Business Overview Mativ Holdings, Inc. (MATV) is a global leader in specialty materials, solving its customers' most complex challenges by engineering innovative solutions that connect, protect, and purify our world. The company's diversified portfolio of business-to-business and consumer product brands targets premium applications across a wide range of growing end-markets, from filtration to healthcare to sustainable packaging and more.

Mativ was formed in 2022 through the merger of Schweitzer-Mauduit International, Inc. (SWM) and Neenah, Inc. The combined company brought together two highly complementary specialty materials businesses with a shared focus on innovation, quality, and customer service. Mativ traces its roots back to 1995 when it was founded through the merger of Schweitzer and Mauduit, two leading producers of reconstituted tobacco leaf and specialty papers. Initially focused on its core tobacco-related business, the company supplied reconstituted tobacco leaf and specialty papers to the global tobacco industry while facing challenges from increasing tobacco regulation and declining cigarette consumption in developed markets.

A significant turning point came in 2012 with the acquisition of the Advanced Materials division of Lydall, Inc., which expanded Mativ's capabilities in filtration, films, and advanced materials. This strategic move strengthened the company's position in high-growth end markets such as transportation, energy, and life sciences. Mativ continued its expansion through targeted acquisitions and investments in R&D, gradually diversifying its portfolio beyond tobacco-related products.

The 2022 merger with Neenah, Inc. was a transformative event, allowing Mativ to capitalize on synergies and expand its reach in sustainable materials, filtration, and specialty paper and packaging solutions. Today, Mativ operates two reportable segments - Filtration & Advanced Materials (FAM) and Sustainable & Adhesive Solutions (SAS).

The FAM segment primarily serves customers in the filtration, transportation, life sciences, and industrial markets. Key product categories include filtration netting, which comprises high-efficiency filtration media and components used in transportation applications, water filtration, industrial processes, life science, HVAC, and air pollution control, as well as extruded mesh products used in agriculture and various packaging applications. The segment also produces advanced films, including paint protection films for the transportation aftermarket channel, optical films for glass and glazing applications, interlayer films and lamination for ballistic resistance, medical films and composites for advanced wound care and consumer products, security glass, high-performance graphic substrates, and emerging smart glass applications.

The SAS segment focuses on tapes, labels, liners, specialty paper, packaging, and healthcare solutions. This segment supplies customers through distribution and directly, serving growing and mature end markets. Key product categories include tapes, labels & liners, which encompass substrates for tapes used in building construction, infrastructure, DIY, athletic, and industrial applications, as well as substrates critical to protection and adhesive separation. The segment also produces paper packaging, including premium printing and other specialty papers for various applications, as well as healthcare and other products such as advanced wound care, consumer wellness, device fixation, and medical packaging solutions.

Both segments boast strong market positions, innovative product portfolios, and well-established customer relationships. The company operates in the specialty materials industry, which is characterized by key trends including growth in filtration, medical, and sustainable packaging applications, offset by softness in automotive and construction markets.

Financial Performance Mativ's financial performance has been mixed in recent years, reflecting the broader challenges faced by the specialty materials industry. In the fiscal year ended December 31, 2023, the company reported net sales of $2.03 billion, down from $1.64 billion in the prior year. This decline was largely attributable to the divestiture of the company's Engineered Papers business in November 2023, which generated $399.1 million in net sales during the first nine months of 2023.

On a continuing operations basis, Mativ's net sales increased 23.8% year-over-year, driven by strong demand across both the FAM and SAS segments. However, the company's profitability was impacted by a $401 million goodwill impairment charge, as well as higher costs and supply chain disruptions. As a result, Mativ reported a net loss from continuing operations of $507.7 million, or $9.06 per diluted share, in 2023.

In the most recent quarter (Q3 2024), Mativ reported revenue of $498.5 million, essentially flat compared to the prior year quarter, with a 0.1% growth rate. However, net income decreased significantly to -$20.8M, primarily due to lower operating profit and higher interest expense. Operating cash flow and free cash flow for the quarter were both $0 million.

For the first nine months of 2024, the FAM segment reported net sales of $598.7 million and operating profit of $59.7 million, while the SAS segment had net sales of $923.8 million and operating profit of $30.1 million. The company as a whole had net sales of $1.52 billion and operating profit of $3.7 million during this period.

Liquidity Despite the challenges, the company's balance sheet remained relatively strong, with $120.2 million in cash and cash equivalents as of December 31, 2023, and a net debt to EBITDA ratio of 4.1x. As of September 30, 2024, Mativ had $162.2 million in cash and $300.6 million of available credit on its $600 million revolving credit facility. The company's credit agreement includes a maximum net debt to EBITDA ratio of 4.50x, which Mativ was in compliance with as of the end of Q3 2024.

The company's debt-to-equity ratio stands at 1.35, while its current ratio is 2.37 and quick ratio is 1.29. Mativ's management team has remained focused on deleveraging and improving the company's financial flexibility, with a target leverage range of 2.5x to 3.5x net debt to EBITDA.

Outlook and Strategic Initiatives Looking ahead, Mativ is focused on executing a multi-pronged strategy to drive sustainable growth and profitability. The company is targeting high-growth end markets, such as filtration, advanced films, and healthcare, where it can leverage its technical expertise and innovative product capabilities. Mativ is also working to streamline its operations, consolidate its manufacturing footprint, and optimize its cost structure to improve margins.

One key area of focus for the company is its advanced films business, which has faced headwinds from softer demand in the automotive and construction end markets. To address this challenge, Mativ has assembled a "tiger team" to develop and implement a comprehensive turnaround plan, including accelerating its presence in targeted growth markets, providing a unique "One Mativ" supply chain solution for customers, and driving aggressive cost reduction initiatives.

In the Sustainable & Adhesive Solutions segment, Mativ is capitalizing on strong demand in healthcare, labels, and release liners, where it has made targeted investments to expand capacity and increase its market share. The company has also successfully executed on a series of divestitures and facility consolidations, which are expected to enhance its profitability and reduce complexity.

For Q4 2024, Mativ expects sales to be up mid-single digits versus last year, but adjusted EBITDA to be down low double digits versus last year. The key drivers for this guidance include the timing of incentives, unfavorable product mix, timing of maintenance outages, and extended downtime over the holiday season compared to Q4 2023. For the full year 2024, Mativ is planning for capital expenditures of approximately $50 million, down from the previously communicated $60 million, and expects depreciation and amortization expense to be around $100 million.

Risks and Challenges Mativ's business is subject to a variety of risks and challenges, including fluctuations in raw material costs, supply chain disruptions, competitive pressures, and macroeconomic uncertainties. The company's diversified portfolio and broad geographic footprint help to mitigate some of these risks, but the specialty materials industry remains highly competitive and cyclical.

Additionally, Mativ's recent merger integration and ongoing restructuring efforts introduce execution risks that the company must navigate effectively. The success of the company's growth and optimization initiatives will be critical in determining its future financial performance.

Conclusion Mativ Holdings, Inc. is a diversified specialty materials leader that is navigating a challenging market environment. The company's broad portfolio, innovative product capabilities, and focus on high-growth end markets provide a solid foundation for long-term value creation. However, Mativ must continue to execute on its strategic initiatives, optimize its cost structure, and effectively manage its integration and restructuring efforts to capitalize on its full potential. As the company works to overcome near-term headwinds, investors will be closely watching Mativ's progress in delivering sustainable growth and profitability. The company's ability to improve its financial performance, particularly in terms of adjusted EBITDA and margin expansion, while managing its debt levels and achieving its target leverage range, will be crucial factors in determining its future success in the competitive specialty materials industry.