Q2 2025 Mativ Inc Earnings Call
Speaker #1: Welcome to Motiv's second quarter 2025 earnings conference call . On the call today from our Shruti Singhal Chief Executive Officer , Gregory Weitzel Chief Financial Officer and Chris Cooper Director of Investor Relations .
Speaker #1: Today's call is being recorded and will be available for replay later this afternoon . 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 .
Speaker #1: 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 from the queue , please press the pound key .
Speaker #1: If you should require operator assistance , please press star followed by zero . We ask that you please pick up your handset to allow optimal sound quality .
Speaker #1: It is now my pleasure to turn the call over to Mr. Chris Cooper . You may begin . Mr. Chris Cooper , you may begin .
Speaker #2: Good morning , everyone , and thank you for joining us for our second quarter 2020 earnings call . Before we begin , I'd like to remind you that comments included in today's conference call include forward looking statements .
Speaker #2: 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 .
Speaker #2: Some financial metrics discussed during this call are non-GAAP financial metrics . Reconciliations of these metrics to the closest GAAP metrics are included in the appendix of the earnings release .
Speaker #2: Unless stated otherwise , financial and operational metric comparisons are to the prior year period and related to continuing operations . The earnings release issued yesterday afternoon and the accompanying slide deck are available on our website at .
Speaker #2: With that , I'll turn the call over to Shruti .
Speaker #3: Thanks , Chris . Good morning , everyone , and thank you for joining our call on our last earnings call in May . We communicated our expectations that we would see a material step up in both sales and adjusted EBITDA over Q1 results sequentially .
Speaker #3: Our sales in Q2 came in more than $40 million higher , or up more than 8% , and adjusted EBITDA increased $30 million , or up more than 80% .
Speaker #3: Overall , a significant step change versus the previous quarter . On a year over year basis . We delivered strong results in Q2 with both adjusted EBITDA and free cash flow comparing favorably and exceeding our expectations , driven by improvements in volume and lower G&A expenses across the company .
Speaker #3: Much of this improvement is attributable to the great work of our global cross-functional teams , who delivered continued improvements in this challenging trade , ever changing tariff , and uncertain macroeconomic environment .
Speaker #3: Our return to a more normalized performance in Q2 is also more reflective of the shape of the PNL we expect to see in the back half of this year .
Speaker #3: On a year over year basis , sales were up over 2% organically , and adjusted EBITDA was up 1% over a strong Q2 comp in the prior year .
Speaker #3: I am extremely proud of the resilience and creativity that our teams demonstrate on a daily basis , and which yield tangible results in finding new and innovative ways to win in the marketplace and drive commercial execution .
Speaker #3: We have made impactful changes by de-layering the organization , promoting talent from within and optimizing our resource allocation for faster decision making . These are some of the factors behind this quarter's results , which represents our second highest adjusted EBITDA and free cash flow quarter since the merger .
Speaker #3: Let me touch briefly on our segment results . SaaS sales continued their strong momentum from the previous quarters and were up 5% on an organic basis , the fifth consecutive quarter of year over year improvement in sales .
Speaker #3: Adjusted EBITDA was down slightly versus a strong comp in the prior year , mainly due to higher manufacturing and distribution costs . We continue to see solid sales improvement this quarter across many of our SaaS categories , with tapes and labels , liners , healthcare and commercial print leading the charge , and our pricing efforts were key in offsetting slight input cost headwinds .
Speaker #3: Our SaaS commercial teams have secured new long term commitments from customers that are driving incremental annual revenue in construction tape , consumer tape and healthcare categories and driving market share gains in commercial , print and consumer .
Speaker #3: Disciplined management of our growing sales pipeline is also enabling us to expand our customer base and volumes , and is expected to have a positive impact in the second half of this year in our Pfam segment .
Speaker #3: While overall demand patterns continue to be mixed and affected by the ongoing challenges in the construction and automotive sectors , we saw strong pockets of growth in HVAC , air pollution control , filtration and optical films , embracing our heightened sense of urgency and pace of execution .
Speaker #3: The FAM team has started to implement our proven cross-company go to market approach that has been the driver behind Sas's continued momentum . Additionally , we made measurable progress over the past quarter on closing the year over year gap .
