Glatfelter (GLT) - 2023 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements The company presents unaudited condensed consolidated financial statements for the periods ended June 30, 2023 Condensed Consolidated Statements of Income (Unaudited) | In thousands, except per share | Three months ended June 30, 2023 | Three months ended June 30, 2022 | Six months ended June 30, 2023 | Six months ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $357,005 | $363,963 | $735,213 | $745,643 | | Gross profit | $18,133 | $37,397 | $54,347 | $69,062 | | Operating income (loss) | $(10,485) | $8,924 | $(4,372) | $(106,965) | | Loss from continuing operations | $(36,631) | $(2,460) | $(49,813) | $(110,750) | | Net loss | $(36,940) | $(2,052) | $(50,524) | $(110,379) | | Diluted loss per share | $(0.83) | $(0.04) | $(1.13) | $(2.46) | Condensed Consolidated Balance Sheets (Unaudited) | In thousands | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total current assets | $614,494 | $679,484 | | Total assets | $1,576,563 | $1,647,353 | | Total current liabilities | $262,888 | $360,406 | | Total liabilities | $1,297,725 | $1,329,349 | | Total shareholders' equity | $278,838 | $318,004 | Condensed Consolidated Statements of Cash Flows (Unaudited) | In thousands | Six months ended June 30, 2023 | Six months ended June 30, 2022 | | :--- | :--- | :--- | | Net cash used by operating activities | $(53,021) | $(79,535) | | Net cash used by investing activities | $(16,723) | $(18,136) | | Net cash provided by financing activities | $10,515 | $33,546 | | Net decrease in cash | $(58,133) | $(67,712) | | Cash and cash equivalents at end of period | $53,864 | $71,476 | Notes to Condensed Consolidated Financial Statements The notes detail accounting policies, facility closure costs, debt refinancing, and segment performance data - In Q2 2023, the planned closure of the Ober-Schmitten facility resulted in recognizing $10.4 million in employee severance and benefit costs[28] - No impairment charges were recognized in H1 2023, unlike Q1 2022 which saw a $117.3 million non-cash asset impairment charge[31][32][33] - On March 30, 2023, the company amended its Credit Agreement, reducing the Revolving Credit Facility to $250.0 million and entering a new €250.0 million Term Loan[67][72] Net Sales by Segment (Six Months Ended June 30) | In thousands | 2023 | 2022 | | :--- | :--- | :--- | | Airlaid Material | $311,952 | $293,172 | | Composite Fibers | $258,316 | $259,167 | | Spunlace | $166,143 | $193,304 | | Total | $735,213 | $745,643 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes financial results impacted by market softness, destocking, and turnaround strategy costs - H1 2023 operating results were significantly affected by market softness, customer destocking, higher interest expense, and turnaround strategy costs[115] Reconciliation of Net Loss to Adjusted Loss from Continuing Operations (Six Months Ended June 30) | In thousands, except per share | 2023 | 2022 | | :--- | :--- | :--- | | Loss from continuing operations | $(49,813) | $(110,750) | | Total after-tax adjustments | $23,497 | $102,995 | | Adjusted loss from continuing operations | $(26,316) | $(7,755) | | Adjusted loss per share | $(0.58) | $(0.17) | Reconciliation of Net Loss to Adjusted EBITDA (Six Months Ended June 30) | In thousands | 2023 | 2022 | | :--- | :--- | :--- | | Net loss | $(50,524) | $(110,379) | | EBITDA | $21,006 | $(73,824) | | Adjusted EBITDA | $42,037 | $50,230 | Results of Operations H1 2023 results show slightly decreased net sales and gross profit, with varied performance across segments - Airlaid Materials: H1 2023 net sales increased by $18.8 million YoY, driven by higher selling prices that offset a 5.6% decline in shipment volumes[142][143] - Composite Fibers: H1 2023 net sales decreased by $0.9 million YoY, as higher prices were offset by a 5.1% drop in shipments and unfavorable currency effects[144][145] - Spunlace: H1 2023 net sales fell by $27.2 million YoY, driven by a 21.2% decline in shipment volumes[145][146] - In Q1 2022, the company recorded a $117.3 million impairment charge on its Composite Fibers' Dresden facility and goodwill due to the Russia/Ukraine conflict[147][148] Liquidity and Capital Resources The company maintains sufficient liquidity through cash reserves and credit facilities after debt refinancing - The company has ample liquidity with $53.9 million in cash and $89.6 million of capacity under its revolving credit facility as of June 30, 2023[187] - The company's leverage ratio was 3.4x as of June 30, 2023, compliant with the amended credit agreement's maximum of 4.25x[184] - Capital expenditures are expected to be between $30 million and $35 million in 2023[182] - In Q3 2022, the Board of Directors suspended the quarterly cash dividend to focus on optimizing operational and financial results[185] Quantitative and Qualitative Disclosures About Market Risks The company's primary market risks arise from interest rate fluctuations and foreign currency exposure - A hypothetical 100 basis point increase in the interest rate on variable rate debt would increase annual interest expense by $1.1 million[195] - The company has significant foreign currency risk, particularly with the euro, with annual euro-denominated revenue exceeding euro expenses by an estimated €190 million[196] Controls and Procedures Management confirmed the effectiveness of disclosure controls and noted new ERP system implementations - Management concluded that disclosure controls and procedures were effective as of June 30, 2023[203] - During Q2 2023, new ERP and manufacturing systems were implemented for Spunlace's Old Hickory, TN and Asturias, Spain locations[204] PART II – OTHER INFORMATION Legal Proceedings This section references Note 19 for details on legal matters, including the Fox River environmental liability - Legal proceedings information is incorporated by reference from Note 19 of the financial statements, detailing commitments and contingencies like the Fox River environmental matter[206] Exhibits This section lists all exhibits filed with the Form 10-Q, including incentive plans and certifications - Exhibits filed include the Amended and Restated 2022 Long-Term Incentive Plan and certifications by the CEO and CFO[209]