Q1 2024 Mativ Holdings Inc Earnings Call

Welcome to the Mad is first quarter 2024 earnings conference call on the call today from <unk> are truly should talk Chief Executive Officer, Greg Weisel, Chief Financial Officer increase Cooper Delta Investor Relations today's call is being recorded.

Operator: Welcome to the MATIV First Quarter 2024 Earnings Conference Call. On the call today from MATIV are Julie Schertell, Chief Executive Officer, Greg Weitzel, Chief Financial Officer, and Chris Kuepper, Director, Investor Relations. Today's call is being recorded and will be available for replay later this afternoon.

And will it be available for replay later this afternoon.

Operator: At this time, all participants have been placed in a listen-only mode, and the floor will be open for your questions following the presentation. If you would like to ask a question at that time, please press star 1 on your touchtone phone. If you need to remove yourself from the queue, please press the pound key. If you should require operator assistance, please press star zero. We ask that you please pick up your handset to allow optimal sound quality. It is now my pleasure to turn the call over to Mr. Chris Kuepper. Sir, you may begin.

At this time, all participants have been placed in a listen only mode and the floor will be opened for your questions. Following the presentation if.

If you would like to ask a question at that time. Please press star one on your Touchtone phone.

If you need to remove yourself from the queue. Please press the pound key.

You should require operator assistance, please press star zero.

We ask that you please pickup your handset to allow optimal sound quality.

It is now my pleasure to turn the call over to Mr. Crazy Cooper, Sir you may begin.

Okay.

Chris Kuepper: Good morning, everyone, and thank you for joining us for MATIV's first quarter 2024 earnings call. Before we begin, I'd like to remind you that comments included in today's conference call include forward-looking statements. Actual results may differ materially from these comments for reasons shown in detail in our Securities and Exchange Commission filings, including our annual report on Form 10-K and our quarterly reports on Form 10-Q. Additionally, some financial measures discussed during this call are non-GAAP financial measures.

Crazy Cooper: Good morning, everyone and thank you for joining us for matters first quarter of 2024 earnings call before we begin I'd like to remind you that comments included in today's conference call include forward looking statements.

Crazy Cooper: Actual results may differ materially from these comments for reasons shown in detail in our Securities and Exchange Commission filings, including our annual report on Form 10-K, and our quarterly reports on Form 10-Q.

Crazy Cooper: Some financial measures discussed during this call are non-GAAP financial measures.

Chris Kuepper: Reconciliations of these measures to the Closest Gap measures are included in the Appendix of the Earnings. Unless stated otherwise, financial and operational metric comparisons are to the prior year period and relate to continuing operations. The earnings release issued yesterday afternoon is available on our website at ir.mativ.com. With that, I'll turn the call over to Julie.

Crazy Cooper: Reconciliations of these measures to the closest GAAP measures are included in the appendix of the earnings release.

Crazy Cooper: Less stated otherwise financial and operational metric comparisons are to the prior year period and relate to continuing operations. The earnings release issued yesterday afternoon is available on our website at IR doesn't matter of Dot com.

Crazy Cooper: With that I'll turn the call over to Julie.

Julie: Thanks, Chris Good morning, everyone and thank you for joining our call 'twenty 'twenty four is off to a good start and I'm happy to report that our demand recovery is playing out as expected. We left to you on our last earnings call with evidence of positive signs of demand momentum in many of our end.

Julie A. Schertell: Good morning, everyone, and thank you for joining our call. 2024 is off to a good start, and I'm happy to report that our demand recovery is playing out as expected. We left you on our last earnings call with evidence of positive signs of demand momentum in many of our end markets and the expectation of a meaningful sequential step-up in sales from Q4 to Q1. I'm pleased to confirm that sales in Q1 were $500 million, which was up more than 10% sequentially from Q4, with volume increases across all product categories.

Julie: Markets and the expectation of a meaningful sequential step up in sales from Q4 to Q1.

Julie: I'm pleased to confirm that sales in Q1 were $500 million, which was up more than 10% sequentially from Q4 with volume increases across all product categories.

Julie A. Schertell: While the sequential improvement in Q1 was encouraging, especially after more than a year of customer destocking and economic uncertainty, we are in what we believe to be the early days of demand recovery. And as you can see, our Q1 sales were down almost 9% year over year, compared to a strong Q1 in 2023. What is motivating is that we have the line of sight to continue demand momentum, which will drive positive sales for the remainder of 2024.

Julie: While the sequential improvement in Q1 was encouraging, especially after more than a year of customer Destocking and economic uncertainty, we are and what we believe to be the early days of demand recovery and as you can see our Q1 sales were down almost 9% year over year Comping a strong Q1.

Julie: In 2023.

Julie: What is motivating is that we have line of sight to continued demand momentum, which for the remainder of 2024 will drive positive sales.

Julie A. Schertell: We also mentioned to you during our fourth-quarter earnings call that lower fixed cost absorption and inefficiencies in some of our facilities in Q4 resulted in the production of higher-cost inventory, and that selling through this inventory would have an impact on our bottom line in Q1. That higher cost inventory, in combination with a slightly less favorable sales mix, were the main drivers of our adjusted EBITDA for Q1, coming in at $46 million.

