Welcome to Mativ's Second Quarter 2024 Earnings Conference Call. On the call today for Mativ are Julie Schertell, Chief Executive Officer, Greg Weitzel, Chief Financial Officer, and Chris Kuepper, 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 the listen-only mode and the floor will be open for your questions following the presentation. [Operator Instructions]. It is now my pleasure to turn the call over to Mr. Chris Kuepper. Sir, you may begin.

Good morning everyone and thank you for joining us for Mativ's second 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 SEC 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. Reconciliation of these measures to the closest GAAP measures are included in the appendix of the earnings release. 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.

Thanks, Chris. Good morning everyone and thank you for joining our call. I'm pleased to report that Q2 results showed strong adjusted EBITDA improvement as well as being the second consecutive quarter of volume growth. We've generated adjusted EBITDA of $67 million, which was up 45% from the previous quarter and up 13% year-over-year. Additionally, adjusted EBITDA margin was up 350 basis points sequentially and 150 basis points year-over-year. Results came in ahead of expectations due to a strong spread between selling price and input cost, as well as operational improvements that came in earlier than expected. While both segments performed well, our SaaS segment was the biggest driver this quarter, delivering over $10 million of incremental EBITDA and over 300 basis points of margin improvement year-over-year. On a consolidated basis, the primary driver of this quarter's adjusted EBITDA performance was our commercial team's pricing discipline and their ability to maintain a favorable net selling price versus input cost spread. Throughout the most recent period of supply challenges and extraordinary inflation over the past two years, our commercial team has done an excellent job of driving pricing to offset the impact of material inflation. While we experienced some deflation on input cost in Q2, maintaining a positive net selling price versus input cost spread historically has been and continues to be a key success factor and primary performance metric for our teams. We also implemented new tools last year to ensure we minimize leakage and continue to drive value with our pricing decisions. Sequentially, consolidated sales were up almost 5% this quarter after being up more than 10% in Q1, mainly due to volume growth. Volume gains were most pronounced in our SaaS segment, which is also where we felt the most volume pressure last year and which therefore presented…

Thanks, Julie, and good morning, everyone. Consolidated net sales for the quarter were $523 million compared to $526 million in the prior year with volume up almost 2% and selling prices down 2% due to input cost deflation, as well as unfavorable currency. While sales were almost flat on a year-over-year basis, we saw roughly 5% step up on a sequential basis. Adjusted EBITDA from continuing operations was $66.6 million, up 13% from $59.1 million in the prior year and up more than 45% sequentially. Favorable net selling price versus input cost, higher volumes and improved distribution and manufacturing costs represented a combined $17 million favorable impact, which was partially offset by $6 million of lower mixed contribution and $4 million of unfavorable SG&A expense. Adjusted EBITDA margin increased 350 basis points sequentially and 150 basis points year-over-year. Turning to each of our segments, net sales in our filtration and advanced materials segment of $206 million were up 2% sequentially and down 3% versus Q2 of 2023. The year-over-year decrease reflected lower volumes in our advanced films category and lower selling price due to input cost deflation, partially offset by higher volumes in our filtration categories. FAM adjusted EBITDA of $42 million was up 27% sequentially and down 5% year-over-year, reflecting the effects of lower volumes in our advanced films and higher SG&A expenses, partially offset by higher volumes in filtration, positive net selling price versus input cost and improved manufacturing efficiencies. FAM adjusted EBITDA margin of 20.5% was up 410 basis points sequentially. In our sustainable and adhesive solutions segment, net sales of $317 million were up 1% from last year and up 7% sequentially. The year-over-year increase reflected higher volumes across all of our end markets, partially offset by lower selling prices due to input cost deflation. SaaS…

Thanks, Greg. What you should take away from this call is that while demand has improved, there are still headwinds and we're focused on those elements we can control, quality, service, cost, new products, and share gains. This quarter demonstrated the impacts of our actions over the past two years, creating improved operating leverage and a more agile company. I also provided concrete examples of the results of the team's efforts this quarter to highlight some of our recent wins that will serve us well into the future. I'm encouraged by our performance and excited about the opportunities that lie ahead. Thank you for joining us this morning and please open the line for questions.

Thank you very much, Julie. [Operator Instructions] We have the first question from Daniel Harriman with Sidoti. Your line is open.

Hey, good morning, Julie, Greg, and Chris. Thanks so much for the details. I know Greg touched on this a little bit, but Julie, just if you look back at Q1, you mentioned that Q3 may be your best chance to approach that $70 million in quarterly EBITDA. You obviously got really close to that in Q2. So could you go a little bit deeper and provide some more details related to your expectations for profitability in the second half of the year?