Speaker #3: We expect FAM to compare favorably on a year over year basis for the remainder of the fiscal year . We have sequential improvement in our advanced also seen films business as a result of our focus on operations , customers , and the investments we have made .
Speaker #3: While our paint protection film volumes are still below their corresponding 2020 levels, the gap is narrowing, and we are seeing good momentum on a sequential basis for the past two quarters.
Speaker #3: We have made good progress in our initiatives regarding mid-tier strategy in Asia , and our prioritizing our improved quality in North America , where we are gaining share in our premium segment with our long term and new customers .
To support our cash flow Improvement goals. We are well underway in reducing our annual capital expenditure levels to forty million dollars and the team is working hard to reduce our year-end 2025, inventory by 20 to 30 million versus year. End 2024 with no impact on customer service levels.
We kicked off our strategic portfolio review with the aim of evaluating opportunities to unlock value, strengthen our balance sheet, and go to market positioning.
We would share updates as this review moves along.
Greg will provide a more detailed overview of our outlook for the remainder of 2025 and Q3 in particular.
But when you add up all the initiatives we just walked through. You see the key components that make us confident in our ability to outperform in Q3 and Q4 versus the prior year. Quarters from both an adjusted ibida and free cash flow perspective.
As a matter of fact for the full year, 2025, we're expecting to deliver approximately twice the free cash flow as compared to the full year 2024.
Let me take a pause here to highlight the incredible transformation we have made over the past five months.
I am very pleased at how the entire matter team embraced this new sense of urgency and pace of execution throughout everything they do.
we are acting swiftly, comprehensively
And decisively to undertake the necessary changes to grow, our market share return, our performances, sustainable, and profitable growth, and most importantly, deliver value to our shareholders.
From an operation standpoint. We have several manufacturing supply chain excellence, and continuous improvement, work streams underway that will have a tangible impact on its results, going forward.
Early results of these work streams are improved on time in full service levels that compared favourably year-over-year in Q2.
Additionally, we are seeing improved Employee Engagement better morale and reduced turnover across our Global Workforce.
On the supply chain side.
We are streamlining our product portfolios and skus.
Repurposing slow, moving stocks.
Optimizing inventory levels.
And enhancing our demand planning through snahp.
These initiatives are already making a favorable impact on our results.
And we expect to gain further momentum.
Over the coming to a quarter.
Finally on the distribution cost side, we have multiple initiatives underway to ensure more favorable levels starting in the back half of 2025.
Those are comprised of managing order cutoff times.
The team fully understands that we need to keep a confident stance.
An agile footing and an Innovative mindset to successfully navigate and execute in the current demand environment.
We must first and foremost, serve our existing customers on time and on spec.
As they value certainty and reliability, even more in this environment.
Secondly.
We need to attract new customers and new volumes.
By proving our value proposition and how we can be a critical partner in where and how they go to market.
Additionally, we need to allocate our assets and resources in the most efficient way possible.
As we align this clear-cut go to market approach with the increased Cadence and prominence of our pipeline reviews and the unwavering engagement and commitment that we have seen firsthand in our employees.
We are creating meaningful value for all our stakeholders in the process.
I am confident our team will continue to successfully execute on this mandate.
On the Tariff front while changes in trade policies and actual tariffs. Imposed have had both direct and indirect impact on a business over the past quarter.
Less than 7% of our annual sales are currently subject to tariffs with China at 2%.
Mexico at 1%.
Europe, 1.5% with the UK at 1% of the total, massive annual sales.
Most of our business with Canada remains exempt under usmca.
We are striving to fully offset. Our direct exposures to Alternative sourcing, strategies and pricing negotiations.
We remain focused on driving, enhanced commercial execution, and tactical Network optimization to minimize. The more indirect impacts that affect our customers order patterns and
Impose operational, inefficiencies throughout the system.
As a result of our localized supply chain and our ability to partner with our customers. In each of, their go-to Market, regions the direct impacts of the current trade environment, remain fully manageable,
while the indirect effects, introduce a level of uncertainty that is reflected in Weak demand patterns and transactional, inefficiencies,
We are leveraging our proven Playbook to focus on what we can control in mitigating these ramifications until trade policies. Stabilize,
With that, I'll turn it over to Greg for a more detailed discussion of our financial performance.
Thanks Rudy and good morning. Everyone Consolidated. Net sales from continuing operations for the quarter. Where 525 million
Up slightly compared to 524 million in the prior year on a reported basis.