Julie: We also mentioned to you during our fourth quarter earnings call that lower fixed cost absorption and inefficiencies in some of our facilities in Q4 resulted in the production of higher cost inventory and then selling through this inventory would have an impact on our bottom line in Q1.

Julie: Is that higher cost inventory in combination with a slightly less favorable sales mix were the main drivers of our adjusted EBITDA for Q1 coming in at $46 million.

Julie A. Schertell: Most of the impact on Q1 EBITDA is not reoccurring, and we expect meaningful adjusted EBITDA year-over-year improvement for the remainder of 2024. A few comments on why I'm optimistic about sales and EBITDA recovery this year. Throughout 2023, the combination of destocking, an uncertain macroeconomic environment, and geopolitical tensions created an unprecedented and unpredictable demand setting that drove continued negative manufacturing output across most industries and geographies in which we compete.

Julie: Most of the impact on Q1, EBITDA is not reoccurring and we expect meaningful adjusted EBITDA year over year improvement for the remainder of 2024.

Julie: A few comments on why I'm optimistic about sales and EBITDA recovery this year.

Julie: Throughout 2023, the combination of Destocking and uncertain macroeconomic environment and geopolitical tensions created an unprecedented and unpredictable demand setting that drove continued negative manufacturing output across most industries and geographies.

Julie: In which we compete.

Julie A. Schertell: This reduction in demand and the resulting manufacturing slowdown significantly impacted our operating leverage across our sites. We recognized this quickly and focused on those areas that we could control, taking action to navigate this unusual environment, including site and warehouse consolidation, and operating staff reduction. Accelerated Synergies, and a restructuring effort that is expected to reduce our non-operating expenses by about $20 million as we exit this year. Those actions have been implemented and will continue to deliver value to the bottom line throughout 2024.

Julie: This reduction in demand and the resulting manufacturing slowdown significantly impacted our operating leverage across our sites we.

Julie: We recognize this quickly and focused on those areas that we could control taking action to navigate this unusual environment, including site and warehouse consolidations operating staff reductions accelerated synergies and a restructuring effort that is expected to reduce.

Julie: Our non operating expenses by about $20 million as we exit this year.

Julie: Those actions have been executed and will continue to deliver value to the bottom line throughout 2024.

Julie A. Schertell: Let me touch on the organizational and segment restructuring that we announced during the quarter. Roughly 18 months into our merger, it was the right time to reevaluate our operating model and organizational alignment to reduce complexity, streamline our reporting structure, and further minimize our corporate overhead costs. This RE-ORG also provides greater visibility and accountability for cross-category opportunities, enables faster decision-making, and leverages our customer-facing resources in a more efficient way. Our segments are aligned by product categories and with how we and our customers go to market. Our Filtration and Advanced Materials segment, or FAM, serves customers directly and focuses on filtration media and components, advanced films, coating and converting solutions, and extruded mesh products, such as nettings and spacers.

Julie: Let me touch on the organizational and segment restructuring that we announced during the quarter.

Julie: Roughly 18 months into our merger it was the right time to reevaluate our operating model and organizational alignment to reduce complexity streamline our reporting structure and further minimize our corporate overhead cost. This re org also provides greater visibility and accountability for.

Julie: Cross category opportunities enables faster decision, making and leverages, our customer facing resources in a more efficient way our segments are aligned by product categories and with how we and our customers go to market.

Julie: Our filtration and advanced materials segments, or Fam serves customers directly and focuses on filtration media and components advanced films coating and converting solutions and extruded mesh products, such as netting and spacers.

Julie: Primarily driven by filtration and films Sam supports a variety of end markets, such as water air and industrial process purification transportation, agriculture building and construction and safety and security applications.

Julie A. Schertell: Primarily driven by filtration and films, SAM supports a variety of end markets, such as water, air, and industrial process purification, transportation, agriculture, building and construction, and safety and security applications. Our Sustainable and Adhesive Solutions Segment, or SAS, supplies customers through distribution as well as directly, and focuses on tapes, labels, liners, specialty paper, packaging, and healthcare solutions. SAS serves end markets such as building and construction, infrastructure, athletics, consumer and medical packaging, commercial papers, personal care, and advanced healthcare applications.

Julie: Our sustainable in adhesive solutions segment, or SaaS supplies customers through distribution as well as directly and focuses on tape labels liners and specialty paper packaging and healthcare solutions.

Julie: Yeah.

Julie: SaaS served end markets, such as building and construction infrastructure athletics consumer and medical packaging commercial papers personal care and advanced health care applications.

Julie A. Schertell: The FAM and SAS segment alignment leverages our manufacturing technologies and our customer-facing resources across complementary categories, making us easier to do business with and providing increased clarity of our portfolio of products and capabilities. It's the logical next step in achieving a one matter solution for our customers. These changes have already made us more agile and efficient, internally and externally, and the customer response has been very positive. Also, as a reminder, during 2023, we divested our engineered papers business and right-sized our dividend to prioritize our use of cash on debt reduction. We consolidated our facility and warehousing footprint, reducing over 10 sites.

Julie: The spam and SaaS segment alignment Leverages, our manufacturing technologies, and our customer facing resources across complementary categories, making us easier to do business with and providing increased clarity of our portfolio of products and capabilities.

Julie: It's the logical next step in achieving a one matt of solution for our customers.

Julie: These changes have already made us more agile and efficient internally and externally and the customer response has been very positive.

