Mativ Holdings, Inc. — Q2 2022 Form 10-Q
Business context and reporting period. This filing reports the three and six months ended June 30, 2022, for the former Schweitzer-Mauduit International and its subsidiaries; it does not include Neenah, Inc. Mativ completed its merger with Neenah on July 6, 2022, and changed its name and ticker to Mativ Holdings, Inc. (MATV). The company operates Advanced Materials & Structures (AMS) and Engineered Papers (EP).
Financial performance and position
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Net sales | $426.4 million | $377.8 million | $833.2 million | $666.0 million |
| Gross profit / margin | $99.6 million / 23.4% | $88.1 million / 23.3% | $192.2 million / 23.1% | $168.9 million / 25.4% |
| Operating profit / margin | $27.8 million / 6.5% | $15.9 million / 4.2% | $38.4 million / 4.6% | $49.4 million / 7.4% |
| Net income | $11.8 million | $1.8 million | $13.4 million | $23.4 million |
| Diluted EPS | $0.36 | $0.06 | $0.41 | $0.74 |
| Operating cash flow | $13.0 million | $7.1 million | $18.0 million | $19.8 million |
| Capital spending | $9.1 million | $9.2 million | $17.8 million | $16.3 million |
- Q2 sales rose 12.9%; AMS sales increased 14.3% and EP sales 9.9%. Management attributed growth to pricing and volume/product mix, partly offset by foreign-exchange effects. Six-month sales grew 25.1%, including $120.2 million of incremental Scapa sales.
- Q2 operating profit increased 74.8%, led by AMS growth and lower unallocated expenses. For the first half, operating profit fell 22.3%; $12.9 million of asset impairment, higher EP energy and raw-material costs, and higher unallocated expenses weighed on results.
- At June 30, cash was $56.3 million; total debt was $1,254.6 million, including $1,252.7 million of long-term debt. Revolver availability was $106.0 million. Net leverage under the credit agreement was 4.9x versus a 5.5x maximum covenant; the company reported covenant compliance.
- Six-month operating cash flow was below the prior-year level, with $63.0 million used by working-capital changes, chiefly increased receivables and inventory. Cash declined to $56.3 million from $74.7 million at year-end 2021.
Material changes, outlook, and risks
- Merger and financing: Neenah shareholders received approximately 22.8 million Mativ shares, valued at approximately $534.0 million using the July 5 closing price. On July 5, Mativ drew $650.0 million under a delayed-draw term loan, using proceeds to repay Neenah debt and reduce Mativ revolver borrowings. Following the merger, the company reported approximately $1.83 billion of total debt and $454.0 million of liquidity. It expected net leverage to decline to 3.5x or below by year-end 2023; this is a management expectation, not a guarantee.
- Costs and unusual items: First-half restructuring and impairment expense was $15.6 million, including a $12.9 million impairment tied primarily to a planned divestiture of part of the AMS construction business. Merger-related costs were $13.6 million for the first half. Q2 other income included asset-sale proceeds, carbon dioxide credit sales, and foreign-currency gains.
- Inflation and operations: Management cited elevated input costs and strained supply chains. AMS pricing and organic growth offset inflation in the quarter, while EP profitability was pressured particularly by European energy and wood-pulp costs. The company also identified risks from foreign exchange, interest rates, geopolitical conflict, and changes in tobacco-related demand and regulation.
- Liquidity and capital allocation: Management believed available cash, operating cash generation, and credit facilities would meet foreseeable funding needs. It declared a $0.40-per-share dividend payable September 23, 2022, subject to its capital allocation priorities and debt requirements. The filing provides no specific full-year revenue or earnings guidance.
- Contingencies: The outcome of Brazilian electricity-tax assessments was not determinable; approximately $10.7 million was disclosed and no loss was accrued. A German patent-related counterclaim remained pending, with a hearing scheduled for February 2023. The company also noted environmental and other litigation risks.
- COVID-19-related facility impacts were described as limited at the time of filing. Management stated disclosure controls were effective as of June 30, 2022.
Important facts for investors to verify
- Post-merger debt, liquidity, covenant headroom, interest costs, and progress toward the stated leverage target.
- Neenah integration, realized synergies, purchase-price allocation, and whether merger costs or operational disruptions exceed expectations.
- Whether pricing continues to offset inflation and supply-chain costs, especially energy and materials affecting EP.
- Cash conversion and working-capital trends, including receivables and inventory, alongside dividend sustainability.
- Execution and proceeds from the planned AMS construction-business divestiture, and outcomes of the disclosed tax and litigation matters.