Mativ Holdings Inc

Previous wording

This MD&A discusses the financial condition and results of operations of the Company as of and for the three months ended March 31, 2024.

Current wording

This MD&A discusses the financial condition and results of operations of the Company as of and for the three and six months ended June 30, 2024.

Previous wording

As of March 31, 2024, the Company had $1,158.0 million of total debt, $128.9 million of cash, and undrawn capacity on its $600.0 million revolving line of credit facility (the "Revolving Facility") of $279.6 million. Per the terms of the Company's amended credit agreement (the "Amended Credit Agreement"), net leverage was 4.2x at the end of the first quarter, versus a current maximum covenant ratio of 4.50x. The Company’s nearest debt maturity is our 6.875% $350.0 million senior unsecured notes which are due in 2026. Refer to "Liquidity and Capital Resources" section for additional detail.

Current wording

As of June 30, 2024, the Company had $1,136.4 million of total debt, $133.4 million of cash, and $302.6 million of undrawn capacity on its $600.0 million revolving line of credit facility (the "Revolving Facility"). Per the terms of the Company's amended credit agreement (the "Amended Credit Agreement"), net leverage was 4.1x at the end of the second quarter, versus a current maximum covenant ratio of 4.50x. The Company’s nearest debt maturity is our 6.875% $350.0 million senior unsecured notes which are due October 1, 2026. Refer to "Liquidity and Capital Resources" section for additional detail.

Previous wording

Restructuring and impairment expenses related to the organizational realignment plan (the "Plan") for the three months ended March 31, 2024 were $12.7 million, comprised of severance charges of $2.4 million, $7.3 million and $3.0 million incurred within FAM, SAS and Unallocated, respectively.

Current wording

Restructuring and impairment expenses related to the organizational realignment plan (the "Plan") were comprised primarily of severance charges. For the three months ended June 30, 2024, these charges were $3.0 million, of which $0.5 million, $2.2 million and $0.3 million incurred within FAM, SAS and Unallocated, respectively. For additional information on the Plan, refer to Note 8. Restructuring and Impairment Activities of the Notes to the unaudited Condensed Consolidated Financial Statements.

Previous wording

Restructuring and impairment expenses in the FAM segment, excluding costs associated with the Plan were $0.8 million and $0.7 million for the three months ended March 31, 2024 and 2023, respectively. Restructuring and impairment expenses for the three months ended March 31, 2024 were attributable to planned facility closures. Restructuring and impairment expenses in the FAM segment for the three months ended March 31, 2023 primarily related to facility closures announced in prior years.

Current wording

Restructuring and impairment expenses in the FAM segment, excluding costs associated with the Plan were $0.8 million and $0.5 million for the three months ended June 30, 2024 and 2023, respectively. Restructuring and impairment expenses for the three months ended June 30, 2024 and 2023 were primarily due to facility closures announced in prior years.

Previous wording

Interest expense of $18.3 million during the three months ended March 31, 2024 increased $2.7 million, or 17.3%, compared to the prior year period. Interest expense increased primarily due to higher average interest rates on the floating portion of our outstanding debt in 2024.

Current wording

Interest expense of $18.4 million during the three months ended June 30, 2024 increased $2.0 million, or 12.2%, compared to the prior year period. Interest expense increased primarily due to higher average balances and higher average interest rates on the floating portion of our outstanding debt in 2024.

Previous wording

A $2.4 million income tax benefit in the three months ended March 31, 2024 resulted in an effective tax rate of 7.9% compared with 16.2% in the prior year period. The net change was primarily due to an unfavorable mix of earnings and one time tax adjustments in the current period.

Current wording

A $7.6 million income tax benefit in the three months ended June 30, 2024 resulted in an effective tax rate of 84.4% compared with (66.3)% in the prior year period. The net change was primarily due to favorable mix of earnings and one time discrete tax adjustments in the prior and current periods.

Previous wording

SAS segment net sales of $297.5 million during the three months ended March 31, 2024 decreased $30.9 million, or 9.4%, compared to the prior year period, reflecting lower volume and selling prices partially offset by favorable currency translation. Lower volume across the segment reflects customer caution in the current uncertain economic environment.

