Welcome to Mativ's Fourth 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 and good morning. I'm Mark Chekanow, Director of Investor Relations at Mativ. Thank you for joining us to discuss our fourth quarter 2022 earnings results. Before we begin, I'd like to remind you that the comments included in today's conference 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 otherwise stated, financial and operational metric comparisons are to the prior year period. The earnings release is available on our website 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 6, 2022, thus the fourth quarter reported results, reflect the combined company for the full period. However, reported results for the full year only reflect the combined results for the period after the merger, while the first half of 2022 and all of 2021 reported results reflect only the legacy SWM results. 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 and in our earnings release, we'll provide some comments referring to comparable performance to illustrate how our results compared to prior year periods on a like-for-like basis. These figures are shown in tables in a earnings release and the appendix of this presentation as well as full reconciliations. 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 a lot to cover today. In addition to our normal quarterly results and highlights, a view of the current operating environment and some commentary on what we see going forward, we will also share some additional color on our newly aligned strategic framework. This work stream is the culmination of months of rigorous assessments since the close of the merger. We've worked with our board and our leadership team and recently shared this messaging and direction with our employees. We are excited to now bring it to the investment community to help establish and build a strong Mativ identity. Let's start with Q4 results. On our last call, we indicated fourth quarter EBITDA would be consistent with third quarter results of $93 million and that is where we landed. For the quarter, that represents 30% growth compared to last year. This also puts Mativ at $370 million of EBITDA in 2022 on a combined basis. Additionally, we remain confident in the resilience of our portfolio, near-term cost synergies as a controllable profit catalyst and longer term value creation opportunities ahead for Mativ. I'd like to touch on a few key fourth quarter highlights. First, this was another strong quarter of top line gains with constant currency organic growth of 6% driven by disciplined pricing actions. Consistent with our strategy, our growth platforms of release liners and protective solutions delivered the highest growth in the portfolio. Second, price versus cost has been a theme throughout 2022. As manufacturers battle raw material inflation and past prices downstream. During the quarter, pricing exceeded input cost increases by over $35 million on a comparable basis for the combined company. I'm pleased with the team's pricing discipline and agility as we…

Thanks, Julie. As Mark referenced earlier, reported consolidated Mativ results reflect a merge company for the fourth quarter, but only for the legacy SWM and the prior year, thus making year-over-year reported growth very large in comparisons, less meaningful. So my comments will try to focus on current business trends, margin comparisons on a comparable or a like-for-like basis and price versus input cost trends for the business as a whole. In addition, the full year reported results only reflect the merged business after the July close and legacy SWM for only the first two quarters. Also, limiting comparability, we have provided extensive reconciliations and their earnings release to help with comparisons on a like-for-life basis for both the fourth quarter and the full year, but I will focus my comments here mostly on the quarter total. Fourth quarter sales were $660 million with organic growth at 6% on a constant currency basis and 2% with the impact of currency. The 6% growth was split between 9% growth in ATM and 3% growth in FBS with the best sales performance coming from release liners and protective solutions, as Julie discussed. Price increases versus last year drove all growth metrics. Going forward rather than detailing adjusted operating profit and EBITDA, we will center our comments on EBITDA. Those you'll see in the release. We reconcile GAAP operating profit to adjusted operating profit and then to EBITDA by segment and on a consolidated basis. For adjusted EBITDA on a comparable basis, we were up 30% to over $92 million in the fourth quarter with margin expansion of 310 basis points. Growth was driven by over $35 million of favorable price versus cost. These gains were partially offset by the impact of softer volumes and some other inflationary pressures like freight and distribution.…

Thanks, Andy. Before we wrap up, I’d like to spend a few minutes highlighting some of the work we’ve done around our strategy and identity. Since the merger closed, we have dedicated significant resources to refining our enterprise strategy for all of our stakeholders, especially our employees, customers, suppliers, and of course, investors. The legacy SWM and Neenah businesses shared many attributes that we felt articulating the Mativ identity was paramount for providing the direction and inspiration for who we are and what we aspire to be. Our North Star, as we call it, includes our ambition statements, core advantages, strategic pillars, cultural values and growth platforms. We believe these themes are generally self-explanatory, but we’ll briefly talk through them so you can best understand how we will manage the business going forward. First, our ambitious statement is to be the global leader in specialty materials, consistently driving growth by engineering bold, innovative solutions that solve our customers’ complex challenges. This has long been the underlying inspiration for both legacy companies and I believe this captures what we aim for in the heart of our business model providing premium solutions that solve our customers’ complex design and engineering challenges. Mativ has an expanded set of technologies and capabilities using a variety of materials to design solutions across a diverse set of industries and premium applications. The second element is our core competitive advantages or how we win. We consider these our extensive material science know-how across diverse technologies, our approach to customer collaboration, putting customers at the center of everything we do and our robust global manufacturing and supply chain capabilities. Ultimately, leveraging these advantages in tandem will underscore our ability to achieve our ambitions. The third elements are our strategic pillars, which are lean into growth, focus our efforts…

