Glatfelter (GLT) - 2022 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements The company's unaudited statements show increased sales from acquisitions but a net loss due to a significant asset impairment charge Condensed Consolidated Statements of Income Q1 2022 saw a 69.1% sales increase from acquisitions, but a $117.3 million impairment charge led to a net loss of $108.3 million Q1 2022 vs Q1 2021 Income Statement Highlights | Metric | Q1 2022 (in thousands) | Q1 2021 (in thousands) | Change | | :--- | :--- | :--- | :--- | | Net Sales | $381,680 | $225,674 | +69.1% | | Gross Profit | $31,665 | $39,296 | -19.4% | | Goodwill & Asset Impairment | $117,349 | $0 | N/A | | Operating Income (Loss) | ($115,889) | $17,319 | N/A | | Net Income (Loss) | ($108,327) | $8,394 | N/A | | Diluted EPS | ($2.42) | $0.19 | N/A | Condensed Consolidated Balance Sheets Total assets decreased to $1.75 billion due to impairment charges, while total liabilities remained stable at $1.33 billion Balance Sheet Summary | Account | March 31, 2022 (in thousands) | Dec 31, 2021 (in thousands) | | :--- | :--- | :--- | | Total Current Assets | $648,845 | $636,566 | | Goodwill | $177,063 | $236,165 | | Intangible Assets, net | $116,722 | $156,304 | | Total Assets | $1,749,038 | $1,880,607 | | Total Liabilities | $1,332,305 | $1,337,845 | | Total Shareholders' Equity | $416,733 | $542,762 | Condensed Consolidated Statements of Cash Flows Cash used in operations significantly increased to $66.2 million, driven by changes in working capital Cash Flow Summary (Three Months Ended March 31) | Activity | 2022 (in thousands) | 2021 (in thousands) | | :--- | :--- | :--- | | Net Cash Used by Operating Activities | ($66,240) | ($6,046) | | Net Cash Used by Investing Activities | ($7,801) | ($4,603) | | Net Cash Provided by Financing Activities | $16,281 | $179 | | Net Decrease in Cash | ($58,508) | ($12,683) | Notes to Condensed Consolidated Financial Statements Notes detail the impact of acquisitions, a $117.3 million asset impairment charge, and segment performance - Completed the acquisition of Georgia-Pacific's Mount Holly business on May 13, 2021, and Jacob Holm on October 29, 2021[28][29]. For Q1 2022, Mount Holly and Jacob Holm contributed $27.3 million and $96.4 million in net sales, respectively[31] - Recorded a $117.3 million non-cash asset impairment charge in Q1 2022 related to the Composite Fibers' Dresden facility and segment goodwill, triggered by the Russia/Ukraine military conflict[35]. The charge included $56.1 million for goodwill[35] - Total long-term debt was $795.1 million as of March 31, 2022[65]. On May 9, 2022, the company amended its Credit Agreement to increase the maximum permitted leverage ratio to 6.75 to 1.0 through the end of 2023[93] Net Sales by Segment (Q1, in thousands) | Segment | 2022 | 2021 | | :--- | :--- | :--- | | Composite Fibers | $135,829 | $141,249 | | Airlaid Material | $149,464 | $84,425 | | Spunlace | $96,387 | $0 | | Total | $381,680 | $225,674 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the Q1 results to the Russia/Ukraine conflict, acquisitions, and significant inflationary pressures - The company reported a GAAP loss from continuing operations of $108.3 million ($2.42 per share), primarily due to a $117.3 million asset impairment charge related to the Russia/Ukraine conflict[101][102] - On a non-GAAP adjusted basis, the company had a loss from continuing operations of $6.2 million ($0.14 per share), compared to income of $8.5 million ($0.19 per share) in Q1 2021[101][111] - Key operational factors in Q1 2022 included: significant inflationary pressures on energy and raw material costs, and an additional $123.7 million in net sales from the Mount Holly and Jacob Holm acquisitions[102] - Cash used by operating activities increased to $66.2 million in Q1 2022 from $6.0 million in Q1 2021, mainly due to higher working capital usage[135] Results of Operations Acquisitions drove a $156.0 million sales increase, but cost inflation and a $117.3 million impairment charge led to an operating loss Reconciliation of Net Loss to Adjusted Earnings (Q1 2022, in thousands) | Description | Amount | | :--- | :--- | | Net Loss | ($108,327) | | Goodwill and other asset impairment charges | $117,349 | | Russia/Ukraine conflict charges | $3,948 | | Strategic initiatives | $1,835 | | Cost optimization actions | $941 | | Timberland sales and related costs | ($2,962) | | Income taxes & other | ($19,068) | | Adjusted Earnings (Loss) | ($6,159) | Segment Financial Performance Composite Fibers' income fell due to the Russia/Ukraine conflict, while Airlaid Materials grew through acquisition Operating Income (Loss) by Segment (Q1, in thousands) | Segment | 2022 | 2021 | | :--- | :--- | :--- | | Composite Fibers | ($335) | $16,065 | | Airlaid Material | $12,221 | $7,197 | | Spunlace | ($1,572) | $0 | | Other and unallocated | ($126,203) | ($5,943) | | Total | ($115,889) | $17,319 | - Composite Fibers' performance was negatively impacted by a 34% decline in wallcover shipments, primarily due to the conflict in Russia and Ukraine[119] Liquidity and Capital Resources The company maintained liquidity with $80.5 million in cash and amended its credit agreement to increase its leverage covenant - The company had $80.5 million in cash and cash equivalents at quarter-end[134] - The leverage ratio per the Credit Agreement was 4.8x as of March 31, 2022[140]. A subsequent amendment on May 9, 2022, increased the maximum allowable ratio to 6.75 to 1.0 until the end of 2023[140] - Projected capital expenditures for the full year 2022 are expected to be between $45 million and $50 million[138] Quantitative and Qualitative Disclosures About Market Risks The company is primarily exposed to market risks from interest rate fluctuations and foreign currency exchange, particularly the Euro - As of March 31, 2022, the company had $795.1 million of long-term debt, with 6.4% at variable interest rates[147] - A hypothetical 100 basis point increase in interest rates on variable-rate debt would increase annual interest expense by $0.4 million[147] - The company has significant foreign currency risk, particularly with the Euro, as annual Euro-denominated net sales exceed Euro expenses by approximately €150 million[150] Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes to internal controls - The Chief Executive Officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of March 31, 2022[151] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[152] PART II – OTHER INFORMATION Risk Factors The Russia/Ukraine conflict poses significant risks, including reduced demand, supply chain disruptions, and cybersecurity threats - In 2021, approximately $95 million (7.3%) of the company's net sales were from customers in Russia and Ukraine[154] - The conflict led to a significant reduction in expected wallcover revenues, resulting in a $117.3 million non-cash asset impairment charge in Q1 2022[154] - European manufacturing sites face risks of shortages and increased costs for natural gas, a substantial portion of which originates from Russia[155] - The conflict has increased the risk of cybersecurity incidents and attacks, which could adversely affect operations and the supply chain[156] Exhibits Key exhibits filed include CEO/CFO certifications under the Sarbanes-Oxley Act and Interactive Data Files - The filing includes CEO and CFO certifications pursuant to Sections 302(a) and 906 of the Sarbanes-Oxley Act of 2002[160][161] - Interactive Data Files, including Inline XBRL documents, are furnished as part of the filing[161]