Mativ(MATV) - 2024 Q4 - Annual Report

Part I Business Mativ is a global specialty materials manufacturer operating through two realigned segments after divesting its tobacco-related paper business - Mativ Holdings, Inc. was formed through the merger of Schweitzer-Mauduit International, Inc. (SWM) and Neenah, Inc. on July 6, 2022[16] - The company completed the sale of its Engineered Papers (EP) business on November 30, 2023, ceasing its participation in tobacco-based product markets and reporting this business as a discontinued operation[17][18] - Effective in Q1 2024, Mativ reorganized into two new reportable segments: Filtration & Advanced Materials (FAM) and Sustainable & Adhesive Solutions (SAS)[39] - As of December 31, 2024, the company had approximately 5,100 full-time employees and operated 35 production locations worldwide[59][174] Strategic Overview The company's strategy focuses on growth trends, merger synergies, and portfolio transformation through divestitures and debt reduction - The company is focused on growth trends such as demand for cleaner air and water, modern building practices, increased use of adhesives, health and wellness advancements, and sustainable alternatives[23] - Mativ has realized the majority of the $65.0 million in synergies from the SWM-Neenah merger and is pursuing further value through cross-selling and geographic expansion[24] - The company is actively transforming its portfolio, highlighted by the $620.0 million divestiture of the Engineered Papers business in November 2023, with capital redeployed to repay debt and invest in growth areas[25] - Since the merger, Mativ has reduced its manufacturing footprint from 48 to 35 facilities (over 20% reduction) and net debt by approximately 35%; an organizational realignment is expected to deliver $20.0 million in run-rate savings[26] Description of Business by Segment The company realigned into two segments in Q1 2024: Filtration & Advanced Materials (FAM) and Sustainable & Adhesive Solutions (SAS) 2024 Revenue Breakdown by Segment | Segment | 2024 Revenue % | | :--- | :--- | | Filtration & Advanced Materials (FAM) | 39% | | Sustainable & Adhesive Solutions (SAS) | 61% | FAM Segment 2024 Net Sales by Application | Application | % of FAM Net Sales | | :--- | :--- | | Filtration & netting | 64% | | Advanced films | 36% | SAS Segment 2024 Net Sales by Application | Application | % of SAS Net Sales | | :--- | :--- | | Tape, labels & liners | 50% | | Paper & packaging | 27% | | Healthcare & other | 23% | Raw Materials and Energy The company relies on various raw materials like resins and pulp with fluctuating prices and faces potential supply risks for specialty inputs - Key raw materials include various resins (polypropylene, polyethylene, thermoplastic polyurethane), synthetic fibers, and wood pulp[52] - The loss of a single supplier for certain specialty resins, mercerized pulp, or synthetic fibers could materially affect results due to limited sourcing options[53] - Energy, mainly electricity and natural gas in the U.S. and Europe, is a significant cost, with geopolitical events leading to more volatile energy prices in Europe[54][55] Human Capital and ESG Mativ employs approximately 5,100 people and integrates an ESG strategy focused on environmental, product, social, and governance dimensions - As of December 31, 2024, Mativ had approximately 5,100 full-time employees, with 3,100 in North America, 1,700 in Europe, and 300 in Asia Pacific[59] - The company's ESG approach is guided by its five core values and focuses on Environmental, Product Stewardship, Social, and Governance dimensions[71][72] - In 2024, 11 facilities achieved ISO 14001 (environmental management) and four achieved ISO 50001 (energy management) certification; 32 facilities were ISO 9001 (quality management) certified[75][77] - ESG oversight is delegated to the Nominating & Governance Committee at the Board level, with the Audit Committee overseeing ESG-related risks through the enterprise risk management (ERM) system[84] Risk Factors The company faces risks from intellectual property challenges, international operations, acquisition integration, and cybersecurity threats - The company's technological advantages may not be indefinite as patents expire and trade secrets risk exposure, potentially reducing sales and margins[100] - Operating in over 90 countries exposes the company to international risks, including adverse legal or regulatory changes, political instability, and trade sanctions[107][109] - The integration of Neenah following the 2022 merger presents challenges, and failure to realize anticipated benefits could adversely affect results[136][137][138] - The cost and availability of raw materials (like wood pulp and resins) and energy are significant risks, as price increases