Welcome to the Mativ's Third Quarter Earnings Conference Call. Hosting the call today for Mativ is Julie Schertell, Chief Executive Officer. She is joined by Andrew Wamser, Chief Financial Officer; and Mark Chekanow, Director of Investor Relations. 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 opened for your questions following the presentation. [Operator instructions] It is now my pleasure to turn the floor over to Mr. Chekanow. Sir, you may begin.

Thank you. Good morning. I'm Mark Chekanow, Director of Investor Relations at Mativ. Thank you for joining us to discuss our third quarter 2022 earnings results. Before we begin, I'd like to remind you that the comments included in today's call include forward-looking statements. Actual results may differ materially from the results suggested by these comments for a number of reasons, which are discussed in more detail in our Securities and Exchange Commission filings, including our annual report on Form 10-K and our quarterly reports on Form 10-Q. Some financial measures discussed during this call are non-GAAP financial measures. Reconciliations of these measures to the closest GAAP measures are included in the appendix of this presentation and the earnings release. Unless stated otherwise, financial and operations metric comparisons are to the prior year period and relate to continuing operations. The earnings release is available on our Web site at ir.mativ.com, as are the slides for today's presentation. You can download the slides and/or click through these slides at your own pace during the call using the webcast interface. To clarify some aspects of how Mativ results were reported and how we will be discussing them, we would first remind everyone that the SWM and Neenah merger closed on July 06, 2022, thus the third quarter is our first quarter presenting combined results. Given the accounting treatment of the transaction, the SWM legal entity was the acquirer, and thus the financial results for periods prior to the third quarter of 2022 represent only those of legacy SWM. As a result, year-over-year comparisons reflect the addition of the Neenah operations, and typically resulted in large reported year-over-year increases in sales and profits. On today's call though, we will provide some comments referring to comparable performance to illustrate how our results compare to prior-year periods on a like-for-like basis, such as organic growth trends and margins. These figures are shown in tables in our earnings release and the appendix of this presentation. As previously disclosed Mativ reports results in two reporting segments: Advanced Technical Materials, or ATM, and Fiber-Based Solutions, or FBS. ATM is essentially comprised of the legacy SWM Advanced Materials and Structures segment and the legacy Neenah Technical Products segment, while FBS is essentially comprised of the legacy SWM Engineered Papers segment and the legacy Neenah Fine Papers & Packaging segment. Please follow up with us for any further needed clarifications as we want to make sure you understand our business trends, financial results, and reporting processes. With that, I'll turn the call over to Julie.

Thanks, Mark. Good morning, everyone, and thank you for joining today's call. We have several very positive performance trends to highlight during the quarter as it relates to organic sales growth, profit growth of the comparable businesses, overall price versus cost dynamics, and synergies. I'm pleased with our year-over-year performance in revenue and EBITDA. There are also some headwinds at play, both macro and within our operation that will cause our profitability to be less than what we originally expected during the back-half of this year. Some of these issues are macro in nature, some we can counter with offsetting actions, and some are just temporary and will pass as we enter 2023. Before we dive into each of the positive drivers and the challenges, I want to reiterate our management team and the Board confidence in the fundamentals of our business. The value creation of the strategic combination including our cost synergy plan and our long-term outlook for accelerated growth together, all of which remain fully intact despite a turbulent operating environment for global manufacturers. Let me hit some of the third quarter highlights which reflect the combined businesses compared to last year's quarter. First, organic constant currency sales growth was 12% led by filtration, protective solutions, release liners, and packaging. Second, adjusted operating profits were up nearly 25% on a comparable basis, which we view as a very strong result and indicative of significantly improved fundamentals compared to last year, especially with respect to improved price cost recovery. Price versus input cost was favorable by about $23 million in the quarter. To date, we have been successful with aggressive price actions. And as inflationary pressures persist, we are executing on further actions. And third, our $65 million cost synergy plan is well underway, and we expect to exceed…