Thank you. We will now start today’s Q&A session. [Operator Instructions] Our first question today comes from Jon Tanwanteng from CJS Securities. Your line is now open.

Hi. Good morning. Thank you for taking my questions. My first one is and thank you for all the detailed information you guys gave. These were all very helpful. But the first one is, it sounds like you’re expecting a sequential decline in the first quarter. I was wondering if you could give us a little more detail on the expected magnitude both on a revenue margin perspective and if you could provide any more color on just which – how impacted each segment is going to be, especially just given your underlying synergy and pricing efforts there.

Yes. I would – I’ll start Jon and then Andy add anything that I might miss. And also I should probably recognize, I understand there’s a little bit of audio glitch in the call, so if there’s any extra questions, we’re happy to take those. As far as sequential improvement, we are expecting from a revenue standpoint, slight sequential improvement versus Q4. I mean, we mentioned we’re feeling destocking impact, particularly in paper and industrials and maybe some of our construction areas. There will be the impact of the strike in France and those are on assets that are sold out. So from a bottom line standpoint, the combination of the strike in France, destocking and some normalization of that through Q2 and some softening in Europe, we are expecting a soft Q1, softer than we would expect for our long-term normalization. And if I would think about that versus maybe last year Q1, it’s probably in that 10% range.

Yes, I would agree.

On EBITDA.

Okay, great. Thank you. That’s very helpful. Andy, you mentioned improving net pricing versus the inflation that has forecasted this year. Two questions around there. How much did you recover in Q4 and is there a target for recovery in 2023?

Yes. In Q4 we recovered $35 million over recovered and for the full year we over recovered about $75 million. We needed to over recover and we do have a target for this year as well. We’re expecting some moderation in input costs, but we’re expecting to over recover again in 2023.

Yes. And in my comments I mentioned that we would expect when we look at some of the different buckets that the order of magnitude of input costs year-over-year, when you sort of think about energy, some of the pulp, particularly in the front half, it’s going to be an order of magnitude of about $100 million. So we know the order of magnitude that we have to do in terms of to go get the price.

Okay. And is there an over recovery target at all?

Well, what I would say is, when we think about the margin profile for 2022, we would expect a modest marginal improvement as we go into 2023. So that will be a combination of both synergies and then additional sort of pricing actions if you will. So that’s probably the best sort of color I can give you.

Yes. I would think about a minimal – very minimal over recovery, Jon. I mean we got a lot of the over recovery this year as they start to moderate, we’re expecting to hold onto pricing and continue with some of the disciplines we put in place and then deliver on the synergies, but moderate or minimal over recovery on pricing and same thing from a margin standpoint.

And one thing Jon I would say, as we sort of closed out Q4, we really saw that recovery that we sort of think of were ATM margin was just around 15%, the FBS margins were about 20%. So that was sort of representative of some of the pricing actions that were needed and we knew that the fourth quarter would be the best sort of year-over-year and we’re happy we delivered it.

Great. Thanks. That’s helpful. I also appreciate the color around the depreciations.com. Any change to the amortization and purchase accounting at all as we go forward?

It’s about $55 million to $60 million.

Okay, great. And then finally, Julie, can you give us an update longer-term just on the potential synergies beyond the identified cost ones you’ve talked about them. I’m going to ask this every quarter, but revenue – vertical integration within the relief. Yes.

