessionary conditions in the second half of the year. In addition to macro-driven volume softness, we experienced labor strikes at several engineered paper sites in France. As you may recall from our February discussion, there was proposed legislation to increase the retirement benefits age in France, which was heavily protested across the country. This was not a MADIS-specific issue, but resulted in periodic lost days of production at facilities that were fully sold out. We estimate the lost volume impact to be in the range of $5 million of EBITDA. In addition, there are clearly additional operational disruptions, potentially in the range of several million dollars associated with shutting down and restarting facilities. With the legislation recently passed, we expect minimal impact in Q2. Moving to manufacturing. I mentioned the strikes in France, and that's clearly a contributing factor to our results. However, quite candidly, we're disappointed with our overall operating performance and our focus on productivity, yields, and staffing, especially at our largest plants in the U.S. We mentioned this on our fourth quarter call that some inefficiencies resulted in the production of high-cost inventories that would flow through results in the first quarter. and there were additional inefficiencies that persisted as we started the year. We are seeing improvements in early Q2 and expect this to continue, but sustainable operational traction may take another quarter or two to return to historical levels. Both legacy companies have a long history of efficient operations, but we believe the labor turnover, particularly in the U.S., and the learning curve associated with new operators is a key cause of our recent issues. We have been running at lower yields and generating more waste, requiring the remanufacturing of certain products and downtime to correct production issues. We are also comparing to a prior year quarter when the plants were full and absorption was high. In recent quarters, we were staffed for higher volumes and were hesitant to lay off operators when volumes softened, given how tight the labor market has been. Operating labor is ideally something that we flex up or down over time depending on demand. However, the skilled nature required in specialty materials production can make labor reductions a double-edged sword. When demand returns, it could potentially be more difficult than years past to replace skilled labor. So what are we doing to improve operations? Lean Six Sigma operators from across the company have been deployed to sites where we are seeing the most pressing issues. We have targeted productivity improvement plans on specific assets to accelerate progress. And we're already seeing better results and expect to continue throughout the remainder of the year. Secondly, we are implementing additional cost reduction efforts to right-size operations and expenses with the near-term demands of the business. While visibility on second half volumes is limited, margins are a clear priority, and we're taking decisive but measured actions to improve results without compromising the business. These actions are incremental to our existing synergy plans and include reductions in labor, maintenance, SG&A, working capital, and tighter controls on discretionary spending and investments. I'm confident we're turning the corner from an operations standpoint and look forward to sharing sequentially higher profit results on our second quarter call. With that, I'll turn it over to Greg to review the quarter's financials and comment on 2023. Thanks, Julie.