Welcome to 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. 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 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 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, typically resulting 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's 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, 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 our $20 million year-end target run rate. In short, our teams are working vigorously to implement and accelerate our synergy savings. To proactively address the question of upside, we view this acceleration as a timing benefit as we believe we can execute some savings planned for early-to-mid 2023 during the fourth quarter and realize the benefits earlier in the year. When we release fourth quarter results and issue guidance, we will provide further details on synergies and expected plans and timing. As we've said previously, the early-stage synergies are primarily related to SG&A reduction, while the later-stage synergies will be driven by procurement, supply chain, and overall operating efficiencies. We remain committed and confident in achieving the $65 million of synergies as originally communicated. Now, to elaborate on some of the challenges we are currently facing, which have escalated or emerged since midyear, I'll comment at a high level, and Andy will add some financial context shortly. Starting with the macro environment impact, which we view as global demand and currency, we are generally seeing some demand slowdown from peak levels earlier this year as economic conditions soften. The potential for recessionary conditions is causing customers to be more conservative with order patterns and inventory management as we close down the year. Simply put, the general outlook and sentiment in the marketplace is not quite as optimistic as it was just a few months ago. A more conservative view on the top line growth is appropriate to assume in the back half of 2022, which we consider to be a few percentage points lower than our original forecast. Also, since midyear, there has been a decline in the euro. Inflation, the geopolitical crisis in Russia and Ukraine has been a key driver of the ramp-up in energy costs in Europe. Since our last call, the situation has accelerated. While other inflationary pressures persist in areas like specialty chemicals, packaging, and freight, energy is the most impactful, and we are taking both operational and pricing actions in response to mitigate these new cost levels. As a reminder, our pricing has more than recovered input cost inflation in the third quarter. And despite the inherent lag, we expect to ultimately recover these latest increases as well. Lastly, we were affected by cybersecurity attacks during the third quarter. It temporarily disrupted our operations resulting in higher waste, additional costs, and some missed sales. At this point, we have resumed normal operations. This was not related to the merger integration, as the incident was contained within certain operations. We have put in place additional remediation measures designed to help prevent future similar attacks. The bottom line is that while there are many positive takeaways from the quarter, there are also some challenges that give us a more conservative view. At the end of the day, we delivered nearly 25% operating profit growth compared to last year on a like-for-like basis, and we expect strong year-over-year growth to continue into the fourth quarter. Additionally, we have a healthy pipeline and execution path on synergies to continue to fuel margin expansion and bottom line growth next year. Let's shift to our operating segments, starting with Advanced Technical Materials or ATM. Organic sales were up 6% or 12% on a constant currency basis. Gains were primarily driven by strong pricing execution. Our best performing sales growth came from release liners, protective solutions, and filtration. You will continue to hear us talk about these categories as our accelerated growth platform. These are the areas where we will bias our investments and resources to accelerate top line and bottom line growth. For release liners, the ITASA acquisition from early 2021 continues to outperform original expectations. Price increases have been significant and effective at offsetting higher costs, and volume continued to grow well above the market. Product lines showing the most strength were self-adhesive tapes, shipping labels, and medical applications. Release liners is a highly strategic area for us, and we are in the process of adding capacity in our Mexico facility to serve the Americas. In protective solutions, we saw gains in industrial films and coatings led by strong pricing actions and increases in demand for paint protection film. Protective solutions is another area where we see promising long-term opportunities to invest in to expand our capacity and leverage our capabilities in emerging technologies like smart applications. Lastly, filtration delivered solid growth during the quarter, led by water and transportation filtration. With strong pricing versus last year, we expect continued strong macro trends for water, air, and industrial process filtration. We are pleased to see input costs for certain commodity-grade resins, like polypropylene, coming down versus last year, though still above historical levels. We have not, however, seen pricing relief in specialty resins, like those used in many of our films, as supply remains tight. For key actions, it's fair to say that pricing remained a top priority, if not the top priority in our businesses. We have continued to raise prices and implement surcharges to reflect the still elevated inflationary environment, with energy cost offsets at the forefront of our customer discussions. Lastly, and regardless of the external environment, we're keeping a company-wide focus on cost synergy execution within both operating segments and at the corporate level. We have high confidence in our ability to deliver on our savings commitment. It takes a tremendous effort across the organization to do so while maintaining smooth operations. We talk about this as two important and related efforts, running the business and changing the business. It's critical that we do both, and we have the talent that is demonstrating they are up to the task. Moving to the Fiber-Based Solutions or FBS, I'd note that many of the same from ATM apply here as well, particularly around pricing, input costs, and synergies. Organic sales were up 7% or 12% excluding negative currency impacts. Our gains in this segment were primarily driven by price. Our best-performing sales growth came from packaging and specialty papers, including commercial print which is delivering outstanding performance, and packaging and consumer products also showing double-digit growth. Regarding input costs, we continue to experience higher costs for wood pulp versus last year, with the pulp index reaching multi-year highs. Pulp indices are projected to trend lower throughout 2023; however, year-over-year comparisons aren't expected to turn lower until midyear next year. Energy costs are also up significantly, again especially in Europe. Similar to ATM, this is a key focus of discussion with customers. We're pleased to say that pricing in FBS has more than offset input cost inflation compared to the prior year. For key action items, we are continuing to activate price levers. Some of these will be effective in late 2022, and others in early 2023. We are especially focused on Engineered Papers where we believe we have opportunities to better recover inflation. Specifically in Engineered Papers, we have a number of adjusters in place with our customers that will help recover energy, pulp, and other inflationary costs starting in Q1. I'd like to comment on the nature of our customer agreements, and these comments apply to those in our ATM segment as well. As a general theme, global manufacturers have seen inflationary pressures on several fronts over the past two years, which has caused tremendous pressure on profitability as well as brought contract pricing and input cost escalators to the forefront of supply negotiations. Without commenting specifically on any particular contract or customer, I would say that we are migrating toward more dynamic contract pricing across our entire enterprise. Whereas the agreements as the year has passed typically had a single raw material which may have reset annually, we are progressing toward agreements that are more inclusive of other costs such as energy or certain chemicals and reset more frequently like semi-annually or quarterly. We are also working with customers to be flexible on other surcharges, some of which could be energy-related but also could be geared toward freight and logistics. As the past year has shown those cost buckets can be very volatile when global supply chains tighten. Lastly, similar to ATM we remain highly focused on synergy execution both for near-term cost savings as well as longer-term commercial opportunities. Now, I'll turn over to Andy to discuss Q3 results in more detail.

