Mativ Holdings, Inc. Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Three Near-Term Priorities: Driving enhanced commercial execution (prioritizing growth initiatives, aligning incentive structures, delayering for faster decision-making), sharpening efforts to delever the balance sheet (pricing actions, cost review for $10M - $15M additional cost reductions in 2025, reducing capital spending to $40M per year, reducing inventory by $20M - $30M in 2025), and conducting a strategic portfolio review of assets and business lines.
• SAS Segment: Continued strong momentum with fourth consecutive quarter of sales growth and fifth consecutive quarter of adjusted EBITDA and margin growth. Key categories saw volume improvements.
• FAM Segment: Mixed performance due to soft demand in automotive and construction; pockets of growth in optical, medical, and dental film verticals. Updates on advanced films vertical: Repurposing resources for paint protection films, expanding pipeline, and accelerating presence in medical and optical films.
• Tariffs: Less than 7% of annual sales are subject to tariff exposure. Have a playbook to mitigate impact with pricing decisions, tariff pass-throughs, and alternative sourcing strategies

Segment Performance

• SAS Segment: Net sales were up almost 6% year-over-year on an organic basis in Q1. Adjusted EBITDA was up more than 3% compared to the prior year, with margin improving slightly. Key categories like health care and release liners saw over 20% volume improvements. Revenue contribution: Not explicitly stated as a percentage but is a significant segment.
• FAM Segment: Net sales were down more than 7% versus Q1 of 2024. Overall performance was mixed due to soft demand in automotive and construction end markets. Results were down year-over-year, driven by lower volumes in automotive, loss of high-margin paint protection films, and higher-priced year-end inventory impact. Revenue contribution: Not explicitly stated as a percentage but is a significant segment

Guidance

• Expect additional cost reductions of $10 million to $15 million realized in 2025.
• Reduce capital spending to $40 million per year versus $55 million in 2024.
• Reduce inventory levels by $20 million to $30 million in 2025.
• Expect working capital for the full year to improve significantly from a use of cash to a source of cash of around $10 million.
• Expect a significant sequential step-up in adjusted EBITDA performance in Q2, similar to last year's step-up of $20 million, driven by sequential increase in volume, higher fixed cost absorption, and improved relative price versus input cost

Risks

• Continuously suppressed demand environment.
• Macro-economic environment uncertainty posing additional challenges.
• Indirect impact of tariff-related policy on demand and commercial activity

Q: Shruti, with you being only 60 days into your tenure, could you provide more insight into the portfolio review?

A: We're conducting a strategic portfolio review of assets and business lines, evaluating how each product category contributes to Mativ's bottom line, competitive position, margin profile, and portfolio diversity to unlock value and strengthen the balance sheet. It's early days, but we'll keep updating on progress.

Q: Greg, could you give more color on cash flow generation improvement and timing?

A: Expect a significant increase in cash flow from Q2, with positive cash flow already expected. Driven by inventory reductions, capital reductions, and improved sequential EBITDA. The seasonality of accounts receivable and lower volumes in Q4 contribute to the first quarter's negative cash flow.

Q: Maybe stepping back, what are the root causes of margin contraction and how to resolve with portfolio review?

A: Margins were suppressed due to seasonality and higher cost inventory in Q1. Expect full-year margins to be more in line with last year with upside. Working on 15% margin achievement. Cost reductions and pricing actions will help. The portfolio review will focus on delevering and improving margins.

Q: Relative to China, any change in domestic demand in FAM segment?

A: Exposure to China is minimal. We're local for local in supply chain and manufacturing, and in touch with customers to penetrate local markets impacted by Chinese tariffs.

Q: On inflation, where do you see price cost cut in Q2 and full year?

A: Expect pricing actions to be a favorable contributor in Q2 and end the year with favorable pricing input costs. Not seeing significant input cost increases barring tariffs, which would be offset by pricing. Pulp, paper, and energy have slight uptick but not significant.

Q: About FAM segment's weakness in automotive and construction, what more can be done?

A: With new leadership in FAM segment, building a pipeline similar to SAS segment's success. The optical, medical, and dental segments are growing, and the new team is working to grow in automotive and construction segments