Q4 2023 Glatfelter Corporation Earnings Call
Ladies and gentlemen, thank you for standing by your currently on hold for the Glatfelter as Q4 2023 earnings release Conference call. At this time, we are assembling today's audience and plan to be underway. Shortly we appreciate your patience and ask you. Please remain on the line.
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Ladies and gentlemen, good day and welcome to the Glatfelter as Q4 2023 earnings release Conference call. Today's conference is being recorded at this time I would like to turn the conference over to remain shut occur. Please go ahead Sir.
Thank you Lisa.
Good morning, and welcome to Black sell terrorists 2023 fourth quarter earnings Conference call. This is Ravi Shankar Senior Vice President and Chief Financial Officer and Treasurer.
On the call to present, our fourth quarter results as Thomas Vitamin President and Chief Executive Officer of Glatfelter and myself.
Before we begin our presentation I have a few standard reminders during our call. This morning, we will use the term adjusted earnings as well as other non-GAAP financial measures.
Reconciliation of these financial measures to our GAAP based results is included in today's earnings release and in the Investor slides.
We'll also make forward looking statements today that are subject to risks and uncertainties.
Our 2022 Form 10-K, and our 2023 form 10, Qs all of which have been filed with the SEC and todays release are available on our website disclose factors that could cause our actual results to differ materially from these forward looking statements.
Statements speak only as of today and we are under no obligation to update them.
I'll turn the call over to Thomas.
Thank you Ramesh Hello, everyone and welcome to the fourth quarter and for the year 2023 Investor call.
I begin by sharing our fourth quarter results were solid and as expected in light of continued industry wide market challenges.
We achieved adjusted EBITDA of $25 1 million for the quarter consistent with the third quarter and $93 million for the full year in line with guidance.
So as most notably on February 7th we announced a significant strategic milestone for the company and our shareholders with proposed plans to merge clubs here, though with Berry Globus H H N S business, which I'll speak to in more details towards the end of the call.
Turning now to the highlights of clubs third of fourth quarter performance.
The team achieved exceptional results during the fourth quarter in our family segment by generating improved volume and profitability compared to the prior quarter, which contributed to approximately $9 million improvement in adjusted EBITDA over 12 months period.
This outcome is a direct reflection of the expanded commercial focus for hours on Tara branded products operational improvements in Egypt, our fourth panelist sites and careful cost discipline throughout the segment.
In addition, we are pleased with our fourth quarter progress in our composite fibers segment as the underlying fundamentals of sustaining the gains made previously throughout the third quarter with EBITDA margins approaching 10% in the second half of the year.
We are seeing the direct benefits from the turnaround actions, we took throughout the year largely attributed to addressing the price cost gap and improving our inclined wire production.
In addition, the segment benefited from having divested the Oba Schmidt in Germany facility earlier in the year.
As a result of this momentum we have increased our commercial efforts are restoring key volumes as we carefully balance inventories with fixed cost absorption to match demand in our major markets.
And our <unk> segment, we experienced a pronounced competitive end market challenges with this segments overall volumes down 5% compared to the fourth quarter of 2022, namely in our feminine hygiene and European tabletop categories.
In addition, we conducted an extensive planned maintenance shutdown in our got to an old facility, which also negatively contributed to the segment's performance.
As we enter 2023.
Quickly realized that the market required us to take significant actions to maintain our profitability and diversify our customer base.
As a result, we consciously made the decision to protect margins through pricing actions at the potential expense of volume, which we are now seeing play out as consumers have been slow to respond in this inflationary environment.
Also we are working to diversify our customer base and product portfolio to reduce customer concentration, while expanding our efforts in innovation and sustainability.
We recognized this multifaceted approach would take time to deliver the intended results.
I'll now turn the call over to a rubbish.
Thank you Thomas Slide three of the Investor presentation provides a summary of our fourth quarter results.
Adjusted EBITDA was $25 $1 million, which was in line with our third quarter results. The slide despite lower production typically in the fourth quarter to manage inventory levels.
2023 full year EBITDA was approximately $93 million and within the guidance range provided last quarter.
Early materials EBITDA was lower by approximately 6 million versus a very strong quarter. During the same period last year.
Lower earnings were mainly driven by adverse price cost gap lower shipments and planned maintenance downtime.
Composite fibers EBITDA improved by approximately $2 million driven by higher inclined wire production and favorable price cost gap.
Spun laced EBITDA was higher by approximately $4 million compared to the same quarter last year, driven by favorable price cost gap as well as turnaround actions related to head count reductions and operational improvements.