Julie: Also as a reminder, during 2023, we divested our engineered papers business and right sized our dividend to prioritize our use of cash on debt reduction, we consolidated our facility and warehousing footprint, reducing over 10 sites we.

Julie A. Schertell: We invested in new state-of-the-art assets in Germany and Mexico to support growing demand for filtration and release liners, and we delivered on our announced merger synergy. The overarching theme is that we have and will continue to make decisions and take actions that unlock both short and long-term value, and that the actions we took in 2023 set us up for success in 2024 and beyond. Turning to 2024, an important component of our EBITDA performance is price versus input cost and our ability to maintain a favorable spread between the two.

Julie: We invested in new state of the art assets in Germany, and Mexico to support growing demand in filtration and release liners and.

Julie: And we delivered on our announced merger synergies.

Julie: The overarching theme is that we have and will continue to make decisions and take actions that unlock both short and long term value and that the actions. We took in 2023 set us up for success in 2024 and beyond.

Julie: Turning to 2024, an important component of our EBITDA performance is price versus input costs and our ability to maintain a favorable spread between the two.

Julie A. Schertell: Throughout 2023, our business was faced with record levels of inflation and input costs, and our commercial teams were successful in driving prices to offset the impact. We believe that the value of the solutions we provide to our customers results in price stickiness that has historically allowed us to maintain a significant favorable spread between our pricing and the associated input costs. As a reminder, our team realized over $85 million in price increases last year, and even as we are experiencing some decrease in input costs, we are confident in our ability to maintain a meaningful positive spread.

Julie: Throughout 2023, our business was faced with record level of inflation in input costs and our commercial teams were successful in driving price to offset the impact.

Julie: We believe that the value of the solutions, we provide to our customers result in price stickiness that has historically allowed us to maintain a significant favorable spread between our pricing and the associated input costs.

Julie: As a reminder, our team realized over $85 million in price increases last year and even as we are experiencing some decrease in input costs. We are confident in our ability to maintain a meaningful positive spread.

Julie: Since volume growth is our top business priority, let me provide a few examples of how we are working to drive demand and some early wins, we are seeing as a result.

Julie A. Schertell: Since volume growth is our top business priority, let me provide a few examples of how we are working to drive demand and some early wins we are seeing as a result. First, we are leveraging our FAM segment's breadth of technologies to capture additional value and simplify our customer supply chain. What I mean by this is that today we have customers that buy a base media, a top coat solution, and a pressure sensitive coating solution.

Julie: First we are leveraging our fam segments breadth of technologies to capture additional value and to simplify our customers' supply chain. What I mean by this is that today, we have customers that buy our base media a top coat solution and a pressure sensitive coding solution.

Julie: And in many instances they are buying these various layers from different suppliers.

Julie A. Schertell: And in many instances, they are buying these various layers from different suppliers. With our breadth of capabilities, we can provide the entire solution, which simplifies our customer's supply chain. This improves quality consistency and enables us to become a bigger and better partner for our customers. We have two of our largest film customers that are engaged in qualifying and streamlining their supply chain with us, as well as a similar approach in filtration, where we can provide the base media, spacers, the separation membrane, tubing, and the pleatable mesh, all from one reliable partner and source.

Julie: With our breadth of capabilities, we can provide the entire solution, which simplifies our customers' supply chain improved quality consistency and enables us to become a bigger and better partner for our customers.

Julie: We have two of our largest films customers that are engaged in qualifying and streamlining their supply chain with us.

Julie: As well as a similar approach in filtration, where we can provide but based media spacers the separation membrane tubing and the <unk> mesh all from one reliable partner and stores.

Julie A. Schertell: Again, this is our unique opportunity to make our customers' lives easier and to increase our share of customers' minds and wallets. Secondly, at FAM, we were recently awarded new reoccurring business for our proprietary UV reflective film that reduces heat absorption and increases the efficiency of equipment used in the aerospace industry. And finally, in SAM, turning to transportation filtration, we have a stronger project and innovation pipeline with our largest customers than we have had in the last five years and are experiencing both market growth and share gain opportunities.

Julie: Again, this is our unique opportunity to make our customers lives easier and to increase our share of customers' minds and wallets.

Julie: Secondly, and Sam we were also recently awarded new reoccurring business for our proprietary UV reflective film that reduces heat absorption and increases the efficiency of equipment used in the aerospace industry.

Julie: And finally in Sam turning to transportation filtration, we have a stronger project and innovation pipeline with our largest customers than we've had in the last five years and are experiencing both market growth and share gain opportunities.

Julie A. Schertell: Relative to transportation filtration, volume is up over 5% year-over-year, and in our highest margin, highest efficacy product, it's up almost 10%, compared to a strong Q1 last year. Turning to SAS, there are many instances where we are selling tape, medical packaging, and healthcare solutions to customers that have a specified release liner as part of their finished product. And sometimes, it's not our release liner.

Julie: Relative to transportation filtration volume is up over 5% year over year, and our highest margin highest efficacy product, it's up almost 10% Comping a strong Q1 last year.

Julie A. Schertell: Turning to SaaS. There are many instances, where we are selling tape medical packaging and healthcare solutions to customers that have a specified release liner as part of their finished product and sometimes it's not our release liner through working with customers to transition to spec to our own.

