Hello everyone and welcome to the Mativ Second Quarter Conference Call. [Audio gap] …Chief Executive Officer. She is joined by Andrew Wamser and Executive Vice President and 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 am Mark Chekanow, Director of Investor Relations at Mativ. Thank you for joining us to discuss our second 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 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 interphase. To clarify some nuances, of how Mativ results were reported and how we'll be discussing them, we'd first remind everyone that the SWM and Neenah merger closed on July 06, 2022, after the second quarter ended. Thus we'll be discussing second quarter results for the legacy company separately. Given the legal and accounting structure of the transaction, Mativ results include only the legacy SWM business. The Neenah results we'll discuss are not included in the Mativ results for the second quarter. Beginning in the third quarter of 2022 results for both businesses will be reported together as Mativ results with the previously disclosed reporting structure, which Andy will review shortly. 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. We appreciate everyone joining the call today from Mativ first earnings call as we have a strong transition from separate legacy companies to a more powerful emerged enterprise. There's a lot to discuss and I'm eager to share color on our positive second quarter results, our profit outlook, and some important capital allocation topics. I'll lead off by highlighting that both legacy companies delivered solid second quarter results. Pricing and inflationary costs remain key themes and actions across both companies have offset input cost pressures and demand remains robust across our portfolio. Bottom line, the second quarter and year-to-date results track with each company's previous full year guidance. And we enter the second half of 2022 with good momentum on many fronts. I want to take a moment to commend our global teams for great execution on the base business; operating safely and delivering outstanding product quality and service to our customers while still facilitating the close of the merger and integration planning. This transformational merger between SWM and Neenah closed in early July and Mativ of employees are full of optimism about our future. Our organizations have come together with the ambition and energy to deliver on the incredible potential of this merger. And I'm encouraged by our progress, cultural fit and early stage integration plans. We know integration can be a long and complicated process, and we have set up a transformation office dedicated to planning, tracking and coordinating across all functions to ensure open communication and alignment as we move forward to deliver the expected synergies of this transaction. That said, rest assured that we have not and will not lose focus on delivering in the near term with continued excellence in our day-to-day execution. We will elaborate shortly, but I'd also highlight that we…

Thanks, Julie. For Legacy SWM, sales were up 13% or 11% on an organic basis. We saw gains essentially across the entire portfolio through a combination of strong pricing and good volume performance. Within AMS, the fastest growth came from transportation films while most of the other areas grew as well, which resulted in 11% organic growth for the segment. For EP, we also saw strong volume and sales performance in many product lines. Total segment sales were up 10% with reduced risk products continuing their strong momentum in leading the portfolio higher with total segment sales up 10%. We saw slight year-over-year gains for adjusted consolidated operating profits and EBITDA and mid-single digit sequential increases, which is consistent with our previous guidance. AMS adjusted OP grew 25% as margins expanded 120 basis points year-over-year and 170 basis points sequentially, with successful price actions more than covering higher input costs. Polypropylene prices are well off their peak and are expected to continue a downward trend into the second half of the year, which is an encouraging sign. Energy prices are not as meaningful of a variance for AMS given the asset concentration in the US and more reliance on electricity than natural gas. We were very pleased with AMS' sales and profit growth for the quarter and remain quite bullish on these favorable trends continuing for the balance of the year. Recall that adjusted operating margins for the full year in 2021 were 11.5% and our goal for 2022 was for margin expansion in the range of 200 basis points. We feel this is very achievable given year-to-date results and the continuation of current trends. EP adjusted operating profits were down 19% versus last year. Price increases and volume gains offset higher pulp and other material cost increases, but escalating…

