Mativ Holdings, Inc. (MATV) is a global leader in specialty materials, solving complex challenges for its customers by engineering innovative solutions that connect, protect, and purify the world. The company operates through two reportable segments: Filtration & Advanced Materials (FAM) and Sustainable & Adhesive Solutions (SAS).

In the fiscal year 2023, Mativ reported annual net income of -$310.2 million, annual revenue of $2,026 million, annual operating cash flow of $106.6 million, and annual free cash flow of $40.2 million. The company's performance in the first quarter of 2024 provides insights into its ongoing transformation and growth prospects.

Mativ's Q1 2024 Results: Navigating Challenges, Positioning for Growth

Mativ reported consolidated net sales of $500.2 million in Q1 2024, down 8.9% from the prior year period. The FAM segment saw net sales of $202.7 million, a decrease of 8.1% year-over-year, while the SAS segment reported net sales of $297.5 million, a 9.4% decline. The year-over-year decreases were primarily due to lower demand and selling prices, partially offset by favorable currency translation.

Despite the top-line challenges, Mativ's management team remained focused on executing strategic initiatives to position the company for long-term success. The company's recent organizational realignment, which created the FAM and SAS segments, has already improved agility and efficiency, both internally and externally. The customer response to these changes has been positive.

Mativ's adjusted EBITDA from continuing operations was $45.8 million in Q1 2024, down from $48.9 million in the prior year period. The decline was primarily driven by lower volumes, associated fixed cost absorption, and the sell-through of higher-cost inventory produced in the prior quarter, partially offset by positive net input cost and selling price benefits, distribution efficiencies, and cost reduction initiatives.

Segment Performance: Navigating Challenges, Capturing Opportunities

In the FAM segment, net sales of $202.7 million decreased 8.1% year-over-year, reflecting lower demand due to customer caution and the uncertain macroeconomic environment. However, FAM adjusted EBITDA of $33 million was down 23% year-over-year, as the effects of lower volumes and higher-cost inventory were partially offset by positive net input cost and selling price benefits, distribution efficiencies, and cost reduction initiatives.

The SAS segment reported net sales of $297.5 million, a 9.4% decline from the prior year period, also due to lower volume and selling prices, partially offset by favorable currency translation. However, SAS adjusted EBITDA of $32 million was up 19% year-over-year, as the negative volume and manufacturing cost impacts were more than offset by favorable net input cost and selling price, distribution efficiencies, and cost reduction initiatives.

Mativ's management team remains focused on driving growth and capturing opportunities within its segments. In the FAM segment, the company is leveraging its breadth of technologies to provide comprehensive solutions that simplify its customers' supply chains, improve quality consistency, and enable Mativ to become a larger partner. Additionally, the company has been awarded new recurring business for its proprietary UV reflective film used in the aerospace industry, and it is experiencing both market growth and share gain opportunities in transportation filtration.

In the SAS segment, Mativ is working with customers to transition the specification of release liners to its own products as part of creating more holistic supply chain solutions. The company's pipeline for new account acquisition, new products, and cross-category sales has doubled in the last six months, and it recently landed over $10 million of new business with a new customer in the specialty paper space.

Liquidity

As of March 31, 2024, Mativ had $128.9 million in cash and cash equivalents and $1,158.0 million in total debt, resulting in net debt of $1,029.1 million. The company's net leverage ratio, as defined in its credit agreement, was 4.2x at the end of the first quarter, which is expected to decrease in the second half of 2024 as Mativ prioritizes debt paydown with free cash flow and realizes improving EBITDA on a year-over-year basis.

Mativ's management team remains focused on reducing complexity and winning with leading customers in the markets in which it competes. The company expects a continued sequential step-up in sales in Q2 2024, with sales expected to be in line with the prior year's result of $526 million. Mativ also expects a significant sequential step-up in EBITDA, approaching a 30% improvement, mainly due to recovering volumes and further realization of its cost reduction initiatives driving additional margin improvement.

Outlook

Mativ's performance in Q1 2024 reflects the ongoing challenges the company has faced, including customer destocking, economic uncertainty, and inflationary pressures. However, the company's strategic initiatives, including its organizational realignment, cost reduction efforts, and focus on driving growth and capturing opportunities, position Mativ for improved performance in the coming quarters.

The company's guidance for Q2 2024, including a significant sequential step-up in EBITDA, and its expectations for continued improvement throughout the remainder of the year, suggest that Mativ is well on its way to unlocking the full potential of the combined business. As the company executes on its strategic priorities and navigates the evolving market landscape, investors will be closely watching Mativ's ability to drive sustainable growth and enhance shareholder value.