Yes. One of my favorite topics. So as we mentioned, we ended 2022 at a run rate of $20 million. That was our expectation. Most of that – most of the early synergies are SG&A and org design. Some early procurement, we’ll execute another $10 million to $15 million by mid-year. That’ll flow through at least $10 million through the P&L this year. So those are primarily our short-term synergies, which are heavy procurement this year. They were heavy SG&A to begin with, and now they’re heavy procurement in supply chain. Longer-term, I’d say there’s a lot of opportunities that would be centered around insourcing of capabilities, materials that we buy on the outside today that we likely have the technical capabilities to internalize as well as footprint optimization, consolidation, potentially how we operate our assets to serve our customers, to maximize profitability and reduce costs. There’s innovation synergies from our shared technologies, and then there’s revenue synergies. And those are – they take longer to materialize, but those are in the process right now, particularly the revenue synergies where we’re working with some key customers that one of the former companies may have had a relationship in the past but the other one didn’t or that where we now have extended technologies with those existing customers. So a lot of opportunities from a short-term and long-term standpoint. What I love about synergies, particularly in this uncertain environment is that they are really within our control and we have clear line of sight to delivery, really rigorous tracking, a transformation office that is leading those efforts. So I kind of consider synergies as an insurance policy that we can continue to deliver even during this tough economic environment.

Thank you. We’ll now take our next question from Mitra Ramgopal from Sidoti. Your line is now open.

Yes. Hi. Good morning. Thanks for taking the questions and again, I really appreciate the detail provided. First one, just on the price increases and inflationary environment, you’ve had great success this past year in terms of more than recovering the higher costs, and I know you’ve mentioned you’re still considering additional pricing actions or surcharges. In the face of potential slowing or demand softness, how confident are you that you’ll be able to continue to recoup a lot of the additional costs you’re facing?

Yes, I think a couple things. And we’re feeling softness, but I would tell you we’re feeling primarily as destocking right now. And we still have some strong demand elements within our portfolio. When I think about consumer products and release liners and protective solutions and engineered paper there is very stable demand, water and air and process filtration is very stable demand. So where we’re feeling softness, it’s in about a third of our business, more heavily in Europe, less so in North America. So I do think we have continued opportunities from a pricing and mix standpoint. And other than synergies, pricing is the number one topic in this building and it’s important that we continue to flex our agility, understand how we reduce contract terms, which the team has done a great job of increasing items that we flex with modifiers, increasing transparency with customers and our discipline and our tracking of pricing. So while we will feel some softness, we also know we have some very sticky pricing catalysts as well, particularly in packaging and specialty papers, protective solutions. Anywhere where there’s a great technical solution that provides a barrier, we tend to have very sticky pricing. And so overtime we’ve demonstrate our ability to hold onto pricing. I would expect nothing to be different in this environment as well.

Okay. Thanks. That’s very helpful. And just on synergies, you highlighted a $25 million expect to get this year. I assume that’s really just on the cost side. And just curious on the revenue synergy side, if you're seeing any traction here from cross-selling or new geographies, et cetera?

Yes, the $25 million is on the cost side. On the revenue side, I'd say they're longer term and a little bit more – a little bit more, they're in process now, but they'll take us a little bit longer to recognize. And that's really from primarily cross-selling opportunities and technology, complimentary technology opportunities where we can provide different kinds of solutions than we could previously at standalone companies, but those take a little longer because much of our portfolio requires customer qualification. So designing those products with our customers and then qualifying will take us a little bit of time, but it's a really exciting opportunity for us and one the team is extremely focused on.

And maybe just one other thing I would add to that point is when we talked about the $65 million in synergies, revenue synergies were not part of that. So, this would be something that would offer above and beyond that. So we're really just focused on getting to that first $65 million and then commenting on additional synergies beyond that once after we get that threshold.

Okay. Thanks for clearing that up. And then on M&A, Julie, you mentioned that's obviously something you'll be looking at and again, in this environment not sure if you could maybe touch on potential opportunities you're seeing out there evaluations, especially in the higher interest rate environment, and is there a consideration, I think you mentioned about 60% of the portfolio sort of being economically resilient. Would there be part of the strategy in terms of M&A to move that number even higher?

Yes, over time, I mean, clearly right now our number one priority for use of cash is going to continue to be de-levering. And we demonstrated that in Q4. We'll continue to focus on that in 2023 as well. As we talked about our strategy, I would tell you in the past both companies strategy was heavily dependent on M&A and on diversifying into new categories. The categories in which we compete today are really strong. We have a strong portfolio. Over 75% of our portfolio has GDP plus underlying market growth. So that's a great spot to be in. As we think about M&A, in the future, it will be more aligned in those categories where we compete today and really biased towards those three growth platforms that I mentioned. So that's release liners, protective solutions, and filtration. Over time, as we accelerate growth in those areas, those are some of our most economic resilient areas. Our resiliency will continue to grow as well. So that's how we'll get there both organic growth by biasing our investments towards those high growth accelerators as well as in the future, bolt-on type of acquisitions in those high growth accelerators.