may not be fully passable to customers[142][143] - A failure or security breach of key IT systems could compromise sensitive data and expose the company to liability, with increasing complexity from data privacy laws like GDPR and CCPA[145][147] - Increasing scrutiny on ESG issues could affect customer purchasing decisions, access to capital, and reputation if the company fails to meet evolving expectations or its own goals[158] Cybersecurity Mativ manages cybersecurity risk via a NIST-aligned program with Board and Audit Committee oversight, and disclosed a 2022 cyberattack - The company's cybersecurity risk management and strategy is based on the National Institute of Standards and Technology (NIST) framework and includes annual third-party penetration testing[168] - Oversight is handled by the Board of Directors and the Audit Committee, with the CIO providing quarterly updates and a CISO managing daily risks[171][172] - The company experienced a cyberattack in Q3 2022 that temporarily affected operations, incurred remediation costs, and involved the exfiltration of company data[170] Properties As of year-end 2024, Mativ operates 35 production facilities globally, primarily in the U.S. and Europe, across its two segments Production Facilities by Segment and Region (as of Dec 31, 2024) | Geographic Region | FAM | SAS | Total | | :--- | :--- | :--- | :--- | | U.S. | 10 | 10 | 20 | | Europe | 3 | 7 | 10 | | Asia/Pacific | 1 | 2 | 3 | | Americas (ex-U.S.) | 0 | 2 | 2 | | Total | 14 | 21 | 35 | Legal Proceedings The company is involved in ordinary course legal proceedings not expected to be material and holds indemnification obligations from past transactions - The company is involved in various legal proceedings from time to time but does not expect them to have a material effect on its financial condition or results of operations[176] - In connection with the EP Divestiture, Mativ agreed to indemnify the buyer for certain liabilities up to a maximum of $10 million, with no material claims pending as of December 31, 2024[179] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Mativ's stock (MATV) trades on the NYSE; the company paid $0.40 per share in dividends in 2024 and has a share repurchase program - The company's common stock trades on the New York Stock Exchange under the ticker symbol "MATV"[183] - As of December 31, 2024, $22.0 million remained available for share repurchases under the current authorization, with no shares repurchased during 2024[190][191] Dividends Per Share | Year | Dividend per Share | | :--- | :--- | | 2024 | $0.40 | | 2023 | $1.00 | | 2022 | $1.68 | Management's Discussion and Analysis of Financial Condition and Results of Operations Net sales decreased 2.2% to $1.98 billion in 2024, but net loss improved significantly due to the absence of a prior-year goodwill impairment - All financial discussion is on a continuing operations basis, excluding the results of the divested Engineered Papers (EP) business[195] - The significant improvement in operating loss and net loss in 2024 compared to 2023 was primarily due to a $401.0 million goodwill impairment charge recorded in 2023[212][228] - As of December 31, 2024, the company had total debt of $1,089.3 million, cash of $94.3 million, and a net leverage ratio of 4.4x, against a maximum covenant of 5.50x[236] Consolidated Results of Operations (in millions) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Net Sales | $1,981.1 | $2,026.0 | | Gross Profit | $364.1 | $355.8 | | Operating Profit (Loss) | $6.3 | $(413.9) | | Net Loss from Continuing Operations | $(48.7) | $(507.7) | | Diluted EPS from Continuing Operations | $(0.90) | $(9.33) | Critical Accounting Estimates Key estimates involve significant judgment for income taxes, contingencies, asset valuation, and goodwill, which had a major 2023 impairment - Key critical accounting estimates include Income Taxes, Contingencies, Property, Plant and Equipment Valuation, and Goodwill[201] - Goodwill is tested for impairment annually or more frequently if indicators exist; the company recorded a non-cash goodwill impairment charge of $401.0 million in 2023 related to certain reporting units within the SAS segment[208] Results of Operations (2024 vs. 2023) Consolidated net sales fell 2.2% to $1.98 billion in 2024, while gross profit improved and operating profit recovered from a prior-year impairment - Gross profit margin increased to 18.4% in 2024 from 17.6% in 2023, reflecting favorable net selling price and input cost performance[218] - Restructuring and other impairment expenses increased to $38.1 million in 2024 from $22.6 million in 2023, including costs for a new organizational realignment plan and a facility impairment[221][222][224] - The SAS segment's operating profit increased by $421.7 million, primarily