Julie A. Schertell: So we're working with customers to transition the specification to our own as part of creating a more holistic supply chain solution. And while qualification can take 12 to 24 months, we have several projects underway and are progressing nicely with large consumer product companies. Furthermore, our pipeline and staff for new account acquisitions, new products, and cross-category sales have doubled in the last six months, and the team recently landed over $10 million of new business with a new customer in the specialty paper space that we've been working on for over a year.

Julie A. Schertell: Part of creating a more holistic supply chain solution and while qualification can take 12 to 24 months with several projects underway and progressing nicely with large consumer product companies.

Julie A. Schertell: Furthermore, our pipeline of SaaS for New account acquisition, new products and cross category sales has doubled in the last six months and the team recently landed over $10 million of new business with a new customer in the specialty paper space that we've been working on for over a year.

Julie A. Schertell: Are those orders are starting now and ramping up throughout 2024.

Julie A. Schertell: Lastly, in our consumer business, we've been awarded incremental featured placement at several large retail customers for the upcoming back-to-school season, as well as new permanent placement in the crafting segment at one of our largest retail customers, which is a new expansion space for us. Well, all these are specific and recent examples. I'm also encouraged by the many innovative products we are currently working on for a number of our customers, including sustainable wall coverings, additional coating solutions for aerospace applications, and filtration products that provide the highest mechanical efficacy for our customers using proprietary technologies that are new to the market. With that, I'll turn it over to Greg for a more detailed discussion of our financial performance, and then I'll provide some closing thoughts on our path forward.

Julie A. Schertell: Lastly, in our consumer business, we've been awarded incremental featured placement at several large retail customers for the upcoming back to school season, as well as new permanent placement and the crafting segment at one of our largest retail customers, which is a new expansion space for us.

Julie A. Schertell: Okay.

Julie A. Schertell: While all of these are specific and recent examples I'm also encouraged by the many innovative products. We are currently working on for a number of our customers, including sustainable wall coverings additional coding solutions for aerospace applications and filtration products that provide the highest mechanical efficacy for our.

Greg: Customers using proprietary technologies that are new to market with.

Julie A. Schertell: With that I'll turn it over to Greg for a more detailed discussion of our financial performance and then I'll provide some closing thoughts on our path forward.

Greg: Thanks, Julie and good morning, everyone consolidated net sales for the quarter were $500 million compared to $549 million in the prior year with volume down, 7% and selling prices down 2%, partially offset by favorable currency.

Greg Weitzel: Thanks, Julie. Good morning, everyone.

Greg Weitzel: Consolidated net sales for the quarter were $500 million compared to $549 million in the prior year, with volume down 7% and selling prices down 2%, partially offset by favorable currency. As Julie also mentioned, while sales were down on a year-over-year basis, we did see more than a 10% step up on a sequential basis, and tangible evidence that the demand pickup is playing out as we expected. Adjusted EBITDA from continuing operations was $45.8 million, down from $48.9 million in the prior year.

Greg Weitzel: As Julie also mentioned, while sales were down on a year over year basis, we did see more than a 10% step up on a sequential basis.

Greg Weitzel: Tangible evidence that the demand pickup is playing out as we expected.

Greg Weitzel: Adjusted EBITDA from continuing operations was $45 8 million down from $48 9 million in the prior year volume mix and manufacturing costs represented a combined 16 million impact, which was partially offset by $7 million of combined net input cost and selling price benefit inclusive with.

Greg Weitzel: Volume, mix, and manufacturing costs represented a combined $16 million impact, which was partially offset by $7 million of combined net input cost and selling price benefits, inclusive of synergies. $4 million favorable impacts from lower SG&A and 2 million from lower distribution costs, which is also inclusive of centers. Turning to each of our new segments, net sales of $202 million were down 8% year over year, but up 11% sequentially versus Q4 of 2023. The year-over-year decrease reflected lower volumes due to continued customer caution and the uncertain macroeconomic environment and compares to a strong comp in the prior year.

Greg Weitzel: Synergies.

Greg Weitzel: 4 million favorable impacts from lower SG&A and $2 million from lower distribution cost, which is also inclusive of synergies.

Greg Weitzel: Turning to each of our new segments net sales in filtration in advanced materials of $202 million were down 8% year over year, but up 11% sequentially versus Q4 of 2023.

Greg Weitzel: The year over year decrease reflected lower volumes due to continued customer caution and the uncertain macroeconomic environment and compares to a strong comp in the prior year.

Greg Weitzel: FAM adjusted EBITDA of $33 million was down 23% year-over-year, reflecting the effects of 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. In our Sustainable and Adhesive Solutions segment, net sales of $297 million were down 9% from last year, but up 10% sequential SAS adjusted EBITDA of 32 million was up 19% year over year, while adjusted EBITDA margin for SAS improved 260 basis points year over year. Lower volume and associated manufacturing cost impacts in the current quarter were more than offset by favorable net input cost and selling price, distribution efficiencies, and cost reduction initiatives.

Greg Weitzel: Sam adjusted EBITDA of $33 million was down 23% year over year, reflecting the effects of lower volumes associated fixed cost absorption and the sell through of higher cost inventory produced in the prior quarter.

Greg Weitzel: Partially offset by positive net input cost and selling price benefit distribution efficiencies and <unk>.

Greg Weitzel: Cost reduction initiatives.