Current wording

SAS segment net sales of $614.9 million during the six months ended June 30, 2024 decreased $28.3 million, or 4.4%, compared to the prior year period, reflecting lower volume/mix and lower selling prices due to input cost deflation.

Previous wording

Gross profit of $84.0 million during the three months ended March 31, 2024 decreased $3.7 million, or 4.2%, compared to the prior year period. The change in gross profit reflected favorable net input costs/selling price and cost reduction initiatives more than offset by lower volumes, associated fixed cost absorption, and higher production costs. The Company monitors and continues to adjust staffing levels of manufacturing labor relative to volumes.

Current wording

Gross profit of $192.9 million during the six months ended June 30, 2024 increased $9.7 million, or 5.3%, compared to the prior year period. The change in gross profit reflected favorable relative net selling price versus input cost performance and favorable distribution expenses partially offset by lower volume, less favorable product mix, associated fixed cost absorption, and higher manufacturing costs. The Company monitors and continues to adjust staffing levels of manufacturing labor relative to volumes.

Previous wording

Nonmanufacturing expenses of $83.4 million during the three months ended March 31, 2024 decreased $5.7 million, or 6.4%, compared to the prior year period primarily driven by lower integration related costs.

Current wording

Nonmanufacturing expenses of $170.0 million during the six months ended June 30, 2024 decreased $3.7 million, or 2.1%, compared to the prior year period primarily driven by integration related costs incurred in the prior year period.

Previous wording

The Company incurred total restructuring and impairment expense of $14.4 million in the three months ended March 31, 2024 compared with $0.8 million in the prior year period.

Current wording

The Company incurred total restructuring and impairment expense of $26.2 million in the six months ended June 30, 2024 compared with $1.3 million in the prior year period.

Previous wording

Restructuring and impairment expenses in the SAS segment, excluding costs associated with the Plan, were $0.9 million and $0.1 million for the three months ended March 31, 2024 and 2023, respectively. Restructuring and impairment expenses for the three months ended March 31, 2024 included $0.8 million related to a facility closure announced in a prior year.

Current wording

Restructuring and impairment expenses in the SAS segment, excluding costs associated with the Plan, were $8.9 million and $0.1 million for the six months ended June 30, 2024 and 2023, respectively. Restructuring and impairment expenses for the six months ended June 30, 2024 included impairment charges of $7.2 million related to long-lived assets at our Eerbeek, Netherlands facility to reduce the carrying value of the assets to fair value using management estimates for future cash flows. The impairment assessment was performed after revising our long-term view on market conditions and profitability. The remaining restructuring and impairment expenses for the six months ended June 30, 2024 were related to a facility closure announced in a prior year.

Previous wording

Net loss during the three months ended March 31, 2024 was $28.0 million, or $0.52 per diluted share, compared to net loss of $15.5 million, or $0.28 per diluted share, during the prior year period.

Current wording

Net loss during the six months ended June 30, 2024 was $29.4 million, or $0.54 per diluted share, compared to net loss of $29.8 million, or $0.55 per diluted share, during the prior year period.

Previous wording

A major factor in our liquidity and capital resource planning is our generation of cash flow from operations, which is sensitive to changes in the mix of products sold, volume and pricing of our products, as well as changes in our production volumes, costs and working capital. Our liquidity is supplemented by funds available under our Revolving Facility with a syndicate of banks that is used as either operating conditions or strategic opportunities warrant.

Current wording

A major factor in our liquidity and capital resource planning is our generation of cash flow from operations, which is sensitive to changes in the mix of products sold, volume and pricing of our products, as well as changes in our production volumes, costs and working capital. Our liquidity is supplemented by funds available under our Revolving Facility with a syndicate of banks that is used as either operating conditions or strategic opportunities warrant. Market conditions permitting, we may also seek to access the capital markets as we deem appropriate.

Previous wording

As of March 31, 2024, $107.5 million of the Company's $128.9 million of cash and cash equivalents was held by foreign subsidiaries. We believe our sources of liquidity and capital, including cash on-hand, cash generated from operations and our existing credit facilities, will be sufficient to finance our continued operations, our current and long-term growth plan, and dividend payments.