And up $40 million or 8% versus Q1 of this year.
Sales were up over 2%, year-over-year on an organic basis. As increases in volume, mix currency and SAS selling prices for partially offset by slightly unfavorable fam, selling prices.
Adjusted EBA from continuing operations with 67.2 million.
Up, 1% from 66.6 million in the prior year, our strongest quarter in 2024 and also up 30 million sequentially.
First is the prior year.
High volume mix. And a lower sgna costs. Represent a combined 8 million, favorable impact, which was partially offset by a combined 5 million of higher manufacturing, and distribution costs, which were isolated to a small number of sites and 2 million of unfavorable net selling price versus input cost primarily in Sam.
Price versus input cost while unfavorable for this quarter was a slight Improvement versus last quarter and is expected to be a favorable for the remainder of this year.
Adjusted EPS were 33 cents. A share versus 34 cents a share in the prior year period.
Turning to each of our segments, net sales in our filtration and Advanced Materials segment of 204 million were down 1% versus Q2 of 2024.
The year-over-year decrease reflected lower selling prices, slightly lower volume mix due to continued customer caution, and the uncertain macroeconomic environment, partially offset by favorable currency translation.
Versus input cost.
Partially offset by lower sgna expenses and favorable cost mix.
In our sustainable and adhesive solution segment, net sales of 321, million were up more than 15 million or 5% on an organic basis. And increase by just over 3 million or 1% from last year on a reported basis.
Organic growth, reflected higher volumes across key categories and higher selling prices across the segments along with favorable currency translation.
SAS adjusted IBA performance of 45 million decreased by just under 2% year-over-year.
Performance reflected higher manufacturing and distribution costs partially offset by lower sgna expenses, higher volume across key categories.
And favorable relative net selling price versus input cost.
Turning to a few of the corporate items, unallocated corporate adjusted Eva dog expense of $19 million improved by more than $3 million versus the prior year.
Heavily driven by lower sgna expenses. As a measurable result of the cost cutting initiatives, we put in place last quarter.
Interest expense of just over 18 million was in line with the prior year.
When taking Hedges into account over, 80% of our debt is at a fixed rate and matures on a staggered basis between 2027 and 2029.
Other income was 1.5 million in the current period which compared to other expense of 1 million in the prior year period.
Largely due to gains on asset sales and gains on foreign exchange.
Our tax rate was 417% in the quarter, due to a combination of valuation allowances, 1-time tax adjustments, and the ratio between tax expense and pre-tax income.
At the end of the quarter, net debt was 9995 million, a reduction of more than 40 million versus last quarter and available liquidity was 453 million.
Our net leverage ratio as defined in our credit agreement was 4.5 times. Approximately 1 full turn of Headroom versus our covenant level of 5.5 times.
With the high water mark from last quarter behind us. We expect leverage to continue improving throughout the second half of this year.
As a reminder, our Target leverage range is 2 1/2 to 3 1/2 times.
And with the cash flow initiatives, we have discussed earlier under way we expect to continue to make meaningful progress toward reducing our leverage profile in a back half of 2025.
Our number 1 priority for cash flow. Utilization is and continues to be deleveraging and actual debt reduction.
With that in mind, as discussed earlier, we have major strategic initiatives underway to materially improve our cash flow generation throughout 2025.
they are comprised of the aforementioned pricing actions as well as our cost optimization initiatives.
Trudy mentioned earlier that we identified an additional 5 million in cost savings versus what we announced last quarter.
So we are now targeting 35 to 40 million by the end of 2026 with 15 to 20 million realized and flowing through the p&l in 2025.
We are on track to reduce our Capital expenditures to 40 million in 2025 and are working diligently to reduce our year-end inventory Levels by 20 to 30 million in 2025 versus 2024.
Working capital, expectations, remain a source of cash of around 10 million.
Taken together all of these efforts and initiatives have made Q2 of 2025, our second highest cash flow quarter since the merger and are expected to drive significant year-over-year. Improvements in cash flow generation for the remainder of 2025,
We did not repurchase any shares during the quarter. Once our leverage returns to our target range, we may continue to opportunistically repurchase shares to offset, delution,
But the priority of cash flow until then remains on paying down debt.
as we look ahead, we acknowledge that the market demand remains uncertain with additional impact from tariffs and macroeconomic policy in the market, impacting our level of sales and operating Leverage
However, with the Positive momentum, we have seen through early August key categories, in fam and SAS combined with our strategic initiatives driving tangible results.