Greg Weitzel: And our sustainable in adhesive solutions segment net sales of $297 million were down 9% from last year, but up 10% sequentially versus Q4 of 2023.

Greg Weitzel: SaaS adjusted EBITDA of $32 million was up 19% year over year, while adjusted EBITDA margin for SaaS improved 260 basis points year over year.

Greg Weitzel: Lower volume and associated manufacturing cost impacts in the current quarter were more than offset by favorable net input cost and selling price distribution efficiencies and cost reduction initiatives.

Greg Weitzel: Q1 was our first quarter reporting under this new segmentation and we have also published a separate 8-K last night that provides comparable segment breakdowns for all quarters of 2023 to make it easier to compare our results. This year on a like for like basis.

Greg Weitzel: Q1 was our first quarter reporting under this new segmentation, and we also published a separate 8K last night that provides comparable segment breakdowns for all quarters of 2023 to make it easier to compare our results this year on a like-for-like basis. Turning to a few of the corporate items, unallocated corporate adjusted EBITDA expense of around $20 million improved 8% year-over-year, driven primarily by the recent restructuring initiative. We expect unallocated corporate income to be around $80 million for the full year.

Greg Weitzel: Turning to a few of the corporate items unallocated corporate adjusted EBITDA expense of around $20 million improved 8% year over year, driven primarily by the recent restructuring initiatives.

Greg Weitzel: We expect unallocated corporate to be around $80 million for the full year.

Greg Weitzel: Interest expense of $18 million increased 17% from the prior year period, primarily due to higher interest rates on our floating rate debt coupled with the higher revolver balances in 2024. As a reminder, when taking hedges into account, approximately 75% of our debt is at a fixed rate and matures on a staggered basis between 2026 and 2028. Other income of $1.7 million increased $2.4 million compared with the prior year period, primarily due to gains on foreign exchange contracts.

Greg Weitzel: Interest expense of $18 million increased 17% from prior year period, primarily due to higher interest rates on our floating rate debt, coupled with the higher revolver balances in 2024.

Greg Weitzel: As a reminder, we're taking hedges into account approximately 75% of our debt is at a fixed rate and matures on a staggered basis between 2026 and 2028.

Greg Weitzel: Other income of $1 7 million increased $2 4 million compared with the prior year period, primarily due to gains on foreign exchange contracts.

Greg Weitzel: Our tax rate was 8% in the quarter. At the end of the quarter, net debt was $1.03 billion, and available liquidity was $409 million. Our net leverage ratio as defined in our credit agreement was 4.2 times, mainly due to a higher revolver balance at the end of the quarter. And we expect this to decrease in the second half of 2024 as we prioritize debt paydown with free cash flow and realize improving EBITDA on a year-over-year basis. We did not repurchase any shares during this quarter.

Greg Weitzel: Our tax rate was 8% in the quarter.

Greg Weitzel: At the end of the quarter net debt was one point over 3 billion in available liquidity was $409 million.

Greg Weitzel: Our net leverage ratio as defined in our credit agreement was four two times, mainly due to a higher revolver balance at the end of the quarter and we expect this to decrease in the second half of 2024, as we prioritize debt paydown with free cash flow and realize improving EBITDA on a year over year basis.

Greg Weitzel: We did not repurchase any shares during the quarter. Our intent continues to be to opportunistically repurchase shares to offset dilution from stock compensation and the priority of cash flow remains on paying down debt.

Greg Weitzel: Our intent continues to be to opportunistically repurchase shares to offset dilution from stock compensation, and the priority of cash flow remains on paying down debt. Turning to our outlook for 2024, we expect a continued sequential step-up in sales in Q2, and to be in line with last year's result of $526 million. We also expect a significant sequential step-up in EBITDA, approaching a 30 percent improvement, mainly due to recovering volumes and further realization of our cost reduction initiatives driving additional margin improvement.

Greg Weitzel: Turning to our outlook for 2024, we expect a continued sequential step up in sales in Q2 and to be in line with last year's result of $526 million.

Greg Weitzel: We also expect a significant sequential step up in EBITDA approaching a 30% improvement mainly due to recovering volumes and further realization of our cost reduction initiatives driving additional margin improvement.

Greg Weitzel: We expect Q2 to be the beginning of a more normalized demand levels that will play out in a more pronounced year over year improvement throughout the remainder of 2024.

Greg Weitzel: We expect Q2 to be the beginning of more normalized demand levels that will play out in a more pronounced year-over-year improvement throughout the remainder of 2024. We continue to maintain our expectation of sequential quarterly improvements, subject to our normal year-end seasonality, building toward our previously discussed 70 million run rate later in the year. Our previously announced overhead reduction program, yielding a 20 million annualized savings rate by the end of 2024, further solidifies this increased EBITDA level.

Greg Weitzel: We continue to maintain our expectation of sequential quarterly improvements subject to our normal year end seasonality building toward our previously discussed $70 million run rate later in the year.

Greg Weitzel: Our previously announced overhead reduction program, yielding a $20 million annualized savings rate by the end of 2024 further solidifies this increased EBITDA level.

Greg Weitzel: We remain relentlessly focused on finding solutions for and eliminating operational inefficiencies and supply chain complexities while also continuing to invest in high-demand technical capabilities. For modeling purposes, we are planning for 2024 full-year capital expenditures of approximately $70 million and expect our 2024 full-year interest expense to be around $75 million, and our depreciation and amortization expense to be around $100 million. With that, I'll hand it back over to you, Julie, for your closing remarks.