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 engineered 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 executed a series of interest rate swaps in the quarter such that approximately 75% of our total debt is at fixed rates. Dividing interest by total debt yields a weighted average interest expense of around 5.25%. Turning to our outlook, recall we had originally projected second-half 2022 EBITDA between $210 million and $230 million. While we are pleased with several strong trends in the business, such as 12% organic sales growth on a constant currency basis and operating profit growth of almost 25%, as the third quarter progressed, we saw increasing signs of our macro demand slowdown. Sales in the quarter were a few percentage points below our initial plans. And based on customer indications, we believe a conservative near-term view is warranted. Currency also moved against us during the quarter, especially the weakening Euro, which would represent a headwind of approximately $5 million to our original guidance for the back half of the year. Given these two external macro factors, it is likely that our second-half EBITDA would be below the low end of our guided range or around $200 million. Beyond those two headwinds, energy costs, especially in Europe, have escalated dramatically. While the Russia-Ukraine conflict was known at midyear, the duration of the conflict and its impact on sustained energy price volatility was uncertain. Clearly, the conflict has resulted in an accelerated sustained energy crisis. The market cost of electricity and gas across the continent are up exponentially. Manufacturers in the region are enduring significantly higher costs in implementing price increases and energy surcharges as quickly as possible. While we believe we will catch up with pricing, we will bear the higher cost in the second half of the year while not yet seeing the full benefit of our pricing actions. The net impact of this trend is in the range of approximately $5 million to $10 million in the second half of the year. Lastly, as mentioned, we dealt with a cyber security incident. While we became aware of the initial breach early in the quarter, it required extensive investigation and resolution processes. The breach also had an impact on some of our manufacturing sites limiting our ability to use our system to manage orders and shop floor operations and rely on automated functions. We also lost some sales opportunities though some of those may simply be delayed into the fourth quarter or early '23. All told, while we remain operational, it was disrupted and caused inefficiencies in the quarter. The impact is difficult to estimate, but could be in the range of $5 million plus million of EBITDA for the second half of the year. In addition to the estimated impact, we incurred about $6 million of direct expenses related to third-party assistance to resolve the issue. Those specific costs were excluded from adjusted financial metrics. We do not expect to incur any further similar expenses in the fourth quarter. We also note a portion of these explicit costs are likely to be recovered through insurance. We are pleased to report that the issue has been successfully remediated. While cyber security events are unfortunate under any circumstances, we acknowledge this type of situation is concerning to our various stakeholders, including our investors, especially during our first quarter as a combined company. Needless to say, we continue to gather learnings from this experience and assure you that we have put in place additional protective measures to further mitigate cyber risk going forward. As we put the cyber issue behind us and implement actions across the business to improve profitability, we see fourth quarter EBITDA consistent with third quarter EBITDA of $93 million. We note that we would typically have a seasonally lower fourth quarter. However, given more pricing going to affect further synergy realization and some sales that were delayed, we do not expect to experience a seasonal dip in overall profits. Consistent EBITDA would also mean another quarter of very strong year-over-year profit growth on a comparable basis. We still view strong profit growth versus last year as a great outcome in this operating environment. Looking further out, we see continued progress towards $100 million EBITDA quarters next year. We will issue full-year 2023 guidance in February, but wanted to share that preliminary view to offer our conviction that our fundamentals remain healthy despite some near-term turbulence. We also believe that business is uniquely positioned to offset some of the headwind if macro conditions worsen, as our cost synergy plan is within our control and is, in a sense, an insurance policy to deliver profit growth even in a potential recession. Lastly, with respect to leverage, we still expect to be at or below 3.75 times net debt to EBITDA at year-end. This outlook is largely a function of enhanced working capital programs and more normalized free cash flow in the fourth quarter as we move past the large third quarter cash outflows related to the merger closing. Now back to Julie to wrap things up before we take your questions.

