Mativ(US:MATV)2023-05-10 20:12Part I - Financial Information Financial Statements The financial statements reflect the Neenah merger's impact, showing a net loss and significant changes in cash flow Condensed Consolidated Statements of Income (Loss) (in millions) | | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net sales | $679.0 | $406.8 | | Gross profit | $109.0 | $92.6 | | Operating profit | $9.3 | $10.6 | | Net income (loss) | $(7.7) | $1.6 | | Diluted EPS | $(0.14) | $0.05 | Condensed Consolidated Balance Sheets (in millions) | | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total current assets | $1,005.2 | $974.7 | | Total assets | $3,674.8 | $3,669.2 | | Total current liabilities | $468.5 | $466.1 | | Total liabilities | $2,515.5 | $2,489.9 | | Total stockholders' equity | $1,159.3 | $1,179.3 | Condensed Consolidated Statements of Cash Flows (in millions) | | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net cash provided by (used in) operations | $(20.7) | $5.0 | | Net cash used in investing | $(19.4) | $(9.6) | | Net cash provided by (used in) financing | $11.7 | $(13.6) | | Decrease in cash and cash equivalents | $(27.4) | $(18.6) | Note 1. General: Business Overview The company was renamed Mativ Holdings, Inc after merging with Neenah and now operates via two new segments - On July 6, 2022, SWM consummated its merger with Neenah, Inc and changed its name to Mativ Holdings, Inc24 - The company's two reporting segments are now Advanced Technical Materials (ATM) and Fiber-Based Solutions (FBS)24 Note 2. Revenue Recognition Net sales reached $679.0 million in Q1 2023, primarily from the US and Europe, with revenue recognized upon shipment Net Sales by Geographic Location (in millions) | Region | Q1 2023 Total Sales | Q1 2022 Total Sales | | :--- | :--- | :--- | | United States | $339.8 | $190.6 | | Europe and former CIS | $205.8 | $115.1 | | Asia-Pacific | $73.2 | $60.3 | | Americas (excluding U.S.) | $41.2 | $26.9 | | Other foreign countries | $19.0 | $13.9 | | Total Net Sales | $679.0 | $406.8 | - The company entered into an accounts receivables sales agreement in December 2022 with a maximum funding commitment of $175.0 million; in Q1 2023, $312.1 million of trade accounts receivable were sold under these programs4754 Note 4. Business Acquisitions: Neenah Merger The Neenah merger was completed for $1,056.3 million, adding $230.9 million in goodwill to the ATM segment - The total consideration transferred to merge with Neenah was $1,056.3 million, which included equity, debt repayment, and other costs59 - The excess of total consideration over net assets acquired was recorded as goodwill of $230.9 million, allocated to the ATM segment, and is not expected to be tax-deductible6164 Neenah Financial Contribution Q1 2023 (in millions) | Metric | Amount | | :--- | :--- | | Net sales | $287.8 | | Net income | $2.9 | Note 9. Restructuring and Impairment Activities Restructuring and impairment expenses fell to $0.8 million in Q1 2023 from $13.2 million in the prior year Restructuring and Impairment Expense (in millions) | | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Total restructuring and impairment expense | $0.8 | $13.2 | - Q1 2022 expenses included a $12.9 million impairment of certain assets in the legacy SWM ATM segment87 Note 10. Debt Total debt increased to $1.733 billion as of March 31, 2023, with the company remaining in covenant compliance Total Debt Summary (in millions) | | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total debt | $1,733.0 | $1,693.9 | | Total long-term debt | $1,697.9 | $1,659.3 | - The company was in compliance with all of its covenants under the amended Credit Agreement and the Indenture at March 31, 2023101106 Note 15. Segment Information The ATM segment's operating profit grew significantly while the FBS segment's profit declined post-merger Segment Performance Q1 2023 vs Q1 2022 (in millions) | Segment | Net Sales 2023 | Net Sales 2022 | Operating Profit 2023 | Operating Profit 2022 | | :--- | :--- | :--- | :--- | :--- | | ATM | $434.3 | $272.9 | $37.6 | $10.3 | | FBS | $244.7 | $133.9 | $6.2 | $25.7 | | Unallocated | N/A | N/A | $(34.5) | $(25.4) | | Total | $679.0 | $406.8 | $9.3 | $10.6 | Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) The Neenah merger drove a 66.9% sales increase, but gross margin declined due to inefficiencies and strikes Results of Operations Net sales rose 66.9% due to the Neenah acquisition, but operating profit fell 12.3% on compressed margins - Net sales increased 66.9% to $679.0 million, primarily due to the addition of Neenah operations; price increases were offset by volume declines and negative currency impacts163164 - Gross profit margin fell to 16.1% from 22.8% YoY, negatively impacted by lower volume, manufacturing inefficiencies, and operational disruptions, including labor strikes in France165 - FBS segment operating profit declined 75.9% to $6.2 million, largely driven by labor strikes in France, manufacturing inefficiencies, and intangible asset amortization from the merger169170 - Interest expense increased 82.8% to $26.5 million due to incremental debt from the Merger and higher interest rates172 Liquidity and Capital Resources Liquidity remains sufficient with $359.0 million undrawn on its credit facility despite negative operating cash flow - As of March 31, 2023, the company had $97.0 million in cash and $359.0 million of undrawn capacity on its revolving credit facility159178 - Net cash used in operating activities was $20.7 million in Q1 2023, compared to $5.0 million provided in Q1 2022, due to unfavorable working capital changes179 - The company's net leverage was 4.1x at the end of Q1, versus a maximum covenant ratio of 5.25x159 - A cash dividend of $0.40 per share was announced on May 10, 2023184 Quantitative and Qualitative Disclosures About Market Risk Market risk exposure has not materially changed from the disclosures in the 2022 Annual Report on Form 10-K - Market risk exposure at March 31, 2023 is consistent with and not materially different than the market risk presented in the 2022 Annual Report on Form 10-K195 Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes to internal controls - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of March 31, 2023196 - No changes in internal control over financial reporting occurred in Q1 2023 that have materially affected, or are reasonably likely to materially affect, internal controls197 Part II - Other Information Legal Proceedings There have been no material developments in legal proceedings since the last annual report - There have been no material developments with regard to legal proceedings referenced in the Annual Report on Form 10-K for the year ended December 31, 2022 and Note 12 of this report200 Risk Factors The company's risk factors have not materially changed from those disclosed in the 2022 Annual Report - The risk factors discussed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2022, remain relevant and could materially affect the business201 Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 54,435 shares in Q1 2023 to cover tax withholding on employee stock awards Issuer Purchases of Equity Securities (Q1 2023) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Jan 1 - 31, 2023 | 29,491 | $22.51 | | Feb 1 - 28, 2023 | 24,944 | $26.59 | | Mar 1 - 31, 2023 | — | — | | Total YTD 2023 | 54,435 | $24.37 | - The repurchases represent vested restricted shares from employees to satisfy minimum tax withholding requirements upon vesting of stock-based awards202 Other Items (3, 4, 5, 6) Items 3, 4, and 5 are not applicable, while Item 6 lists the exhibits filed with the report - Item 3, Defaults Upon Senior Securities: Not applicable204 - Item 4, Mine Safety Disclosures: Not applicable205 - Item 5, Other Information: Not applicable206 - Item 6 provides a list of exhibits filed with the Form 10-Q208