We expect Q3 adjusted. EBA to increase by 5 to 10% versus last year.
Cash flow generation is also expected to compare favorably versus Q3 of last year.
This Step Up will be driven by a year-over-year increase in volume, particularly, on the SAS side.
Favorable relative net selling price versus input cost.
We also expect Q4 adjusted, EBA and cash flow levels to compare favorably year-over-year.
for modeling purposes for the full year 2025, we are expecting
Cost reductions of 15 to 20 million realized in 2025.
Depreciation amortization and stock-based comp to be around 100 million.
Interest expense to be around 75 million, plus another 9 million in fees for our our facility.
Capital expenditures of around 40 million.
1 time, cash costs to be around 15 to 20 million.
working capital to be a 10 million source of cash driven primarily by the previously mentioned inventory, reduction of 20 to 30 million
and for our normalized tax rate, we suggest using 24%,
With that Trudy, I'll hand it back over to you for your closing remarks.
Thank you. Greg? What everyone should take away from this call. Is that our pivot towards our free, strategic priorities?
Driving enhanced commercial execution.
Sharpening efforts to deliver the balance sheet and conducting a strategic review of our portfolio.
Combined with a companywide, increased pace of execution, delaying of the organization for faster, decision-making and improved Employee Engagement are driving, quantifiable results that are already reflected in our Q2 performance.
Throughout mive. There is a renewed focus on strategic initiatives, that drive incremental value and a determined mindset to act, swiftly comprehensively, and decisively to do what it takes to succeed in this challenging environment.
I want to thank our talented and engaged Global matter team that is executing with unwavering results and delivering results that grow our market share return, our performance to sustainable and profitable growth. And most importantly, we're still value to our shareholders.
Thank you for joining us this morning. Operator, please open the line for questions.
Thank you very much. If you would like to ask a question, please press star. Followed by 1 on your telephone keypad now and please ensure your devices is unmuted locally. If you change your mind or your question, has already been answered, please. Press star, followed by 2.
We kindly ask to have 1 question and 1 follow-up.
We will now pause momentarily to get any questions registered.
Our first question comes from Danielle Armand with sudo. Your line is now open. Please go ahead.
Hey guys. Good morning. Thank you so much for taking my questions and congratulations on the great quarter.
Um, I just have 2 pretty quick ones here this morning. Uh, number 1, Trudy. Can you just provide a little bit more of an update on the turnaround effort within paint protective films? Obviously you made a lot of progress there and just wanted to get an update in terms of how you're regaining share in that market. And then maybe an update on optical films because that seems to be a bright spot uh over the last couple quarters. And then Greg, you talked about cash flow for 2025 being double the level of 2024. And I'm just curious. Should we think of that as at a minimum 80 million dollars? And uh, could you just kind of walk us through how you get there in the Cadence between the third quarter and the fourth quarter? Thanks so much.
Um, thanks Dan, uh, for your client words. I appreciate it. And, uh, regarding the question on, uh, pain protection films. So, as you may recall, um, when I came in on board, uh, we repurposed resources, uh, to address any capacity, uh, issues lead time issues, we invested, uh, to improve our quality. All those things I would say are behind us at this time. Uh, customers are really feeling that positive, uh, um, momentum from, uh, from us. Uh, We've shared the data with the customers, uh, they see it. Uh mid-tier straight. Uh, strategy is working in Asia as I mentioned, but also the premium segment uh, because of the improvements we have made, uh, that is gaining Traction in uh, in North America, our Optical films, um, Market is growing very well. Uh, right now and we are also gaining share back.
That we address the challenge. We uh the team is on it and we are continuing to gain share in this segment as we move forward.
I'll let Greg answer the question around cash flow. Sure. Yeah, thanks Danielle. Uh, yeah. As far as, as far as cash flow and the and the path to 80, you know, we started the first quarter, um, with a large increase in accounts receivable with the, um, you know, the, uh, seasonal change in, in business we took a huge step forward in in Q2, uh, with, uh, close to 49 million, in in free cash flow.
