Welcome to Mativ's First Quarter 2025 Earnings Conference Call. On the call today from Mativ are Shruti Singhal, 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. [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 First Quarter 2025 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. 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. 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 and the accompanying slide deck are available on our website at ir.mativ.com. With that, I'll turn the call over to Shruti.

Thanks, Chris. Good morning, everyone, and thank you for joining our call. First, given this is my first time speaking with you as Mativ's CEO, I'll start by saying how excited I am to work with the team and lead our company and our employees. This is an important time for Mativ as we work to turn around our business performance, accelerate our pace of execution and materially reduce our leverage. At Mativ, our purpose-built assets deliver bold, unique and highly specialized solutions to meet our customers' most complex challenges. Our global capabilities, paired with our localized supply solutions, enable us to partner with and service our customers based on how and where they go to market. These capabilities and our business model allow us to grow our end markets together with our customers and are particularly relevant in the current geopolitical and tariff exposed environment. We also recognize that Mativ is facing challenges right now. Many of these are rooted in a continuously suppressed demand environment. As a member of the Mativ board, I have witnessed firsthand our progressions since the merger in 2022. After the destocking trend over the past few years ended, we expected a solid return to a more normalized demand environment, similar to levels before the pandemic. However, we realized that an overall demand pickup is simply not materializing with the additional uncertainty posed by the current macroeconomic environment. The team and I have spent the last 60 days digging deep into our global operations and engaging with our talented employees, key customers and trusted suppliers as well as many shareholders and other external stakeholders to help inform my perspective. Our conversations made clear that this past year has been incredibly difficult for many of our stakeholders and employees. We are simply not where we…

Thanks, Shruti, and good morning, everyone. Consolidated net sales from continuing operations for the quarter were $485 million compared to $500 million in the prior year. Sales were down 3% year-over-year on a reported basis and essentially flat on an organic basis. After adjusting for sales associated with closed facilities, volume mix and selling prices were up slightly versus the prior year, while currency was unfavorable. Adjusted EBITDA from continuing operations was $37.2 million, down 19% from $45.8 million in the prior year. Higher manufacturing and distribution costs, unfavorable net selling price versus input costs and lower volume in FAM represented a combined $13 million unfavorable impact, which was partially offset by $2 million of higher volume mix in SAS and $3 million of lower SG&A costs. Turning to each of our segments. Net sales in our Filtration and Advanced Materials segment of $188 million were down more than 7% versus Q1 of 2024. The year-over-year decrease reflected lower volumes due to continued customer caution and uncertain macroeconomic environment, and lower selling prices along with unfavorable currency translation. FAM adjusted EBITDA of $23 million was down $10 million year-over-year, reflecting the effects of lower volumes, the sell-through of higher cost inventory produced in the prior quarter, unfavorable relative net selling price versus input costs and higher distribution costs in the segment, partially offset by lower SG&A costs. In our Sustainable & Adhesive Solutions segment, net sales of $297 million were up $16 million or almost 6% on an organic basis and essentially flat from last year on a reported basis. Organic growth reflected higher volumes across key categories and higher selling prices across the segment, partially offset by unfavorable currency translation. SAS adjusted EBITDA performance of $33 million was up more than 3% year-over-year. Adjusted EBITDA of 30 basis points…

Thank you, Greg. What I want you to take away from this call is that to undertake the necessary changes to grow market share, return to sustainable and profitable growth, strengthen the balance sheet and most importantly, reserve value to our shareholders, we are pivoting to a much higher sense of urgency across the company. We will act swiftly, comprehensively and decisively. Our teams understand that the current macro environment will not do us any favors anytime soon and we are adapting to control our own destiny. Our top priority is to accelerate our pace of execution with a focus on 3 key areas: driving enhanced commercial execution, sharpening our efforts to delever the balance sheet and conducting a strategic review of our portfolio. To drive enhanced commercial execution, we put in place multiple initiatives to align our commercial teams and product solutions with new business generation and profitable growth. To sharpen our efforts to delever, we are executing on a number of initiatives to materially improve our margins and cash flow generation. And to focus our operations on our core categories, we are conducting a strategic portfolio review of our assets and business lines. These efforts ensure Mativ is focused on our highest value initiatives to enable our long-term success. We are executing against a clear strategic road map and are taking accelerated actions to position Mativ for profitable growth while delevering our balance sheet and creating sustainable value for our shareholders. In closing, I want to thank all our employees for their unwavering passion for Mativ and their efforts to reposition our company for the future, our board for their support and faith in me and our shareholders for their patience as we accelerate our pace of change in support of our 3 key initiatives. We look forward to updating you on our progress as we move through the year. Thank you for joining us this morning, and please open the line for questions.