Sure. I would tell you that our message remains the same in the sense that Q2, Q3, we expect to be our strongest quarter. Q2 did exceed expectations, but I would expect Q3 to be similar with the exception of what Greg mentioned, which is some annual outages in Q3, one of which moved from Q2 to Q3. So there was a little bit of a timing shift. The exceedance in Q2 was really driven by some price and input timing advantage, as well as some upside on consumer shipments that were really strong this quarter. So some of that's just timing. I'm pleased to have it in the bank, but the shape just moved a little bit more towards Q2. The combination of the two combined will be exactly as we've communicated in the past.

Okay, great. Thanks so much. And then just one more quick one for me. From a demand generation perspective and these investments that you're making, how should we think about that in terms of like a payback period?

Sure. So there's a number of investments we've talked about from a growth standpoint and we bias those towards our growth platform. So that's infiltration, release liners, and some of our specialty tapes areas where we have the greatest right to win and the strongest market conditions. The two we've talked about in the past, the first one is a fine fiber meltblown line in Germany. It's a sister line to three other meltblown assets. So it's known technologies. It supports our filtration growth, which was up 8% in this most recent quarter. And the second one that we've talked about in the past is the release liner coder in Mexico. Both of these assets have started up or qualifying customers. The Mexico asset is really about geographic expansion into North America and South America, and release liners continues to grow nicely for us as well. It was up 5% in Q2 and longer term has been up about 10%. Combine those two investments represent about $50 million of revenue and the continued growth in these categories, which is built into our long term outlook. The most recent two investments I mentioned on this call, the first one is a tape investment in Italy. It's a different technology that replaces solvent based adhesive technology. It creates an environment for higher temperature insulation, for greater abrasion resistance, and sound dampening performance, which is extremely important in electric cars. It also supports our ESG efforts and work by eliminating volatile organic compounds, which is critical for the automotive industry. The project is pretty low cost under $5 million. It has about a three year payback and its new technology that will qualify and then expect to fill it within about five years after startup, which is at a pretty normal pace for that business. The fourth investment I mentioned was expansion of our now tech filtration media. And this is following a similar investment that we made in China of the same technology and asset in 2023. So again, sister assets that are complementary to our current install base. This is driven by increased demand and reverse osmosis water filtration demand. It starts up in late 2025 as well, has a similar payback period about three years. I'm really pleased to have these kinds of growth investments. I think they set us up extremely well for the future and the teams do this well. We have strong engineering. We have strong commercial excellence. We have customer engagement and commitment prior to making the investments. And these most recent investments are fairly small. They fit into our capital plans and they provide continued momentum for those businesses and for our teams internally. So, strong paybacks, fairly minimal investments in the most recent two, the first two were much larger. Those have started up and are performing well and actually ahead of plan, particularly in the expansion in North America and release liners.

Thanks again and best of luck in the quarter. Yes, that's perfect. Thank you so much.

Okay.

Thank you. The next question is from Jon Tanwanteng with CJSW Securities. Your line is open.

Hi, good morning. This is Justin on for Jon. How are you?

I'm good. How are you, Justin?

Good, thanks. We're just hoping for some more color on the prepared remarks. Are you seeing weakness or hesitation from customers in any area, given recent market consternation and some higher uncertainty?

I mean, we're definitely seeing caution from our customers. I'd say we have greater strength in North America than we see right now in Europe. And we see caution from our customers, a caution around building too much inventory, which was part of the challenge last year that created some of the de-stocking challenges. Second quarter was sequential volume improvements and basically flat year-over-year growth in almost all of our end markets. And that was led by filtration release liners, tapes, and also healthcare. We are continuing, as I just talked about, to invest for the future in those markets that provide the greatest opportunity. And I would say that is in filtration release liners and some of our automotive tapes, as well as optical films. Our softest categories are going to be in areas like dye sublimation and some of our paper subcategories. And that's not surprising, just given the historical performance of those markets. I think the really good news there is that we know how to manage that business. We have the leading share in the premium space in paper, and we continue to grow in different channels, into teacher tools, crafting journals, and organizational tools that have upside potential even greater than traditional paper markets.

That's helpful. Thanks. And then, one more, if I could. Can you just talk about if there's any changes to your cash flow expectations for the year?

No, really no significant changes. And this quarter was a very good quarter for cash flow, with free cash flow of about $37 million for the quarter. As far as the full year, really no significant changes. Our capital is a little bit more -- our CapEx is a little more back end loaded than front end loaded. So we'll see that pick up some. We did also have a benefit in Q2 from accrued liabilities and accounts payable that you would not continue in Q3 and Q4. So I expect Q3 and Q4 to be your positive free cash flow months, but not to the same extent as Q2.

Okay. I appreciate the color. Thanks for taking the questions.

Sure. Thanks, Justin.

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

Yes. Thank you for joining us this morning. We look forward to connecting with you throughout the quarter and on our next earnings call in November. Hope you all have a wonderful day.

Thank you again, Julie. This concludes today's call. Thank you all for joining. You may now disconnect your lines.