Thanks, Julie. As Mark referenced earlier, this was our first quarter reporting consolidated Mativ results that reflect the merger. Thus, making year-over-year reported growth very large and comparisons less meaningful. So, my comments will try to focus on current business trends, margin comparisons on a comparable or like-for-like basis, and price versus input cost trends for the business as a whole. Total sales were $674 million with growth fairly consistent across the company. Organic growth was 12% on a constant currency basis and 7% with the impact of currency. Both the ATM and FBS segment sales growth essentially mirrored those growth rates with the best sales performance coming from the release liners, protective solutions, filtration, and packaging as Julie discussed. Price increases versus last year across the company drove the organic sales increase. For adjusted operating profit on a comparable basis, we were up 24% with margin expansion of 160 basis points. Looking at the segments with the same like-for-like view, ATM adjusted operating profits were up 28% with margin expansion up 240 basis points. The margin improvement was primarily driven by $70 million of price versus cost. This was partially offset by some negative volume, mix effects, and manufacturing inefficiencies. Some of which were driven by the cyber incident. For FBS, comparable adjusted operating profits were up 6% with margin essentially flat with the prior year. Price cost was favorable by approximately $6 million but was offset by negative volume, mix, and manufacturing inefficiencies, both of which stemmed from engineer papers. Packaging and specialty papers had very strong margin expansion versus last year. Total adjusted EBITDA was $93 million. And Adjusted EPS was &0.74. Interest expense was approximately $24 million in the quarter consistent with the comments we made last quarter when discussing our post merger debt structure. We…

Thanks, Andy. I would like to reiterate the key messages from today's call, but also acknowledge that it is admittedly a slightly mixed message. While we are posting very strong profit growth versus the prior year, there are some headwinds in currency, inflation, and demand as well as a cyber breach that occurred this quarter. Our conviction in the opportunities ahead remains unchanged despite the current headwinds. Our merger and value creation opportunities were never about the very near term rather about accelerating top and bottom line growth exceeding what we could have achieved as independent companies. With that said, here's what I hope you are walking away with from today's call. Comparable adjusted operating profits were up nearly 25% versus last year, and fourth quarter should show even stronger year-over-year growth. Integration and synergy execution is progressing well, with upside to our $20 million year-end target run rate and clear line of sight to our $65 million commitment. We are more than recovering inflation with pricing this year, and remain hyperfocused on improved profitability and leverage reduction. This concludes our prepared remarks. I'd like to thank you for your time today. And I'd like to now open the call for questions.

Great. And our first question today is from the line of Mitra Ramgopal of Sidoti. Mitra, please go ahead now.

Yes, good morning, and thanks for taking the questions. Just wanted to start off first on the price increases you were able to implement. It was very impressive, actually exceeding the inflation rate pressures. And was curious how sticky you think those increases are especially in light as you referenced maybe some inputs costs are starting to pull back?

Thanks. Thanks for joining us, Mitra, and thanks for the question. I think we said on the call, pricing is the number one topic right now; I think that's pretty consistent in all of our businesses. And we've worked to get to a very disciplined, data-driven pricing mechanism across all of our different businesses. The intent and the achievement is to recovery inflation with pricing that is inclusive of energy and distribution, and continue to expand our margins, over time, with a combination of pricing cost reduction efforts, new product sales, and synergies. As far as the stickiness of pricing, as you would imagine, it varies a little bit by business unit. For example, in packing and specialty papers, protective solutions, we have very sticky pricing, filtration as well. Anywhere where we have the greatest technical solution that's difficult to replicate or the strongest brand is where we have the stickiest pricing. Where we would have a little bit less stickiness would be in our industrials area where we don't -- the technical qualifications are not quite as significant.

Okay, thank you. And I think, for the past year, the focus has been on the inflationary pressures on the cost side, and I think you referenced now softness in demand, in particular starting with Europe. And with fears of recession in the U.S. next year, probably going to see that here soon also, if you could remind how the business tends to hold up in the recessionary environment especially in light of your current product portfolio?