Slide five shows a summary of fourth quarter results for the airline materials segment.
Revenues were down 19% on a constant currency basis versus the same period last year, mainly driven by lower shipments and lower selling prices of approximately $17 million.
Selling prices were lower mainly due to cost pass throughs, reflecting declines in raw material and energy costs in Europe, and selective price concessions to non floating customers to preserve volume.
On a net basis the price cost gap was unfavorable to earnings by $1 $7 million.
Volume was lower by 5% year over year, primarily due to weaker shipments in the tabletop category.
This was largely driven by market softness in Europe, coupled with ongoing competition from alternate substrates due to the high cost of flux.
Operations were unfavorable by $2 million versus the prior year, primarily due to extended maintenance downtime in our gatineau facility to improve operational efficiency.
So wage and other general inflation were higher compared to the same period last year.
Foreign exchange and related currency hedging negatively impacted earnings by $900000, primarily due to hedging gains from the prior year.
Slide six shows a summary of fourth quarter results for the composite fiber segment.
Total revenues were down 18% on a constant currency basis, due to lower shipments and selling prices of $8 $2 million from floating contracts implemented with larger food and beverage customers.
Excluding sales from the <unk> operation that was divested in the third quarter year over year volume was lower by approximately 7%.
The decline was primarily due to wall cover and food and beverage categories, but was partially offset by improvement in composite laminates and technical specialties.
Also the fourth quarter was the first full quarter since the divestiture of Arrow Bushman site, eliminating any further ongoing losses and favorably impacted year over year results by $1 $2 million.
Lower prices for key raw materials energy and freight improved earnings by $9 $5 million versus the same quarter last year reversing the negative price cost gap trends.
Operations and other was favorable by $1.3 million, mainly driven by benefits from higher inclined wire production.
And foreign exchange was unfavorable by $1 $5 million driven by hedging gains from last year.
Slide seven shows the summary of fourth quarter results for the spun laced segment.
Revenues were down 7% on a constant currency basis, driven by lower selling prices of approximately 7 million coming from raw material cost pass through provision primarily in hygiene and wipes materials.
Volume was higher by 3% driven by improved shipments in the consumer wipes and critical cleaning categories, partially offset by lower shipments in the health care and hygiene categories.
Raw material energy and other inflation were favorable by $9 million, resulting in positive price cost gap as we enter 2023.
Operations FX and other items were $1 $9 million favorable through intense focus on manufacturing efficiencies headcount reductions and higher production.
In the fourth quarter, the spun laced converting operation in Tennessee was impacted by a series of tornadoes that damage the portion of the production and warehousing facilities.
Production was subsequently resumed and undamaged area within the facility.
The cost of the repairs are expected to be fully covered by the company's insurance, except for a 5 million dollar deductible, which is expense in the fourth quarter and has been excluded from adjusted earnings.
Slide eight shows corporate costs and other financial items.
Corporate costs were approximately $1 9 million lower versus the fourth quarter of last year and on a full year basis 2023 corporate costs were in line with 2022.
Slide nine shows our cash flow summary.
For full year of 2023, our adjusted free cash flow was approximately $30 million higher versus the same period in 2022.
Working capital cash usage was lower by approximately $32 million driven by raw material price declines and working capital initiatives under our turnaround strategy cash.
Cash interest was elevated by approximately $26 million related to our refinancing and the higher interest rate environment.
Cash taxes paid in 2023 were lower by 15 million, mainly driven by changes in jurisdictional income and timing of payments carried over into 2024 and.
Capex was lower by 4 million.
Slide 10 shows some balance sheet and liquidity metrics, our leverage ratio as calculated under the bank credit agreement with three four times as of December 31st.
And we had available liquidity of approximately $135 million at year end.
Slide 11 is a summary of our EBITDA and cash flow guidance for 2024.
We're expecting 2020 for EBITDA to be in the range of 110 and $120 million.
As it relates to cash flow items, we expect the following.
Cash interest of approximately $70 million.
Capital expenditures to be between 35, and $40 million cash taxes estimated to be between 15 and $20 million.
Working capital cash usage is projected to be favorable by approximately $10 million.
And nonoperating cash costs related to merger integration planning tornado insurance deductible turnaround strategy and other one time items are expected to be approximately $25 million.
This concludes my prepared remarks, I will now turn the call back to Thomas.
Thank you Ramesh.
I mentioned at the start of the call I'm really excited about the recently announced plans for a merger with Berry Global <unk> H H N S business, which is anticipated to close in the second half of 2024.