[Operator Instructions] Our first question comes from the line of Daniel Harriman with Sidoti & Co.

Shruti, congrats on the new position. Two quick questions for me today, one for Shruti and one for Greg. Shruti, obviously, you're only 60 days into your tenure. And clearly, at this stage, the level of detail you're able to provide on the portfolio review is rather small and I was hoping you might be able to kind of provide a little bit more insight or detail into what you're thinking about. And then, Greg, you've laid out multiple items to improve cash flow generation and expansion and I was hoping you might be able to give a little bit more color on that and the timing that you see that happening?

Thanks, Dan, for the question and I appreciate your comments. As you know, we've been evaluating our portfolio periodically ever since the merger. Case in point, we took the portfolio action regarding our EP divestiture. So that was successfully executed. But along with the board, we are conducting a strategic portfolio review of our assets and business lines, as I mentioned earlier, and Greg also alluded to that. We have a very diverse portfolio. And what we're looking at is how each product category contributes to Mativ's bottom line, its competitive positioning, margin profile and how it fits into the overall portfolio diversity. So we will certainly evaluate all those factors and opportunities to make sure we unlock and maximize the value to strengthen our balance sheet. However, as you also alluded to, it's early days for me and in this strategic review. But for sure, we will keep you updated on progress and opportunities as and when we identify them and are ready to talk about it.

For the second question, I'll turn to Greg.

Daniel, yes, on cash flow, we're expecting a significant increase from where we were last year from overall cash flow. I know when you look at the first quarter and with the negative cash flow, it's a steep climb from there. But that's really the seasonality that we see from accounts receivable and the lower volumes in Q4 and then picking up in Q1. So we should see a significant change from that level already in Q2 with a positive cash flow. And we'd expect -- with the actions that we're taking on the inventory reductions and the capital reductions as well as the improved sequential EBITDA that we would see, again, a significant increase in cash flow year-over-year.

Our next question comes from the line of Lars Kjellberg with Stifel.

Maybe we can step back a bit and kind of look at the legacy companies and where the margins were prior to the merger and then how they literally halved since the pandemic and where we still sit. What, in your view, have you been able to identify what are the root causes for that significant margin contraction? And we haven't really seen that in some of your peers. So has this to do with the complexity of the business, which are now, of course, we'll try to address through the strategic review of the portfolio? Or is it just the scale or lack of scale that doesn't necessarily enable you to deal with these extremely disruptive markets? So if you can get some perspective on that, that would be really interesting to hear. The other thing which I think a little bit about, as you're focusing on deleveraging the balance sheet, why do we continue to pay dividend? Wouldn't there be more value for shareholders to step away from the dividend and pause it and then really focus on the controllables because the other stuff may change, of course, with -- as market evolve. That's my 2 first questions, please.

Yes. I'll start on the first one and Shruti you can add in if I missed anything. As far as the margins, especially if we're comparing to the first quarter of the year, those are going to be by far the most suppressed margins that we have with the seasonality, again, the higher cost inventory that we sell through from the seasonally slower Q4. I would expect the margins for the full year to be much more in line with where we were last year with some upside to that. As far as what's -- even those levels down some, as we've talked with the FAM business is primarily the biggest impact there with most recently, the films putting pressure on the margins. Outside of that, we still believe that we are in businesses and categories that -- where 15% margin is achievable and continuing to work towards that. The cost reductions that we've talked about should also make a nice step forward in improving those margins as well. If you didn't have -- then maybe on the dividend -- go ahead, Lars.

No, I was going to say the -- is there anything in this? I mean essentially from the predecessors, the margins where you have been, call it 10% or thereabouts is literally half from where the 2 companies were prior to coming together, right? So again, is this scale disadvantage in the disruptive market doesn't enable you to protect the margins? And can we resolve that with this portfolio review and lessening the footprint in a way?

