Glatfelter Corporation — Q2 2022 Form 10-Q
Entity note: The supplied filing is for Glatfelter Corporation (NYSE: GLT), not Magnera Corp. It covers the quarter and six months ended June 30, 2022; financial statements are unaudited. Unless otherwise noted, amounts are in U.S. dollars.
Business context and reporting period
Glatfelter makes engineered materials through Composite Fibers, Airlaid Materials and Spunlace. The Spunlace segment reflects the October 2021 Jacob Holm acquisition; Mount Holly, acquired in May 2021, is included in Airlaid Materials. The former Specialty Papers business is reported as discontinued operations.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Net sales | $364.0 million | $244.9 million | $745.6 million | $470.6 million |
| Gross profit | $37.4 million | $35.6 million | $69.1 million | $74.9 million |
| Gross margin | 10.3% | 14.5% | 9.3% | 15.9% |
| Operating income (loss) | $8.9 million | $8.1 million | $(107.0) million | $25.4 million |
| Continuing-operations income (loss) | $(2.5) million | $1.5 million | $(110.8) million | $9.9 million |
| Net income (loss) | $(2.1) million | $1.4 million | $(110.4) million | $9.8 million |
| Diluted EPS | $(0.05) | $0.03 | $(2.46) | $0.22 |
Q2 sales rose about 49%, largely reflecting acquisitions, but gross margin contracted 4.2 percentage points. Six-month operating and net losses include a $117.3 million non-cash impairment charge related to the Dresden facility and Composite Fibers goodwill. Management reported six-month adjusted continuing-operations loss of $7.8 million, or $0.17 per share, versus adjusted income of $16.5 million, or $0.37 per share, in 2021; these are non-GAAP measures.
- Q2 segments: Composite Fibers sales were $123.3 million and operating income $5.8 million; Airlaid Materials sales were $143.7 million and operating income $11.9 million; Spunlace sales were $96.9 million and operating loss $1.8 million.
- Six-month segments: Composite Fibers sales were $259.2 million and operating income $5.4 million; Airlaid Materials sales were $293.2 million and operating income $24.2 million; Spunlace sales were $193.3 million and operating loss $3.4 million.
- Q2 continuing-operations interest expense was $7.7 million, versus $1.8 million a year earlier; six-month interest expense was $15.5 million, versus $3.3 million.
Cash flow, debt and liquidity
- Six-month cash used by continuing operating activities was $79.5 million, versus $1.4 million provided in 2021. The filing attributes the decline primarily to working-capital use, lower adjusted EBITDA, higher taxes paid and higher interest paid.
- Six-month capital expenditures were $22.7 million. Cash and cash equivalents were $71.5 million at June 30; cash, cash equivalents and restricted cash totaled $80.9 million.
- Total debt was $812.6 million, compared with $775.9 million at December 31, 2021. The revolving facility balance was $81.2 million. Reported revolver capacity was $131.6 million.
- The credit agreement was amended in May 2022, including increased covenant leverage limits and a pledge of substantially all domestic assets. The maximum leverage ratio is 6.75x through the quarter ending December 31, 2023, then steps down to 4.0x. The company reported a 5.3x ratio at June 30, 2022.
- Dividends paid in the first six months totaled $12.5 million. The filing says approximately 89.3% of cash and cash equivalents was held by foreign subsidiaries.
Material changes and management commentary
Revenue growth reflected the acquired businesses; organic and segment trends differed. Q2 Composite Fibers sales fell 12.9%, with wallcover shipments down 62% year over year amid the Russia/Ukraine conflict and export restrictions. Higher selling prices and energy surcharges did not fully offset inflation in energy, raw materials and freight. Airlaid sales and operating income increased with higher shipments, acquisition contribution and pricing. Spunlace remained loss-making as pricing and surcharges only partly offset input-cost inflation.
Management recorded the $117.3 million impairment after lower expected Dresden wallcover revenue and cash flows, sanctions and related market disruption. It also recorded $2.9 million of Russia/Ukraine-related bad-debt expense and $1.0 million of inventory reserves in the first half. The company reported $2.6 million of net receivables from customers in the region at June 30, which it expected to collect in the normal course.
Outlook, risks and contingencies
- No specific earnings or revenue guidance is provided in the supplied filing text. Full-year 2022 capital expenditures were expected to be $45 million–$50 million, including $7 million–$8 million for Spunlace integration.
- Management cited ongoing uncertainty from the Russia/Ukraine conflict, sanctions, European natural-gas availability and prices, supply-chain disruption, freight and raw-material inflation, and the ability to pass costs through to customers. It warned that prolonged conflict or additional sanctions could further harm results; future impairment is possible if conditions worsen.
- Other identified risks include foreign-exchange movements, customer credit, production interruptions, demand and competition, and tax matters. The Fox River environmental reserve was $14.8 million; management stated it did not believe costs would materially exceed accrued amounts.
- The company reported compliance with its debt covenants at June 30, while noting that a breach could trigger remedies including termination of the facility and accelerated repayment. It also reported disclosure controls and procedures as effective.
Important facts for investors to verify
- Confirm the issuer identity: this is Glatfelter’s filing, not a Magnera Corp filing.
- Review the non-GAAP adjusted earnings and adjusted EBITDA reconciliations, and distinguish them from GAAP losses.
- Track covenant leverage against the 6.75x limit and the scheduled reduction to 4.0x after December 2023, alongside revolver availability and cash flow.
- Monitor Dresden/Composite Fibers sales, impairment assumptions, energy exposure and any changes in Russia/Ukraine customer receivables or sanctions.
- Assess working-capital cash use, acquisition integration and Spunlace profitability, as well as whether planned capital expenditures are funded from available liquidity.