The proposed combination of Berry merging a majority of its global Nonwovens and films business was cloud photo will create a leading publicly traded company in the specialty materials industry.
The proposed transaction values, the combined company at pro forma revenue of approximately $3 6 billion and pro forma adjusted EBITDA of approximately $455 million, including expected synergies.
For our shareholders. This transaction provides a strong foundation for growth by addressing clubs fated us carbon subscale size within the capital markets and rating agencies and with customers and suppliers.
Also the combined company creates greater balance sheet capacity for future strategic acquisitions and this transaction also improves clubs favored us leverage profile to a pro forma net leverage of four times.
We are excited about the prospect of joining forces to leverage our combined talent technologies scale and footprint to deliver a range of complementary products and solutions for our customers.
We anticipate glatfelter will benefit in areas, where berry is stronger such as the Asia Pacific and Latin American markets and the converting capacity of the two business will create opportunities for cloud filled us on top of our brand.
We will work diligently to establish a successful start for the new business with meaningful innovation and a platform for long term growth.
Finally, I am confident the two organizations share similar culture and set of values that will serve stakeholders very well.
Between now and the time, we closed on the proposed transaction.
The team will remain tenacious and focused on delivering strong performance in 2024.
We'll continue to further execute on our turnaround strategy.
Pier four successful integration once the proposed transaction is completed.
Given the outstanding work the clutter that team has completed in 2023.
I believe in our ability to deliver full year EBITDA in the range of $110 million to $120 million for 2020 for this.
This guidance reflects anticipated continued headwinds and limited market visibility along with macroeconomic volatility, particularly in Europe.
Despite these ongoing challenges our business fundamentals remain strong and we eagerly anticipate shaping the new organization along with our Berry colleagues.
And finally, we look forward to providing updates on our progress in the months ahead.
I will now open the call for questions.
Okay.
Thank you Mr Feldman.
Ladies and gentlemen, if you'd like to ask a question. Please signal by Christine Star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment and once again that is star one to ask a question.
And our first question today comes from Mark or Roger Spitz with Bank of America. Please go ahead, Sir your line is open.
Hi, Good morning. This is actually Olivia on for Roger Thanks for taking our questions.
Hi, Olivia question Hi, good morning.
What are the market shares of Berry.
Glatfelter and other main players in the key business, where glatfelter and aegis and F overlap.
Okay.
Even though we have product in the same and categories like health hygiene.
We are really very complementary so we don't really compete product on product.
It's we were just competing in the same segment. So this is really a.
One of the really very positive things about this proposed merger that we will have some synergies.
But we are really not competing product by product, we adjusted the same segments with different products.
Got it and what percentage of the global markets to our fiber base nonwovens directly compete with polypropylene based on woven.
I mean this is a very difficult question to come up really with a percentage, but I can but I can say is that there's many different end users.
Where people can make a choice between.
The different products and it always varies based on the performance characteristics I mean auto building a construction using different products, then the health care sector and.
And in certain applications you can even go either way you can go more on the polymer side or we can go more on the fiber side.
But again as I mentioned before the product portfolios of various business into ours are really complementary and they are not a lot of product which are the same so it.
But again there is there some flexibility for customers to switch depending on the application.
Okay got it thank you.
How much Capex does HHS.
Of spend.
Yeah, Olivia historically, they've spent anywhere between three and 6% of sales.
But looking forward I would say probably for the next two to three years I think it's fair to project, probably 2% to 3% of sales and then longer term probably more along the lines of 4% to 5%.
Okay. Thank you that's very helpful and I guess what is that.
Capex in normalized Capex of the Newco.
Yeah, David that's a.
It's a bit too early for us to comment on that you know as these two companies come together as we look at the asset portfolio as we look at the scheduling of what is maintenance what is growth.
That will probably take some time before we can provide a final point of view on that.
Okay. That's fair. Thank you and then I guess.
The glatfelter benefits.
Benefits from guarantees.
The mature entities that will be providing guarantees to the new credit facilities.
Yes.
Filter bonds are expected to be guaranteed by all of the domestic entities that will guarantee newco as credit facilities and to the extent that those credit facilities include foreign borrowers guarantors those foreign entities will not be expect it to guarantee our gladfelter bonds.
Okay. Thank you.
And then how much debt will be transferred from HHS.
<unk> will be repaid with the newco credit facilities.
Yeah, So I would say about 1 billion and a half will be the debt that will be raised that'll be coming.
From spin co into the merger of which about $1 billion will be used to dividend up to Berry.
