Mativ Holdings, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. Mativ completed its merger with Neenah on July 6, 2022, so Q1 2023 includes Neenah while Q1 2022 does not. The year-over-year comparisons therefore include a substantial acquisition-related increase in scale.
Key financial metrics
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Net sales | $679.0 million | $406.8 million |
| Gross profit / margin | $109.0 million / 16.1% | $92.6 million / 22.8% |
| Operating profit / margin | $9.3 million / 1.4% | $10.6 million / 2.6% |
| Interest expense | $26.5 million | $14.5 million |
| Net income (loss) | $(7.7) million; diluted EPS $(0.14) | $1.6 million; diluted EPS $0.05 |
| Cash from operations | $(20.7) million | $5.0 million |
| Capital spending | $19.1 million | $8.7 million |
Revenue rose 66.9% year over year, with ATM sales up 59.1% to $434.3 million and FBS sales up 82.7% to $244.7 million. The filing attributes the increases primarily to Neenah. Price increases partly offset higher input costs, but volume declines and unfavorable currency effects weighed on sales. Gross margin contracted as lower volumes and mix, manufacturing inefficiencies, and operational disruptions offset pricing benefits.
ATM operating profit increased to $37.6 million from $10.3 million; FBS operating profit fell to $6.2 million from $25.7 million. FBS was affected by labor strikes in France, site-level production inefficiencies and merger-related intangible amortization. Unallocated expenses increased to $34.5 million from $25.4 million, including Neenah expenses and integration costs. The company reported $10.4 million of integration-related expenses.
Cash, debt and liquidity
At March 31, 2023, cash was $97.0 million, total debt was $1.733 billion and reported unused revolving capacity was $359.0 million under the $600 million facility. Net working capital was $572.7 million. Cash fell from $124.4 million at year-end 2022; operating cash use reflected a $52.0 million working-capital outflow, including higher receivables and inventory. The company noted that cash flows are typically seasonally lower in the first half.
Net leverage under the credit agreement was 4.1x against a 5.25x maximum covenant at quarter-end; the maximum is scheduled to step down to 4.50x effective December 2023. Mativ reported compliance with its credit agreement and note covenants. The weighted-average effective debt interest rate, including hedges, was 5.63%, versus 4.45% a year earlier. The nearest stated debt maturity is the 6.875% senior unsecured notes due in 2026.
Outlook, risks and unusual items
- No specific revenue, earnings or margin guidance is provided. Management said existing liquidity sources should be sufficient for operations, growth plans and dividends, and expected covenant compliance based on current borrowings and forecast results.
- Management identified customer de-stocking, a weakening macro environment, lower volumes, manufacturing labor turnover and inefficiencies, and French labor strikes as operating pressures. Supply-chain and input-cost inflation, interest rates, currency movements and acquisition integration are also cited risks.
- The company expects approximately $1.5 million of additional 2023 restructuring costs related to the Appleton, Wisconsin facility.
- Q1 restructuring and impairment expense was $0.8 million, compared with $13.2 million a year earlier, when a $12.9 million impairment was recorded. Other income included gains on asset sales, notably French carbon dioxide credits.
- Brazilian tax assessments and German patent-related litigation remain unresolved; no loss was accrued for either matter because outcomes could not be determined. The filing also discusses environmental and other litigation risks.
- Mativ announced a $0.40-per-share dividend payable June 23, 2023. It stated dividend policy will be assessed in light of cash generation, debt levels, operating needs and strategic opportunities.
Investor verification priorities
- Separate acquisition-driven sales growth from underlying volume, pricing and currency trends; assess whether de-stocking and macro weakness persist.
- Track FBS recovery, manufacturing efficiency, labor availability and the effects of French strikes, alongside ATM profitability.
- Monitor operating cash conversion and working-capital requirements, especially receivables and inventory.
- Assess integration costs and whether expected merger synergies offset added expenses and interest burden.
- Follow leverage against the scheduled covenant step-down, debt maturities, interest costs and the cash capacity to sustain dividends.
- Review developments in the Brazilian tax assessments, German litigation and expected Appleton restructuring costs.