Greg Weitzel: We remain relentlessly focused on finding solutions for and eliminating operational inefficiencies and supply chain complexities. While also continuing to invest in high demand technical capabilities for modeling purposes. We are planning for 2020 for full year capital expenditures of approximately $70 million and expect our 2024.

Julie: Full year interest expense to be around $75 million, and our depreciation and amortization expense to be around $100 million.

Greg Weitzel: With that I'll hand, it back over to you Julie for your closing remarks.

Julie A. Schertell: In closing, I want to reiterate how proud I am of this team and all that they've accomplished in less than two years post-merger and during a very unusual market environment. We are beginning to see the benefits of the hard decisions and actions taken over the past 21 months, and I'm encouraged by our path forward and the strong team that we have in place. You've heard me mention that to really unleash Mativ's full capabilities and deliver incremental value to our stakeholders, we need demand to return a bit.

Julie: Thanks, Greg in closing I want to reiterate how proud I am of this team and all of that they've accomplished in less than two years post merger and during a very unusual market environment. We are beginning to see the benefits of the hard decisions and actions taken over the past 21 months and I'm encouraged by our path forward.

Julie A. Schertell: And the strong team that we have in place.

Julie A. Schertell: You've heard me mention that you really unleash <unk> full capabilities and deliver incremental value to our stakeholders, we need demand to return a bit and I am pleased to report that we are seeing further signs of demand improvement I look forward to what lies ahead for us in the coming quarters of 2024.

Julie A. Schertell: And I'm pleased to report that we're seeing further signs of demand improvement. I look forward to what lies ahead for us in the coming quarters of 2024. We will continue to focus on reducing complexity and winning with leading customers in the markets in which we compete by exceeding their expectations, providing unique, innovative supply chain solutions that connect, protect, and purify our world. Thank you for joining us this morning, and please open the line for questions.

Julie A. Schertell: We will continue to focus on reducing complexity and winning with leading customers and the markets in which we compete by exceeding their expectations, providing unique innovative supply chain solutions that connect protect and purifier world.

Julie A. Schertell: Thank you for joining us this morning, and please open the line for questions.

Speaker Change: Thank you Julie Hello, everyone. If you would like to ask a question. Please press star one on your Touchtone phone, if you need to remove yourself into the queue. Please press <unk>.

Operator: Thank you, Julie. Hello, everyone.

Speaker Change: When comparing to asking a question. Please ensure your devices and muted locally.

Julie: Our first question is from John Tom.

Operator: If you would like to ask a question, please press star 1 on your touchtone phone. If you need to remove yourself from the queue, please press the pound key. When preparing to ask you a question, please ensure your device is unmuted locally. Our first question is from Jonathan Tanwanteng with CJS Security. Your line is open.

Jonathan E. Tanwanteng: C J F Securities.

Jonathan E. Tanwanteng: Your line is open.

Operator: Hi, This is Justin on for John.

Unknown Executive: Hi, this is Justin on behalf of Jon. Appreciated the color on Ibida and the puts and takes there. You know, last quarter you predicted recovering volumes, creating a drag, and I think you mentioned sladdish EBITDA, but EBITDA was actually down sequentially more than expected. So just wondering if you were surprised by that.

Speaker Change: Appreciate the color.

Unknown Executive: EBITDA in the puts and takes there.

Unknown Executive: Last quarter, you had previewed recovering volumes, creating a drag and I think you mentioned flattish EBITDA, but EBITDA was actually down sequentially more than expected. So just wondering if you were surprised by that.

Unknown Executive: Yes.

Speaker Change: I would say no we weren't surprised by that its pretty much its pretty much was in line with what we were expecting so maybe we messaged it a little bit differently, but we knew we had high cost inventory that we built in Q4 that had the flush through so that flush through and then I'd say, we had a little bit less favorable sale.

Unknown Executive: I'd say no, we weren't surprised by it. It pretty much was in line with what we were expecting, so maybe we messaged it a little bit differently. But we knew we had high-cost inventory that we built in Q4 that had to flush through. So that flushed through.

Unknown Executive: And then I would say we had a little bit less favorable sales mix than maybe what we had originally forecasted, but top-line recovery and bottom-line, and the impacts we're seeing there are pretty much as we were expecting. And we expect that to continue to improve into Q2 and in future quarters as well. As Greg, I think, mentioned in his comments, we expect Q2 to be up close to 30% versus Q1. So we flushed through all that higher-cost inventory, continued top-line recovery, and that'll start to drop to the bottom line to a greater degree.

Unknown Executive: <unk> mix than maybe what we had originally forecasted but topline recovery and bottomline and the impacts we're seeing there are pretty much as we were expecting and we expect that to continue to improve into Q2 in the future quarters as well as Greg I think mentioned in his comments, we expect Q2 to be up close to.

Julie A. Schertell: Okay, that's helpful. And then last for me, can you just comment on where you're seeing the most strength? And is there any end market where conditions are deteriorating?

Julie A. Schertell: 30% versus Q1, so we flush through all of that higher cost inventory continued top line recovery and that will start to drop to the bottom line to a greater degree.