About call it 400 million to retire all of the existing gladfelter debt between the revolver and the Angelo Gordons term loan and then the rest will be for transaction costs, but at closing the new company Newco will essentially start with an undrawn revolver.
Sure.
Okay. Thank you that's very helpful and then our last question.
How does new call plan to report on HHS and the segments.
Olivia. This is this is really too early right now.
Two weeks.
<unk> and <unk>.
As I've mentioned before we're well will provide information.
And along the line to closing, but this is true.
Early right now to tell.
Okay. Thank you so much that's all for us.
Okay. Thanks Olivia.
And once again, if you'd like to ask a question. Please signal by pressing star one on your telephone keypad will pause just a moment to allow everyone the opportunity.
And our next question comes from Mike Jennings of Angelo Gordon. Please go ahead, Sir your line is open.
Good morning Thomas.
Mike Good morning, how are you.
Excellent.
Talk about spun laced for a minute.
Obviously kind of a standout performance in kind of a nice trajectory over the course of the year.
Can you give us a little more color about how much of this is sustainable how much it's onetime in nature.
And generally kind of how youre thinking about that business for 24.
Sure.
Again.
We are very pleased with the and this is a real turnaround strategy.
And sorry, if you if you think about it where we started.
So.
We worked very diligently to look at our two sites for the hygiene wipe segment.
<unk> and solids, we dramatically improved our operational performance, whether its ways downtime line availability and quality. So this this help tremendously to improve the performance and on the other side, our Antara business, where we are now and I think we reported to you.
It takes a little time to get into new segments, and all of that and we are focusing on the critical cleaning area, where we see <unk>.
A real unique opportunity for us and this is coming in now and that's paying off so to answer. Your question is if you look at Q4 performance.
Definitely I mean, we're very pleased with that.
And we see that we were able to do their turnaround can you take Q4 times four thats, probably still a little bit too early and we still need to see but we are very excited about the panelist business mainly.
I'm tired of all because we are seeing growth now and further growth will come from the Sun Tower site.
And so I think we made a huge step forward and I would characterize it right now Mike. This business is now on a good foundation, we stabilized that EMEA and I'm, losing money, we're making money stabilizing at where roundabout at a 7% EBITDA margin and I think we.
Nowhere to go and we are very optimistic.
Congrats I know that's been a big focus and then on the on the <unk> side can you help us understand a little bit more seeing some of the commentary mostly around Europe being some of the softness can you help maybe give a little bit more visibility into sort of what youre seeing in the U S versus what youre seeing in Europe, whether that would be kind of volume or margin or however, you think.
Best to lay that out for us.
Yeah, I mean, if you look at our airlift business.
We have it.
Again still a lot of headwinds and <unk>. There was still also some destocking going on in 2023.
The main critical areas as far as volume.
Are concerned as feminine hygiene, which was under pressure and specifically the European table top segment, where we were really.
To be honest disappointed the market I mean, the volumes are really down there and but because customers also looked for cheap.
Cheaper alternatives.
Like the product, it's high quality, but based on inflation and the overall economic situation mainly in Europe.
What are customers kind of move to let me stay cheaper solutions. Okay. Now the other one which we're doing is we're looking at the L. A port.
Product.
Also here finding different.
<unk> six men's wear our product could really add value to customers and that work is ongoing.
It takes a little bit time, and Thats also if I look into 2020 for the second half of 'twenty 'twenty, four and elite Adelaide will be better than the first half we already have projects and all of that and thats coming but it takes a little bit of time and at the same time. We are also.
As mentioned before we had a very high concentration on big customers, which actually.
I presented the big portion of our airlift business.
And again, if the market is in a more or less balanced situation or even sold out. This is fine, but we realize this and end of 2022 early 2023, and we said when the market is tightening we need to be more robust in our customer portfolio and we're doing that as well so we lost conscious.
Some volume.
We are replacing this volume with what I would call B and C customers.
But also that takes a little bit of time and last but not least in L. A desk one.
Unfortunately phenomena.
I look at the fluff pulp pricing everything went down that flush toilet was much slower to come down and knowledge or even going up again. So that's another issue, which we which we have to tackle and its a challenge in our allied business.
Yes to all of that combined made a little more complicated, but we have a clear strategy. So.
We are executing that strategy and you will see that the second half.
<unk> will be better than the first half and we'll get back to where what we used to have.
Excellent. Thank you guys very much congrats again on the quarter.
Thank you.
And once again to join our queue. Please press star one on your telephone keypad.
And ladies and gentlemen, there are no further question and this does conclude todays.
And that filters Q4, 2023 earnings release conference call. Thank you for your participation you may now disconnect.
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