Mativ Holdings, Inc. Q3 FY2024 earnings call

• Sales were up 1% organically and essentially flat reported basis year-over-year, with volume improvements in most categories offset by lower demand in film. - Adjusted EBITDA up 10% year-over-year and margin up 110 basis points, driven by increased volume in filtration and SAS, and lower manufacturing costs. - Assembled a tiger team for advanced film to improve results over 12 months, focused on three platforms: accelerating presence in targeted markets, providing One Mativ supply chain solution, and aggressive cost reduction. - Invested in growth categories like medical films, specialty tapes, etc., with expected incremental revenues over $115 million in next 3 - 4 years. - Commercial teams executing well, e.g., share gains in FAM, new customer agreements, and launching new sterilizable medical paper product. - Divested nonstrategic facilities in Massachusetts and Netherlands, streamlining footprint from 48 to 35 sites and reducing outside warehouses by over 25%.

For the Filtration & Advanced Materials segment, net sales were $190 million, down 3% versus Q3 2023. FAM adjusted EBITDA was $36 million, down almost 7% year-over-year, affected by lower volumes in high-margin advanced films and lower selling prices, but partially offset by higher volumes in filtration and cost efficiencies. For the Sustainable & Adhesive Solutions segment, net sales of $309 million were up more than 4% organically and more than 2% on an as-reported basis. SAS generated strong adjusted EBITDA performance of $41 million, up almost 20% year-over-year, with adjusted EBITDA margin increasing 200 basis points. Filtration revenues were up almost 6% led by air filtration in HVAC and air pollution control. Advanced film, part of FAM, was impacted by soft automotive and construction markets, increased competition from Asia, and underperformance at a large plant.

• Expect Q4 sales to be up mid-single digits versus last year and Q4 adjusted EBITDA to be down low double digits versus last year, driven by timing of incentives, product mix, maintenance outages, and holiday downtime. - Planning for 2024 full year capital expenditures of approximately $50 million, down from $60 million previously. - Target leverage range is 2.5x to 3.5x, with expectation to make progress toward it in 2025 and likely hit it around 2026.

• Film business impacted by ongoing challenges in automotive and construction end markets, increased competition from Asia with lower performance products, and underperformance at a large film plant. - Demand recovery remains sluggish with manufacturing and materials industries contracting, and customers conservative in building inventory. - Interest expense increased due to higher interest rates on floating rate debt and higher revolver balance, though 75% of debt is at fixed rate.

Q: Julie, could you provide more info on the tiger team initiative start and demand generation ideas? And on Q4 guide, what's the disconnect between revenue increase and EBITDA decrease?

A: Tiger team started this quarter for film issues: plant underperformance, Asia competition, and weak markets. Q4 EBITDA decrease is mostly due to poor performance in films, plus price input timing, overhead reduction impact, and holiday outage timing.

Q: Jon asked about customers' readiness to pick back up as entering 2025 and velocity exiting holidays?

A: Demand recovery remains sluggish, PMI fell, no changing demand profile near term, customers conservative on inventory, filtration resilient but driven by aftermarket.

Q: Daniel asked about recent facility closures rationale and impact on cash flow with CapEx reduction?

A: Netherlands site sold produced dye sublimation paper, Massachusetts site supported paper business, both exit nonstrategic areas. CapEx dropped from $60M to $50M due to suppressed markets, Q4 cash flow expected to be lower than Q3 but positive.