Current wording

As of June 30, 2024, $128.0 million of the Company's $133.4 million of cash and cash equivalents was held by foreign subsidiaries. We believe our sources of liquidity and capital, including cash on-hand, cash generated from operations and our Revolving Facility, will be sufficient to finance our continued operations, our current and long-term growth plan, and dividend payments.

Previous wording

Net cash used in operating activities was $13.0 million during the three months ended March 31, 2024 compared to net cash used of $24.4 million during the prior year period. The decrease was due to an increase in accounts payable, as well as a decrease in inventory in the current period.

Current wording

Net cash provided by operating activities was $33.1 million during the six months ended June 30, 2024 compared to net cash provided of $5.5 million during the prior year period. The increase was due to an increase in accounts payable and other current liabilities, offset by a decrease in accounts receivables and inventories.

Previous wording

As of March 31, 2024, the Company had net operating working capital of $463.9 million, including cash and cash equivalents of $128.9 million, compared to net operating working capital of $433.9 million (excluding Current assets held for sale of discontinued operations and Current liabilities held for sale of discontinued operations), including cash and cash equivalents of $120.2 million as of December 31, 2023. The increase is attributable primarily to an increase in accounts receivable.

Current wording

As of June 30, 2024, the Company had net operating working capital of $449.3 million, including cash and cash equivalents of $133.4 million, compared to net operating working capital of $433.9 million, including cash and cash equivalents of $120.2 million as of December 31, 2023. The increase is attributable primarily to an increase in accounts receivable and cash and cash equivalents, partially offset by an increase in accounts payable.

Previous wording

During the three months ended March 31, 2024, net changes in operating working capital resulted in a cash outflow of $12.7 million, a decrease from $46.1 million of outflows during the prior year period. The $33.4 million decrease was due to an increase in accounts payable and other current liabilities, as well as a decrease in inventory.

Current wording

During the six months ended June 30, 2024, net changes in operating working capital resulted in cash outflows of $3.6 million, a decrease from $36.0 million of outflows during the prior year period. The $32.4 million decrease was due to an increase in net changes of accounts payable and other current liabilities, offset by a decrease in net changes of accounts receivable.

Previous wording

Cash used in investing activities during the three months ended March 31, 2024 was $9.1 million, compared to cash outflows of $14.8 million during the prior year period, which were mainly attributable to capital spending and proceeds from sale of assets. Within investing cash flows, capital spending was $12.1 million compared to $14.1 million in the prior year period.

Current wording

Cash used in investing activities during the six months ended June 30, 2024 was $20.0 million, compared to cash outflows of $33.9 million during the prior year period, which were mainly attributable to capital spending and proceeds from sale of assets. Within investing cash flows, capital spending was $20.8 million compared to $34.7 million in the prior year period.

Previous wording

Cash Used in Financing Activities

Current wording

Cash Provided By (Used In) Financing Activities

Previous wording

Cash provided by financing activities during the three months ended March 31, 2024 was $45.8 million, compared to cash provided of $12.0 million during the prior year period. During the three months ended March 31, 2024, financing activities primarily consisted of $69.0 million of borrowings under the revolving credit facility, $5.4 million of dividends paid to the Company's stockholders, and payments on our long-term debt of $16.7 million.

Current wording

Cash provided by financing activities during the six months ended June 30, 2024 was $16.4 million, compared to cash provided of $2.8 million during the prior year period. During the six months ended June 30, 2024, financing activities primarily consisted of $94.0 million of borrowings under the Revolving Facility, $10.8 million of dividends paid to the Company's stockholders, and payments on our long-term debt of $65.3 million.

Previous wording

During the prior year period, financing activities primarily consisted of $19.5 million of payments on our long-term debt, $55.0 million of proceeds from borrowings under the revolving credit facility, and $22.0 million in cash paid for dividends paid to the Company's stockholders.

Current wording

During the prior year period, financing activities primarily consisted of $115.1 million of proceeds from borrowings under the Revolving Facility, $64.7 million of payments on our long-term debt, and $44.3 million of dividends paid to the Company's stockholders.

