Mativ Holdings, Inc. — Q3 2022 Form 10-Q
Business context and reporting period
Unaudited results cover the quarter and nine months ended September 30, 2022. Mativ was formed when SWM completed its all-stock merger with Neenah on July 6, 2022; Neenah’s results are included only from that date. Accordingly, reported year-over-year comparisons are not like-for-like. The company operates Advanced Technical Materials (ATM) and Fiber-Based Solutions (FBS) segments and serves customers globally.
Key financial metrics
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net sales | $674.1 million | $383.6 million | $1,507.3 million | $1,049.6 million |
| Gross profit / margin | $123.1 million / 18.3% | $85.2 million / 22.2% | $315.3 million / 20.9% | $254.1 million / 24.2% |
| Operating profit (loss) | $(13.9) million | $23.0 million | $24.5 million | $72.4 million |
| Net income (loss) | $(22.5) million | $12.2 million | $(9.1) million | $35.6 million |
| Diluted earnings (loss) per share | $(0.43) | $0.38 | $(0.25) | $1.12 |
| Cash provided by operations | $(0.8) million | $7.7 million | $17.2 million | $27.5 million |
| Capital spending | $18.7 million | $7.5 million | $36.5 million | $23.8 million |
At September 30, 2022, cash was $82.3 million and total debt was $1,828.5 million, versus $74.7 million and $1,270.3 million, respectively, at December 31, 2021. The company reported $307.2 million of undrawn revolving-credit capacity, net leverage of 4.2x under its credit agreement, and compliance with debt covenants. Net working capital was $626.5 million. Nine-month operating cash flow was pressured by an $80.9 million use of cash from operating working capital.
Changes versus the prior comparable period
- Reported sales rose 75.7% in Q3 and 43.6% year to date, reflecting Neenah, price increases and organic growth, partly offset by adverse currency movements.
- Gross margin declined in both periods. Management cited higher input costs, including pulp and fiber, resins and energy, as well as acquisition-related amortization; price increases provided a partial offset.
- Q3 operating loss reflected $73.2 million of unallocated expenses, including merger and integration costs, Neenah expenses and cybersecurity-related costs. The prior-year quarter had $16.9 million of unallocated expenses.
- Interest expense increased to $23.8 million in Q3 and $58.7 million for nine months, reflecting additional merger-related debt and higher rates on floating-rate borrowings.
- For context, supplemental pro forma results assuming the merger occurred January 1, 2021 show Q3 2022 sales of $683.7 million and net income of $27.2 million, versus $651.4 million and $7.4 million in Q3 2021. Pro forma nine-month sales were $2,108.4 million versus $1,813.8 million, with net income of $56.5 million versus a loss of $62.9 million. The filing cautions these figures are not necessarily indicative of actual combined results.
Outlook, risks and unusual items
- No specific financial guidance is provided. Management said available cash, operating cash generation and credit facilities should fund operations, growth plans and dividends, and expected to remain within debt covenants based on current borrowing and forecast results.
- The company declared a $0.40-per-share dividend payable December 16, 2022. Management said dividend policy will continue to be assessed against cash generation, debt and capital needs.
- Merger-related direct and indirect costs, severance, integration expenses and purchase-accounting adjustments were significant; the Neenah purchase-price allocation remained preliminary and could be revised during the measurement period. Reported merger-cost amounts vary by disclosure and classification.
- A cybersecurity attack temporarily disrupted some systems and delayed sales transactions. The company incurred $6.1 million to investigate and remediate the incident, said some costs may be mitigated by insurance, and reported that data including employee personal information was accessed and exfiltrated. It said the incident was contained and operations restored.
- Nine-month restructuring and impairment expense was $17.4 million, including $12.9 million of asset impairment associated with divesting part of the legacy SWM industrials business. Management expected approximately $0.5 million of additional ATM restructuring costs and an insignificant amount in FBS during the remainder of 2022.
- Key risks include merger integration and realizing synergies, substantial debt and exposure to rising interest rates, inflation and input-cost volatility, supply-chain disruption, foreign-exchange movements, cybersecurity and data privacy, labor matters, and demand changes across end markets.
- Contingencies include unresolved Brazil electricity-tax assessments for which no loss was accrued because the outcome could not be determined, and pending German patent-related litigation, including a Glatz counterclaim. The filing reports no material developments in other legal proceedings and says no significant off-balance-sheet arrangements existed.
Most important facts for investors to verify
- How much of reported growth and segment performance reflects acquired Neenah operations versus organic volume, pricing and currency effects.
- Whether price increases can continue to offset input-cost inflation and restore gross margins.
- Merger integration costs, purchase-price allocation revisions, synergy realization and the effect of acquisition amortization on earnings.
- Debt servicing capacity, floating-rate exposure, covenant headroom and working-capital conversion as leverage remains elevated.
- The final financial, legal and insurance consequences of the cybersecurity incident, including any further remediation or disclosure obligations.
- Outcomes and potential exposure from the Brazil tax assessments and German patent proceedings; the filing does not provide a clear estimate of potential loss.