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 a clear line of sight to our $65 million commitment. We are more than recovering inflation with pricing this year and remain hyper-focused 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 input costs are starting to pull back?

Thank you for the question, Mitra. Pricing has become the top priority across all our businesses. We have established a disciplined, data-driven pricing strategy to address this. Our goal is to recover inflation through pricing that includes energy and distribution costs while also expanding our margins over time through pricing adjustments, cost reductions, new product sales, and synergies. The stickiness of our pricing does vary by business unit. In areas like packaging, specialty papers, and protective solutions, we have strong pricing retention, particularly where we offer unique technical solutions or have a well-established brand. In contrast, our industrial sector sees less pricing stickiness due to the lesser significance of technical qualifications.

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 recession-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 I'm really pleased with our comps in Q3, and expect similar comps from a bottom line or stronger in Q4.

Thank you. Could you share your thoughts on customer relationships? I understand it's been just a few months since the merger and there’s still much to do. However, can you provide some insight into how customers are responding to the new entity? Additionally, in light of the price increases being implemented, are you experiencing significant pushback?

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 shutdown, if you will, in China. But although we will manufacture in China, we 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, 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 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 expand our margins because of the synergies we have in front of us. And the teams are operating and performing on those exceptionally well.

I would like to emphasize that we are not approaching this as a casual effort. Our transformation office is actively identifying new opportunities across the entire business and corporate side. We have a dedicated team focused on monitoring and addressing these opportunities, and they have done an excellent job so far. In fact, we are slightly ahead of schedule.

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 are 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 applications. 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 indicators 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 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 an 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, the key topic everyone has been discussing is energy, particularly in Europe. When we examine energy and natural gas, it's clear that costs have risen significantly. Currently, we are likely at a run rate of around $130 million. If we look at the components, they are roughly divided 60:40 between electricity and natural gas. For the upcoming year, we are about 70% hedged, which will provide us with improved predictability for budgeting and guidance. However, we also acknowledge that some of our hedges are at quite high levels. While it isn't ideal to hedge at these prices, it is necessary and prudent. So, for next year, we're looking at approximately 70% hedged.

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, are you going to pull in more of the stuff you want to do earlier into the year next year?

I believe Andy addressed this by stating that we are treating this with seriousness and not as just a hobby. We have top talent devoted to integration and synergies. They have been actively identifying and prioritizing areas where we can create the most significant and immediate impact, while also ensuring accountability for achieving our run rates. As a result, we are observing increased efficiency in SG&A and spending, along with some procurement and early freight successes, and our organizational design is nearly complete, which is expected to have a considerable effect. Many of these developments took shape in the fourth quarter. Therefore, for the current year, we don't anticipate a substantial impact from synergies, but as we conclude this year, the run rate will exceed $20 million.

Great. Thanks a lot, guys.

Thanks, Jon.

Thanks, Jon.

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