Thanks, Andy. In closing, I'd like to reiterate a few key points from today's call. Top line and bottom line performance in Q2 were equal to or better than expected. We expect in the second half of the year, continuing strong demand, additional pricing actions and operational improvements resulting in margin expansion. We have a clear and natural path to de-lever to 3.75 or below by year-end and expect to be well within our target range in 2023. We have announced our post-merger dividend, and it's consistent with current cash outflows providing a meaningful return to our shareholders and demonstrating our confidence in our future. Turning to the merger. The transformation office is in place and staffed and working with a third-party consultant to develop and implement integration plans, lead priority projects and ensure delivery of synergies. The $65 million of synergies are on track and we have clear plans in place to capture them. We are clearly stronger and better together in our efforts to offset the ongoing supply chain constraints and uncertainties in the market. We have a more diversified and resilient combined portfolio and the benefit of scale. I'm very pleased with our current business performance, early integration progress and the cultural fit between the 2 teams. We are working together to unlock the value of this transformational combination. This concludes our prepared remarks. I want to thank you for your time today, and I'd like to now open the call for questions.

[Operator Instructions] Our first telephone question today comes from Jon Tanwanteng of CJS Securities. Jon, please go ahead.

Hi. Good morning, everyone and thanks for taking my questions and congratulations on completing the close and having a strong second quarter results. My first question, I was wondering if you could talk about the [ weighting ] of Q3 versus Q4 within the guidance? How is it compared to your normal seasonality and all the puts and takes you're seeing in the [ merger ] right now?

Yes, I would say -- there's not a tremendous amount of seasonality as we go forward, especially as our portfolio has become more diversified. So we're not seeing that kind of seasonality we would have seen historically maybe 10 years ago. So they're fairly evenly split. Part of that is, as input costs can start to moderate a little bit. I think fiber goes up still slightly, but some TPU and resins may be coming down a little bit. We'll see some of that continue to advance.

And the only thing that I would add is just the importance and the relevance that when we look at Q3 and Q4 for the balance of this year in terms of what the year-over-year improvements were for last year. So to Julie's point, I think it's pretty balanced between Q3 and Q4, but the year-over-year improvements will be significant.

Understood. And then my second question, could you talk a little bit more about your total energy exposure especially to natural gas in Europe? And what's in your forecast compared to the voluntary reductions that people have started talking about and then what happens if their actual reductions in the supply from Russia?

Sure. So about 2/3 of our manufacturing assets are outside of Europe. So we have a smaller footprint in Europe where we're experiencing, as you mentioned, the greatest pressure. And we have different plans, John, depending on the country and the business. So if I think about Germany, where we have 2 large manufacturing sites supporting filtration and industrial, about 75% of our energy needs are locked or in place for the next 2 years from a pricing standpoint. We've also continued to invest in technologies that reduce our energy usage. A few years ago, we invested in a reverse thermal oxidation asset that helps reduce the amount of energy we need. So we'll continue down that path. In the U.K. and Spain and France. We've also had some preset agreements primarily focused on '22, and we have redundant capacity to optimize across different geographies as needed. So in the short term or the near term, I'd say about 75% of our energy needs are established -- at established pricing. Longer term, we're going to work to continue to lock those in and expect to recover pricing through a combination of our ops excellence programs and sales price. If there is energy rationing, we have the opportunity, as I mentioned, to have some redundant capabilities in America and in Asia. For many of our assets, and we have the opportunity to minimize the energy needs by operating site by running fewer assets at those impacted sites. But it varies quite a bit depending on the country and the site that we're talking about. We're definitely running ahead as much as possible to lock in energy where we can and then have plans in place to manage it should there be any kind of rationing.

Understood. Is there actual a rationale in your guidance? Or are you on plan to run at today's rate so far?

There's not any rationing in our current guidance. No.

Got it. Okay. And last one for me. Just how confident are you in demand, given what you -- what everyone's saying is recession periods? I know you're not seeing anything yet -- but are people talking about plans in the future? [indiscernible] hesitating at all just given what you're seeing out there, number one. And number two, as you're pushing pricing through, have you been seeing any more elasticity than normal in your demand? And how is that flowing through?