Yes, we would view our portfolio as fairly recessionary-resilient, not recessionary-proof, with some of our categories being more resilient than others. So, areas like filtration, protective solutions, and Engineered Papers being the most resilient parts of our portfolio. Similarly, release liners would be very resilient. The less resilient parts would be our historical packaging and paper business within the Neenah heritage business; so, fairly resilient. When we talk about softening demand, we're seeing two to four points of slower demand, so not significant at this point, but enough to move and be more cautious as we move forward. We're monitoring volumes very closely because, in this inflationary environment, total revenue can be misleading. And we'll continue to adjust our manufacturing system to meet our customers' demand. But really pleased with our comps in Q3, and expect similar comps from a bottom line or stronger, in Q4.

Okay, thank you. And if you could comment a little on the customer relationships, I know it's only a few months into the merger and there is still a lot to do. But if you can give us a sense in terms of how customers have been dealing -- or receiving the new entity, and obviously in an environment where you're implementing price increases, et cetera, how are -- are you getting a lot of pushback on that front?

Sure. I think customers have been very positively receiving the merger. They like the ability to have the greater breadth of portfolio from one supplier and the technical solutions that we can now provide across the portfolio. I also believe, in this environment, customers intellectually understand the pricing discussions. It doesn't mean, emotionally, everybody enjoys them or loves them. But they want healthy suppliers, just like we want healthy customers. And while pricing is a key topic, I would tell you supply chain positioning and ensuring they have a clear and robust supply chain with local supply is significantly increased in importance with our customer, and this merger just further elevates our position in that regard.

Okay, thanks. Obviously, you highlighted Europe as being soft or at least they're probably already in a recession. But what about the Asia-Pacific region, I know that was an opportunity for you. Are you still bullish on that and what are you seeing out there?

Sure. So, Asia; our sales in Asia would represent about 15% of our total sales. And so, I would say that business has still been pretty strong even regardless of the COVID, sort of, shutdown, if you will, in China. But although we will manufacture in China, but then service other customers in the Asian area. So, it's one where I would say we're pretty encouraged given the dynamic, I would say, sort of environment there. And so, we think there is still great potential within filtration, protective solutions, that we service a lot of that area. And that [result] [Ph], so if you remember, one of the longer-term synergy potential that we had between the legacy SWM and the legacy Neenah business, where we would be able to sell some of the legacy Neenah products out of our [Sujo] [Ph] facility.

Okay, thanks. And it looks, I guess, the integration is going very well, you're ahead of the target on the synergy side and in terms of especially in the near-term. Any surprises for you thus far or it's just been pretty seamless?

You know, I would say we mentioned the cyber issue, so that was not a planned part of our integration. So, that was the biggest surprise that we've had. Unfortunate, the timing of it not completely dissimilar to what many companies have faced with cyber issues in the past. But from an integration and synergy standpoint, things are going extremely well. On our last call, we talked about a 2022 year-end run rate of $20 million, and we're slightly ahead of pace of that. We are increasing our $65 million commitment, but we are saying we're well on our way to it, and at an accelerated pace versus what we originally expected. That $20 million-plus number is an annual number, so it's not all synergy started, in Q3, as we merged. And I would also mention the early synergies are primarily SG&A driven. As we get further into it, they will be more driven by procurements, supply chain, and operating efficiencies. And I really think it's important in this environment. I would view synergies almost as insurance. You know, when there's a volatile environment, we have this opportunity to really continue to continue to expand our margins because of the synergies we have in front of us. And the teams are operating and performing on those exceptionally well.

And maybe I just would add one more point, and it's something that Julie always consistently echoes in the hallways and throughout the -- I would say, the companywide, is that we're not treating this as a hobby. I mean we do have this transformation office that is in place. They're doing a phenomenal job, I would say, in terms of identifying new opportunities that we have within, across over the entire -- the business and on the corporate side. And this is something where we have a dedicated team in terms of tracking and attacking. And so, that they've just done a terrific job so far, and again we would say we're a little bit ahead of track.