Yes. As far as the planned increase, again, I think we're working really more toward a 15% margin at this point versus the 20%. The EP divestiture did lower the overall mix, some from where the historic 2 companies have been in the past from an overall margin standpoint. As far as the scale, you mentioned that in the earlier part of your question, that is where we've made significant efforts in reducing non overhead SG&A costs and have more of that in scope for the next -- for '25 and '26. So I think we're addressing a lot of the scale problem or issue there. As far as the portfolio, yes, if there were anything -- if there were anything to be done there, it would be in -- it would be focused more on delevering. The other thing, too, I think I missed was on the pricing actions. Those that went into play in the -- towards the end of the first quarter are already being realized in the second quarter and through the remainder of the year, which should also help with the margins in addition to the cost reductions.

Very good and then the dividend question?

Yes. On the dividend, we've reviewed that. We have talked with the -- have had discussions with the board on that and at this point, are planning to continue with the dividend.

Our next question comes from the line of Massimiliano Pilato with Stifel.

There will be 3 for me. So I appreciate all the color on the tariff situation. But relative to China, I would like to understand if you saw any change in domestic demand in the FAM segment or some backlog from Chinese base given this situation of tariffs in the U.S. and China? Second question relates to inflation. So I understand pricing actually already benefit in Q2 but it seems that pulp is seasonal, energy is seasonally lower and we have really seen any material inflation in resins. So where do you see the price cost cut in Q2 and as well for the full year? And maybe I'll ask the third question after this.

Yes, I can take the first question on tariffs. So as we mentioned, our exposure to China is very minimal. And then we are certainly -- whether it's in Europe, as I mentioned, we are local for local in terms of supply chain and manufacturing, and we are certainly in touch with our customers to see how we can continue to penetrate the market, increase our share in those local markets that are getting impacted by the Chinese tariffs.

I'll take the second question on the pricing and input costs. So we'll continue to manage selling prices to cover input costs. We occasionally do hit timing issues with quarters, and we saw that in the fourth quarter of last year. And then as reported and as expected, still ran a modest -- had modestly higher input costs than pricing actions. Our expectation is with pricing actions in place that we'd be back to where that is a favorable contributor in Q2 and that we would end the year with also favorable pricing input costs as well. At this point, we're not seeing significant -- we don't have expectations for significant input cost increases. And again, this would be barring any tariffs, which then we would also have pricing that would offset that. But when we look across our -- all of our raw materials, it's really pulp, paper and energy where we're seeing a bit of an uptick in input costs but not in a significant way and not in a way that we are not able to cover them with price increases.

Right. Then I will finish with the third question, which relates to the FAM segment. So of course, there have been a multitude of disruptions and some internal issues, which now seems to be resolved. But nonetheless, the underlying markets for automotive and construction seems pretty weak. And if I understand, you were trying to push or to prioritize the optical, medical and dental fields, but the exposure to the transportation and construction is about 85%. So what more can you do to offset the weakness potentially in -- during the year in automotive and transportation? It seems that the film business is not enough to offset? Or are there any other actions that you can undertake to drive growth in the FAM segment?

Yes. So as I mentioned, there's a couple of things there on the FAM segment. One of is the optical, medical and dental, we have a robust pipeline and we are -- those segments are growing. On the automotive and construction segments, with the change in leadership with Ryan coming on board, building a new team, and we have successfully shown in SAS segment that building a pipeline, which is, we target roughly 50% of our revenues, is having that kind of a discipline on commercial pipeline build. In albeit weaker segments of automotive or construction, we still feel we can grow in those segments. So Ryan recently took over. He and his team are building the pipeline, and I expect similar growth patterns as we have demonstrated in SAS in the past.

Thank you for your questions. That will conclude today's question-and-answer session. I would now like to pass the call back to Shruti for any further remarks.

Thank you for joining us this morning for our Q1 2025 earnings call. We appreciate it. We look forward to connecting with you throughout the coming months and our next earnings call in August. Have a great day, everybody. Thank you.

That concludes today's call. Thank you for your participation, and enjoy the rest of your day.