Mativ Holdings, Inc. quarterly report, Q1 FY2021

Business context and reporting period

This is Schweitzer-Mauduit International, Inc. (SWM), not a filing under the name Mativ Holdings, Inc. It reports unaudited results for the three months ended March 31, 2021, compared with the same period in 2020. SWM operates Advanced Materials & Structures (AMS), serving markets including filtration, healthcare, transportation and construction, and Engineered Papers (EP), which primarily serves tobacco markets.

Key financial metrics

At March 31, 2021, cash was $63.7 million, total debt was $617.9 million, and net working capital was $273.1 million. Undrawn capacity on the $500 million revolving credit facility was $420.2 million. Management reported net leverage of 2.37x and compliance with debt covenants. The balance sheet reported current assets of $428.1 million and current liabilities of $157.7 million. The quarterly dividend declared was $0.44 per share.

Material changes versus the prior period

• Sales increased 10.2%. AMS sales rose 32.6% to $163.0 million, reflecting Tekra acquisition contribution and growth in transportation, filtration, healthcare and construction. EP sales fell 9.7% to $125.2 million, mainly from lower volume and unfavorable price/mix.
• Gross profit rose 8.7%, but gross margin declined 0.4 percentage points. AMS profit growth was partly offset by higher input costs, including polypropylene resin; EP faced lower sales, unfavorable mix and higher wood pulp costs.
• Operating profit decreased 1.8%, as higher AMS profit was offset by lower EP profit and higher unallocated costs. The latter included $3.6 million of Scapa acquisition transaction costs.
• Interest expense fell to $2.9 million from $6.9 million, while other expense was $2.6 million versus $0.6 million of other income, partly reflecting a mark-to-market loss on Scapa-related currency forwards. Net income and diluted EPS declined year over year.
• Operating cash flow improved to $12.7 million, principally due to more favorable year-over-year working-capital cash movements. Investing cash use fell substantially because the prior-year quarter included the $170.6 million net Tekra acquisition payment.

Outlook, commentary, risks and unusual items

The filing gives no quantified full-year earnings or sales guidance. Management said liquidity was ample to support operations and financial obligations and expected current liquidity sources to meet anticipated funding needs. It described tobacco, healthcare and filtration markets as generally resilient; transportation and construction had improved from pandemic-related weakness. Management cautioned that the pandemic’s duration and economic effects remained uncertain and that customer inventory and safety-stock changes could cause sales variability.

SWM completed its acquisition of Scapa Group after quarter-end: the scheme became effective April 15, 2021, with shareholder consideration paid April 29. The approximately $568.9 million purchase price was funded using a new $350 million Term Loan B facility and up to $325 million of revolving credit capacity. This materially increases the importance of acquisition financing, integration and leverage considerations after the reporting date.

Other notable items include a $6.1 million benefit from settlement of Brazilian tax assessments, recognized in Q1 across interest and other expense; the filing says the matter was fully resolved following a $2.6 million payment in April. Separate Brazilian electricity-tax assessments remained unresolved, with no loss accrued because the outcome could not be determined. The company also expected approximately $1.4 million of additional 2021 costs related to the Spotswood facility closure. Risks cited include COVID-19 disruption, input-cost inflation and availability, tobacco-market and customer inventory changes, foreign exchange and interest rates, litigation, and acquisition execution. Management reported effective disclosure controls and no material change in internal control over financial reporting.

Investor facts to verify

• Confirm the reporting entity: this 10-Q is filed by Schweitzer-Mauduit International, Inc.; the supplied metadata identifies Mativ Holdings, Inc.
• Review Scapa’s post-quarter financing, resulting debt and leverage, and subsequent integration disclosures; the acquisition is not included in Q1 consolidated results.
• Assess whether AMS growth can offset EP sales and mix pressures, and whether higher resin and pulp costs affect margins.
• Track cash conversion and working-capital needs, covenant headroom, and the stated availability of revolving credit after acquisition funding.
• Review the unresolved Brazilian electricity-tax matters, Spotswood closure costs, and the effects of currency-hedge volatility.