Okay, that's it for me. Thanks again for taking the questions. Congrats on a solid quarter given this environment. And certainly look forward to the update, year-end results, and guidance for '23. Thanks again.

Thanks, Mitra.

Thanks, Mitra.

The next question is from the line of Jon Tanwanteng of CJS Securities. Jon, please go ahead.

Good morning. Thank you for taking my questions. My first one, can you talk a little bit about your preliminary demand discussions with your customers as you enter 2023, what are they telling you, are they expecting a recession at this point, are they reducing inventories? I don't know if you want to get into specific end markets or geographies, but any color there would be great.

Yes, I would tell you it's a little bit mixed and moving quite a bit. So, depending on the category, if I think about ATM, our Advanced Technical Materials, they're more resilient. So, filtration customers, while they are being a little bit more cautious on inventory management toward year-end, there is great macro trends around cleaner air and water, and that's continuing. Similarly, with protective solutions, great macro trends around the adoption rate of paint protection and new technologies, like smart bath. So, there's still a lot of robust backing in those markets. Release liner, the adhesive usage, and substitution usage for medical and shipping labels, and personal care, consumables, all of that is remaining very strong. Where we are seeing a little of the softening would be in some of our less technical capability products like industrial. Some of our tapes and abrasive types of business where they could be impacted by construction and potentially automotive or new car sales, but overall, we are only seeing a slowness of about 3% to 4% in demand at this point. And some of that, we are seeing early indicator that it's coming even back up from those lagging demands.

Okay, great. Thank you. I was also wondering if you could provide a figure of how much net pricing you are expecting to realize versus inflation over the next two quarters or so. Obviously things can change, but I know you provided those figures, you know, previously. I don't know if you have the same kind of projections here.

I mean I would think about for Q3 in particular, we were up 12% on a constant currency basis. And that's really pricing. Volume was fairly flat. So, that's the kind of pricing we are pulling through. And I think from a over recovery on input cost, we over recovered input cost by $23 million during the quarter. Our expectation is to continue with that kind of pace. So, we are going to move as we need to with pricing. I think the team has shown great agility in being able to do so.

Okay, great. And do you have an expectation for inflation? Are you lasting a significant portion of our cost or hedged them at all?

Yes, when you look at -- the key topic that everyone been talking about has been energy particularly in Europe, and when we look at energy and natural gas, clearly that is up significantly. And I would say right now we are probably about at $130 million sort of run rate. When you look at those buckets together, it sort of splits 60:40 between electricity and natural gas. When we look out to next year, we are now about 70% hedged. So, at one point we are going to have better predictability in terms of being able to forecast the budget in our guidance for next year. But then we also recognize that in some cases we are hedged at really elevated levels. So, it didn't feel great to hedge at some of these levels, but it's just the nature of what we need to do the only thing is prudent. So, again it's about 70% for next year.

Understood. Thanks for that detail. And then lastly, what's driving the faster pace of synergy realizations? And can we expect that to continue? Or, you going to pull in more of the stuff you want to do earlier into the year next year?

I think Andy hit on it when we said we are not going to treat this as a hobby. We have dedicated top talent focused on integration and on synergies. And so, they have really worked to identify and prioritize where we have the greatest impact and the fastest impact. And then, ensuring that we -- they hold all of us accountable to ensuring that we achieve those run rate. So, we are seeing increased speed in SG&A and spending, some procurement wins, some early freight wins, and organizational design which is almost 100% complete which has a significant impact. Some of those -- many of those ramped in within the fourth quarter. So, current year we are not seeing a significant impact of synergies, but as we exist this year, the run rate will be at -- well, will be above $20 million.

Great. Thanks a lot guys.

Thanks, Jon.

Thanks, Jon.

Thank you. This concludes Mativ's third quarter earnings conference all. Thank you all for joining us today. You may now disconnect your lines.