If you look at the first half, overall, uh, 1 of the biggest differences versus last year, is the reduction in 1-time costs that we've had a lot of the programs that we've been working through this year have been, uh, pretty.
Cash flow efficient, in terms of the 1-time costs.
As we look forward to Q3 and Q4, that's really where all of the efforts that the, uh, the extended teams have been working on with inventory, as well as terms, uh capex management will really come through and we expect to have a very strong Q3 for cash flow as well. Um, and you should put us well on the path for 800 million for the year.
Okay. Thanks again guys and congratulations.
Thank you. Thank you.
Our next question comes from Larry's.
Keilberg with people, your line is now open. Please go ahead.
Um, good morning and thanks again, for taking my questions. And
Really sold it. Performance in the quarter coming back into that pace of execution. Um, it seems as if certainly, relative to our expectations, you have performed.
Um, is there anything particular that came through earlier than you had expected in terms of what you did yourself? Considering the really challenging Market?
On a similar on that same note, I should say you did quite a few companies are talking about in incremental, uncertainty in the market. So, it's interesting to hear your views on what sort of self-help or self-generated profit improvements you can generate.
Considering um, the Coran environment.
Um, and then just finally just separate question, I guess the Strategic review. There's a lot of things moving, I appreciate as early Innings from this 1, but have you already identified business lines that you could separate possibly without disrupting the the significant positive transformation that you have.
Thank you, L for your question and your kind words, I appreciate it. Um, let me take the first uh uh question regarding um demand and outperformance.
Um, as I'd mentioned in the previous calls,
As well as today. Um, the market is giving us what it is. We have seen some good progress, whether it's with our liners and carriers business or our tapes and labels, uh segment. Our commercial print business, uh, filtration categories, like hbac, um, air pollution. Uh, I talked about the optical films. So we're seeing some really positive momentum there but then
The sense of urgency, the pace of execution and a very disciplined approach and also delaying the organization for faster decision-making. That's really making a positive impact, um, on our performance. So, if you combine all those things together, um, we are, um, outperforming the market, um, and we outperformed the market in Q2,
on the
On the Strategic review. Um, as I mentioned, we are, um, going through the process we are um,
I'm pleased with the progress that the team has uh, continued to make
Um, we are not committed to any specific asset or any uh product line uh at this time, but we will work through the entire process of for that. Um, so I I feel uh, that we've made quite a good progress in that and, and due course of time when ready, uh, we will, uh, we will come back, uh, and announced that
Just to follow up on the first, you know, the second quarter, I'd performance. Uh, my question was really about self-help and how you think about that, you know, the confidence that you have in continued.
The, uh, opaqueness of the current situation. So, if you can sort of help us understand what sort of...
Controllables, you have to to have that confidence in your capability to drive, ebar growth and H2.
Correct. So we are um, what I mentioned that having, you know, a very solid pipeline. Uh,
Gaining share, um, with a within our existing customers.
Attracting new customers.
A very, um, strong Cadence or a review of the pipeline that I'm personally involved with the, uh, commercial team and the sales leaders.
Together is what's helping us with our um uh, with our performance, uh, in Q2, as well as going into uh, the second half.
Regarding um, your question on that understanding. Yeah.
Just go ahead, sorry large. Yeah. You had mentioned, uh, also around profitability. Um, and on the profitability, I would say that the initiatives that we have taken uh in terms of uh, looking at, you know, the organization the um
Um, um, you know what, we talked about delaying, we talked about sgna and the team has really responded very well. Uh, in terms of, uh, uh, taking up the challenge as I mentioned, uh, we identified another, an additional 5 million dollars in cost reduction. So, uh all together, 30 to 35 million by year end, 2026 15 to 20 million of that would flow through, um, uh, 2025 through the pnl this year. So I'm very proud of what the team has been able to, uh, accomplished uh there. And then we are constantly looking at. I talked about, uh, manufacturing supply chain distribution costs, all those put together are helping with the profitability, um, of the company.
Terrific. Thank you.
Thank you very much that concludes the question and answer session.
I will now hand back over to sharetea for any closing remarks.
Thank you everyone for joining us this morning for our second quarter 2025 earnings call.
we look forward to connecting with you, throughout the, the week, the coming months, and our next earning called in November,
Have a great day ahead. Thank you.
Thank you very much. Everyone for joining that. Concludes today's call. You may now disconnect your lines.