Julie A. Schertell: Sure, I'd say, you know, volume is up over 10% sequentially and in all of our product categories in which we compete. We're seeing the most strength in filtration and across almost all subcategories in filtration, with a really strong project pipeline with our customers. So that's inclusive of transportation, filtration, HVAC, industrial processes, and also really strong recovery in our tapes business. And that's across most categories within tapes, the consumer tapes business, transportation, industrial, and construction, as well as strong recovery in premium packaging. I'd say maybe a little bit weaker recovery in some of our backing products, dye sublimation, and paint protection films.

Julie A. Schertell: Volume improve but to a lesser degree than in some of our other categories, we aren't seeing any and markets, where I'd say you know we're experiencing a deterioration of demand at this point. So that's the markets and then the team is driving a lot of efforts for how we grow share within the markets in which we.

Julie A. Schertell: We're seeing volume improve, but to a lesser degree than in some of our other categories. We aren't seeing any end markets where I'd say we're experiencing a deterioration of demand at this point. So that's the market, and then the team is driving a lot of efforts on how we grow share within the markets in which we compete, including geographic expansion, particularly in release liners supporting North and South America, vertical integration with holistic supply chain solutions that I mentioned on the call, e-commerce channel expansion in our consumer business with some of our largest customers, global account management, and cross-selling, which is easier with our structure, our revised structure, and with align

Julie A. Schertell: Compete including you know geographic expansion, particularly in release liners, supporting North and South America vertical integration with the holistic supply chain solutions that I mentioned on the call E Commerce channel expansion in our consumer business with some of our largest customers.

Julie A. Schertell: Global account management, and cross selling which is easier with our structure our revised structure aligned incentives and then market Adjacencies, a new product applications for existing products like athletic K.

Julie A. Schertell: New Distribution at Retailers in the Crafting category and Netting that can be used in a lot of agricultural products. So I would, you know, kind of sum that up as pretty strong demand recovery across all of our categories and end markets. Not seeing a real deterioration in any of those at this point, and a lot of efforts to drive incremental growth as well beyond just market recovery.

Julie A. Schertell: New distribution at retailers in the crafting category and netting that can be used in a lot of agricultural products. So I would you know kind of stunned that up is pretty strong demand recovery across all of our categories and and markets not seeing a real deterioration in any of those at this point and a.

Julie A. Schertell: Lot of efforts to drive incremental growth as well beyond just mark market recovery.

Julie A. Schertell: Right.

Operator: That's very helpful. Thanks for taking the time to ask the question.

Speaker Change: That's very helpful. Thanks for taking my question.

Speaker Change: Thank you.

Speaker Change: Thank you.

Operator: Thank you. The next question is from Daniel Harriman with Sedotin's Company. Your line is open.

Operator: Question is from Daniel <unk>.

Daniel Harriman: <unk> company.

Daniel Harriman: Mine is open.

Unknown Executive: Hey, good morning, Julie, Chris, and Greg. I had a bunch of demand questions lined up, but Julie, I think you covered that with Justin's question.

Daniel Harriman: Good morning jewelry groups.

Daniel Harriman: Oh, Yeah, I had a bunch of demand portions laurinburg for Julia. Thank you covered with with just these questions, but congrats on on the first quarter results in.

Greg Weitzel: But congrats on the first quarter results. And I guess, shifting gears a little bit to the debt side of things. Obviously, you're expecting sequential increases throughout the rest of the year and EBITDA and cash flow generation. Do you have a specific target or a level in mind of debt that you're aiming to pay down by the end of the year?

Greg Weitzel: Shifting gears, a little bit to the to the.

Greg Weitzel: That side of things, obviously, you're expecting sequential increase in throughout the rest of the year and EBITDA and cash flow generation do you have a.

Greg Weitzel: A specific target or a level of mine.

Greg Weitzel: But you're you're aiming to pay down by the end of the year.

Speaker Change: Yeah. Thanks for the question.

Greg Weitzel: Yeah, thanks for the question, Dan. Yeah, with Q1, with the seasonality we normally would expect, and, as we saw here, a change in working capital, which ends up actually elevating the and the associated leverage. So again, no surprise there. The expectation at this point is that both the debt and the leverage will decrease. The debt should end up being at a very similar level, slightly below where we started the year, and then the leverage should also be below 4.0 and very close to where we started the year as well.

Greg Weitzel: Yeah with with two one with the seasonality, we normally would expect and as we saw here a change in working capital, which ends up actually elevated.

Greg Weitzel: And the associated leverage so again no surprise there.

Greg Weitzel: The expectation at this point is that the both the debt and the leverage will decrease the Dutch should end up being at a very similar levels slightly below where we have started the year and then the leverage should also be below 4.0.

Greg Weitzel: Very close to where we started the year as well.

Unknown Executive: And then I guess just my last one for me is that it seems like things are going really well from the demand side of things, and you're still targeting to end the year with quarterly EBITDA of $70 million. What are the biggest risks out there to you achieving that goal and from the demand side of things? I know you already answered this, Julie, but what areas give you any concern, if at all?

Speaker Change: Perfect and then I guess this is my last one for me is that it seems like things are going really well from a demand side of things and you're still you're still targeting to end the year with quarterly EBITDA of $70 million.

Unknown Executive: What what are the biggest risk out there to you achieving that goal in from the demand side of things what.

Unknown Executive: I know you already answered this julie but what what areas give you any concerned if at all.