Okay, thanks. And then finally, obviously you mentioned the first quarter is going to be very challenging and you expect the cadence to improve going forward. Just on the second half, what sort of gives you the heightened confidence that it'll be much better than what you're going to see in the first half?

Yes, I'll take that. I'll take the first one, Julie, if you want to add on. So, when we talk to the business unit leaders, I think universally, everyone's saying that the demand is going to be pretty strong. I think when we talked about some of the softness in Q1, it really is a destocking, sort of inventory destocking. So I really do sort of isolate it to that. And then when I think about also Q1, there are just, I would say some one-off sort of inefficiencies that we had, as we ran into the start of the year and then also some of these strikes that we're having in France, which we don't expect that to continue. But I think the comments about destocking I think are probably something you've heard from others talk about and it's something that we've seen and we even saw coming a little bit into, in November when we spoke, we thought coming into Q4 as well. But we feel really confident when we look at the end markets in terms of protective solutions, filtration, release liners, all those businesses. We feel really confident in terms of what that growth outlook is. I think the second thing I would say is when you think, look about the input environment, when we get to the second half of the year, the input environment should be much more favorable than where we were on the front half. So in the front half, so energy will be up year-over-year, materials like pulp, should be going up year-over-year, but then when you look at the NBSK, that should be more favorable as we look into the back half of the year. So when we sort of think about the entire complex, we see a good second half, sort of setting up where you could have good demand with a favorable input environment.

Yes, I think Andy hit on like the key elements. The only one I would add is the addition of potential percentages to continue to ramp in. So when you think about procurement contracts, they'll ramp in over the year, supply chain efficiencies and capabilities will ramp in over the year. So we'll continue to build that out throughout the year as well and have a higher run rate at the end of the year than we start the year with.

Okay. No, that's great. Again look forward to the rest of the year and congratulations. I'm getting the merger done. It looks like you're set up nicely over the next throughout 24 months, so growth itself. Thanks again for taking the questions.

Thanks Mitra.

We now have a follow up question from Jon Tanwanteng from CJS Securities. Your line is open.

All right, thanks for the follow up. I was just wondering what your expectations for working capital and cash flow through the year assuming our pocket obviously in Q1 and in potential recovery through the second half, also is there any particular lumpiness in cash restructuring costs or integration and capital spending? Just how do you see the use of cash through the year?

Sure. So when we think about, I would say, just free cash flow, when I talk about the elements in terms of, really the walk when I talked about the depreciation, the interest, some of the assumptions around tax and JVs, et cetera, that really would blend itself to around a free cash flow of about $150 million. And so when I think about one time sort of continued restructuring charges, you coming through, it's going to it's not going to be nothing like it was in the back half of the year. So it's not going to be meaningful. I would say, order of magnitude between $10 million or $15 million as we sit here today. On a working capital, let's see, because of the receivable facility that we put in place, I don't think receivables would actually be, that big of a drag this year. And I would think about inventories as potentially being headwind in the front half of the year, but then certainly a tailwind in the back half of the years because of the dynamics we talked about in terms of thinking about the input cost going down, then year-over-year. And then CapEx, I think I mentioned least of my comments that would be close to about $90 million for the year.

Understood. And then just given the higher for longer sentiment that people are expecting from the fed and interest rates, how much more is it important is it to pay down debt using excess cash flow versus using your capital elsewhere at this point?

Well, that's what we're focused on so we would expect to continue to pay down debt in 2023 after an abnormal cash flow year in 2022. And that is a focus, so, net leverage ended at three seven for this year. We would expect to be between three and three five, as we close out the year and we're very confident in that.

Okay. Got it. Thank you.

Thanks Jon.

There are no further questions. At this time, I will now hand back over to Julie for some closing remarks.

Yes. Thank you for your interest today. We appreciate your time and questions and look forward to talking to you soon. Good afternoon.

That concludes today's Mativ’s 4Q 2022 earnings release. You may now disconnect your lines.