due to the absence of the $401.0 million goodwill impairment charge that was recorded in 2023[227][228] Net Sales by Segment (in millions) | Segment | 2024 | 2023 | % Change | | :--- | :--- | :--- | :--- | | FAM | $766.5 | $810.0 | (5.4)% | | SAS | $1,214.6 | $1,216.0 | (0.1)% | | Total | $1,981.1 | $2,026.0 | (2.2)% | Liquidity and Capital Resources The company maintains strong liquidity with $356.4 million available on its revolver, refinanced debt in 2024, and remains in covenant compliance - Net cash provided by operations was $94.8 million in 2024, an increase from $76.6 million in 2023[240] - In October 2024, the company redeemed its $350.0 million 6.875% senior notes due 2026, using proceeds from a new private offering of $400.0 million 8.000% senior notes due 2029[262][263] - The company was in compliance with its debt covenants at December 31, 2024, which include a maximum net debt to EBITDA ratio of 5.50x and a minimum interest coverage ratio of 2.50x[255][260] Quantitative and Qualitative Disclosures about Market Risk Mativ is exposed to foreign currency, interest rate, and commodity price risks, selectively using derivatives to hedge currency and interest rates - A hypothetical 10% unfavorable change in foreign currency exchange rates would result in a pre-tax loss of approximately $35.2 million on transactional exposures[283] - After accounting for interest rate hedges, 89% of the company's debt was subject to fixed rates as of December 31, 2024; a 100 basis point increase in rates on the variable portion would decrease annual pre-tax earnings by $1.2 million[284] Hypothetical 10% Commodity & Energy Price Change Impact on Annual Pre-Tax Earnings | Risk Factor | Impact (in millions) | | :--- | :--- | | Resin Prices | ~$19.4 | | Wood Pulp Prices | ~$14.1 | | Purchased Energy Prices | ~$6.3 | Financial Statements and Supplementary Data This section presents the audited consolidated financial statements and notes for 2022-2024, detailing key accounting and business events - The sale of the Engineered Papers business in November 2023 for $620.0 million resulted in a gain on sale of $170.0 million, net of tax; the business is presented as a discontinued operation in all periods[415][416] - In 2023, the company recorded a goodwill impairment charge of $401.0 million related to reporting units now within the SAS segment; no impairment was recorded in 2024 or 2022[420] Consolidated Balance Sheet Data (in millions) | Account | Dec 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total Current Assets | $658.1 | $712.5 | | Total Assets | $2,447.9 | $2,642.4 | | Total Current Liabilities | $274.5 | $281.4 | | Long-Term Debt | $1,086.7 | $1,101.8 | | Total Liabilities | $1,589.4 | $1,693.3 | | Total Stockholders' Equity | $858.5 | $949.1 | Consolidated Cash Flow Data (in millions) | Cash Flow | 2024 | 2023 | | :--- | :--- | :--- | | Net Cash from Operations | $94.8 | $106.6 | | Net Cash from (used in) Investing | $(56.7) | $547.2 | | Net Cash used in Financing | $(55.9) | $(662.9) | Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of year-end 2024 - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2024[575] - Management concluded that internal control over financial reporting was effective as of December 31, 2024, based on the COSO 2013 framework[577] Part III Directors, Executive Officers and Corporate Governance Information regarding directors and governance is incorporated by reference from the 2025 Proxy Statement, with officer information in Part I - Most information for this item is incorporated by reference from the 2025 Proxy Statement[592] - Biographical information for executive officers is located in Part I, Item 1 of this report[88][592] Executive Compensation All information related to executive compensation is incorporated by reference from the company's 2025 Proxy Statement - All information for this item is incorporated by reference from the "Executive Compensation" section of the 2025 Proxy Statement[593] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership details are incorporated by reference, with 1.9 million securities available for issuance under equity compensation plans Securities Available for Future Issuance under Equity Compensation Plans (as of Dec 31, 2024) | Plan Category | Number of Securities Available | | :--- | :--- | | Equity compensation plans approved by stockholders | 1,874,559 | | Equity compensation plans not approved by stockholders | — | | Grand total | 1,874,559 | Part IV Exhibits and Financial Statement Schedules This section lists all exhibits filed with the Form 10-K, including key agreements, contracts, and required certifications - This section provides a comprehensive list of all exhibits filed with the annual report, including key agreements and certifications[600]