Greg Weitzel: Maybe I'll start and then Julie can add on. Just overall, the biggest variable really is the continued return of demand. We're seeing it. We talked about it in the last earnings call.

Speaker Change: Maybe I'll start and then Julie Julie can add on just overall the biggest variable really is the continued return to demand we're seeing yet we hit on it and the last earnings call. We continue to see it it's from from what we saw then it's largely stabilised when we look at our <unk>.

Greg Weitzel: We continue to see it, and from what we saw then, it's largely stabilized. When we look at our order backlogs, it's a slight increase. It's not coming roaring back right now. It's returning, and it's continuing to grow. I think the biggest variable is going to be at what point does it really increase, even at a faster rate than what we see now. We're still seeing the 70-70 within sight at this point, but outside of volume, there's really not a lot of variables we can see.

Greg Weitzel: Their backlogs.

Greg Weitzel: A slight increase.

Greg Weitzel: It is not coming Roaring back right now, it's returning and it's continuing to grow I think the the biggest variable is going to be at what point does it really increase even at at a faster rate than than what we see now.

Greg Weitzel: We're still still see the 70 70 within sight at this point, but.

Greg Weitzel: Other outside of outside of volume, there's really not a lot of variables. We see we're looking closely at input costs.

Greg Weitzel: We're looking closely at input costs, and although we're seeing favorability in the first half, it should end up from the year-over-year comps, should end up being, we should end up seeing some rise in input costs year-over-year, but it's relatively modest when we look across pulps and resins. And we have pricing plans in place where we're not expecting that to present any risk. Yeah, I was

Greg Weitzel: And although we're seeing favorability and the first off it should end up from the year over year comps should end up being.

Greg Weitzel: We should end up seeing some rising input costs year over year, but it's relatively modest wanted to look across pulps and reasons and we have pricing plans in place to where we are not expecting that to present any risks.

Julie A. Schertell: Yeah, I would agree with Greg on the biggest risk. I think, you know, the actions we've put in place and the things that we can control, I feel really positive about, and we're seeing those play out. We're seeing new business and share gains across a number of our categories. You know, FAM is already delivering high teens to low 20% EBITDA margins, so I'm pleased with that. We have opportunities in margin and staff, and we're seeing improvement in both healthcare and liners, and that will continue to improve as we ramp up Mexico.

Speaker Change: Yeah, I would agree what's drag on the biggest risk I think the actions we've put in place and the things that we can control I feel really positive of that and we're seeing those play out we're seeing new business and share gain across a number of our category.

Julie A. Schertell: <unk> is already delivering high team below 20% EBITDA margin pleased with that we have opportunities and margin and staff and we're seeing improvement in both healthcare Ann liners and that will continue to improve as we ramp up Mexico and then the restructuring effort announced recently.

Julie A. Schertell: And then the restructuring effort announced recently adds about $20 million as we exit the year, one margin point. So margins are coming, and the revenue growth target will happen over time as we migrate to higher growth categories of filtration and release line and advanced films, as well as the growth drivers that I mentioned earlier in response to Justin's question. So I feel good about the focus and the efforts that we've put in place, and the team that we have in place, and the restructuring and the cost reduction efforts.

Julie A. Schertell: About $20 million as we exit the air one margin point the margins are coming in the revenue growth target will happen over time, as we migrate to higher growth categories of filtration and really fire advanced down as well as the growth drivers that I mentioned earlier to Justin's question. So I feel good about the.

Julie A. Schertell: Focus and the efforts we've put in place and the team that we have in place and the restructuring and the cost reduction efforts I think right now we have to execute we said earlier. This is the year of execution and that really is true for matters and I think the team's doing a great job of.

Julie A. Schertell: I think right now that this is the year of execution, and that really is true for Mativ, and I think the team's doing a great job of supporting that and driving value and volume in the marketplace today.

Julie A. Schertell: Supporting that and driving value and volume in the marketplace today.

Operator: Perfect. Thank you all so much and best of luck in the coming quarter. Talk soon. Thanks again.

Speaker Change: Perfect. Thank you all so much in the best of luck in the coming quarter and talk soon and thanks again.

Speaker Change: Thanks, Dan.

Operator: Thank you. We currently have no further questions, so I'll hand it back over to Julie for any closing remarks.

Speaker Change: Thank you.

Speaker Change: We have no further questions have that.

Operator: <unk> Julie for any closing remarks.

Julie: Sure. Thank you for joining us this morning on our queue on earnings call I Hope what you heard was we're well positioned to continue to capture higher sales and Ebitdas. The year continues supported by more streamlined and agile structure, improving demand and lower operating costs I. Appreciate your interest in <unk>.

Julie A. Schertell: Sure. Thank you for joining us this morning on our Q1 earnings call. I hope what you heard was we're well positioned to continue to capture higher sales and EBITDA as the year continues, supported by a more streamlined and agile structure, improving demand, and lower operating costs. I appreciate your interest in Mativ and look forward to our next call.

Julie A. Schertell: And look forward to our next call.

Julie A. Schertell: Okay.

Operator: Thank you. This concludes today's call. Thank you all for joining us. You may now disconnect your line.

Speaker Change: This concludes today's call. Thank you all for joining you may now disconnect your lines.

Operator: Thanks.

Operator: [music] [noise].