Previous wording

On May 8, 2024, we announced a cash dividend of $0.10 per share payable on June 21, 2024 to stockholders of record as of May 24, 2024. The covenants contained in our Indenture and amended Credit Agreement require that we maintain certain financial ratios as disclosed in Note 9. Debt of the notes to the unaudited condensed consolidated financial statements, none of which under normal business conditions materially limit our ability to pay such dividends. We will continue to assess our dividend policy in light of our overall strategy, cash generation, debt levels and ongoing requirements for cash to fund operations and to pursue possible strategic opportunities.

Current wording

On August 7, 2024, we announced a cash dividend of $0.10 per share payable on September 20, 2024 to stockholders of record as of August 23, 2024. The covenants contained in the Indenture governing the Notes and Amended Credit Agreement require that we maintain certain financial ratios as disclosed in Note 9. Debt of the notes to the unaudited condensed consolidated financial statements, none of which under normal business conditions materially limit our ability to pay such dividends. We will continue to assess our dividend policy in light of our overall strategy, cash generation, debt levels and ongoing requirements for cash to fund operations and to pursue possible strategic opportunities.

Previous wording

The following table presents activity related to our debt instruments for the three months ended March 31, 2024 and 2023 (in millions):

Current wording

The following table presents activity related to our debt instruments for the six months ended June 30, 2024 and 2023 (in millions):

Previous wording

Net proceeds from borrowings were $52.3 million during the three months ended March 31, 2024, compared to net proceeds from borrowings of $35.5 million during the prior year period.

Current wording

Net proceeds from borrowings were $28.7 million during the six months ended June 30, 2024, compared to net proceeds from borrowings of $50.4 million during the prior year period.

Previous wording

Unused borrowing capacity under the amended Credit Agreement was $279.6 million as of March 31, 2024.

Current wording

Unused borrowing capacity under the Amended Credit Agreement was $302.6 million as of June 30, 2024.

Previous wording

Our total debt to capital ratios, as calculated under the amended Credit Agreement, at March 31, 2024 and December 31, 2023 were 56.1% and 53.8%, respectively.

Current wording

Our total debt to capital ratios, as calculated under the Amended Credit Agreement, at June 30, 2024 and December 31, 2023 were 55.9% and 53.8%, respectively.

Previous wording

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Act") that are subject to the safe harbor created by the Act and other legal protections. Forward-looking statements include, without limitation, those regarding the incurrence of additional debt and expected maturities of the Company’s debt obligations, the adequacy of our sources of liquidity and capital, acquisition integration and growth prospects (including international growth), the cost and timing of our restructuring actions, the impact of ongoing litigation matters and environmental claims, the amount of capital spending and/or common stock repurchases, future cash flows, purchase accounting impacts, impacts and timing of our ongoing operational excellence and other cost-reduction and cost-optimization initiatives, profitability, and cash flow, the expected benefits and accretion of the Neenah merger and integration, whether the strategic benefits of the EP Divestiture can be achieved and other statements generally identified by words such as "believe," "expect," "intend," "guidance," "plan," "forecast," "potential," "anticipate," "confident," "project," "appear," "future," "should," "likely," "could," "may," "will," "typically" and similar words.

Current wording

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Act") that are subject to the safe harbor created by the Act and other legal protections. Forward-looking statements include, without limitation, those regarding the incurrence of additional debt and expected maturities of the Company’s debt obligations, the adequacy of our sources of liquidity and capital, acquisition integration and growth prospects, the cost and timing of our restructuring actions, our expectations regarding our organizational realignment plan, the impact of ongoing litigation matters and environmental claims, the amount of capital spending and/or common stock repurchases, future cash flows, purchase accounting impacts, impacts and timing of our ongoing operational excellence and other cost-reduction and cost-optimization initiatives, profitability, and cash flow, the expected benefits and accretion of the Neenah merger and integration, whether the strategic benefits of the EP Divestiture can be achieved and other statements generally identified by words such as "believe," "expect," "intend," "guidance," "plan," "forecast," "potential," "anticipate," "confident," "project," "appear," "future," "should," "likely," "could," "may," "will," "typically" and similar words.