Yes. So let me take the demand on first. I think overall, as we mentioned, demand remains very strong. Our assets are running at healthy utilization levels, and our order backlog remains very strong. And I would think about that primarily in our Engineered Papers business, our Paper and Packaging business, Filtration, particularly water and industrial, and then in our Print Solutions business, where we're seeing maybe a little less strength in some pockets in industrials and health care, but still stronger demand than prior year in most cases. Those are also the areas, particularly in industrials, where we've taken the most pricing. So to your point, we walked in with some of those pricing actions knowing that we may be giving up a little bit on volume and we're seeing some of that. From a pricing standpoint, I would tell you, the teams have done a really great job of putting together multiple vehicles and differences in how we go to market with pricing. We've implemented pricing structures that really give us greater agility and flexibility. We've expanded the basket of goods that we include in our modifiers, and that's primarily in our Industrial business. We have more frequent contract resets. So we have shorter agreements that gives us greater agility, particularly in filtration in parts of our paper business. And we've added surcharges for fuel and energy in many parts of our business. And then particularly in Engineered Paper, we have some volume agreements that are helping to offset some of the inflation as well. So we'll continue down that path. Customers, I would tell you that the conversation has shifted from less about pricing, although no customers like the price increase but less about pricing, more about continuity of supply and ensuring we have the right supply chain in place to meet their needs. So my belief is, and we've seen that both companies have a history of offsetting input costs with pricing and that will continue, and you should see that in our margin expansion year-over-year in the back half of this year.

Okay. Great. If I could sneak in one more, just the initial reactions from your customers [ post close ]. Have you seen any early signs of cross-selling synergies or anything like that?

Yes. Customers have been extremely positive, even customers in some areas that I was not anticipating. So understanding customers are learning to understand the breadth of the portfolio and the capabilities that we generate when we come together from a technology standpoint. So we've got some great customer overlap opportunities and cross-selling opportunities. Part of that is also becoming a more holistic solutions provider, particularly in areas like filtration and tapes and backings and adhesive solutions. And then lastly, I'd say vertical integration is an upside opportunity as well as we look at the different technologies across the portfolio. So very, very positive. But still very early.

Our next telephone question today comes from Mitra Ramgopal of Sidoti. Mitra, please go ahead.

First, just wanted to touch on the macro environment. The demand is very strong right now. But just curious how we should think, assuming there is a significant softening in a potential recession next year, as you look at your portfolio, how resilient you think it is? And maybe remind us how the business has shared in the past when we've had sort of an economic downturn?

Sure. So I would say, over time, both companies have improved the diversity of our end markets where we compete, which has led to greater resiliency. So for example, if I think about Fine Paper and Packaging, we've really expanded into a much greater portion into packaging and consumer products, which has greater resiliency than commercial print. In filtration, we've expanded more into water and air filtration, which has very strong macro trends and greater resiliency. In health care, the hospital needs and wound care needs continue during economic downturn. And then in industrial, the breadth of that portfolio, we have areas like medical packaging and tape and abrasives for do-it-yourself and commercial applications that can offset one another during different economic cycles. Historically, our most resilient businesses have been Engineered Papers and silicone release liners and filtration. So overall, I would say about 60% of our portfolio, I would consider to be resilient, semi-resistant to economic downturn. The risk is more commercial print and parts of our industrial business. I would also say that as we think about recession potentially this is a team, both teams have demonstrated the ability to really execute very well during an economic downturn. Most recently, COVID, where both companies emerge with strength and with a very solid balance sheet. And then the only other thing I would tell you is sort of a silver lining standpoint, seeing some economic slowdown can help some of our businesses from a supply chain availability standpoint and potentially some of our input cost infrastructure.

And maybe just one thing to add. I think it's important to maybe reference what happened during COVID in 2020. So when you look at the legacy SWM AMS business, that was down on an organic basis, about 2%, EP was down about 3%. And when you look at the legacy Neenah business on the filtration side, it was really resilient. It was up about 2%. So that sort of gives you a feel and flavor in terms of the last -- sort of downturn we've had. So I'd just encourage you to sort of look at those results.

Okay. No, -- that's great. Thanks for the color. And you've obviously had a really nice first half. How should we think about the second half in terms of margins, especially in light of the success you're having with price increases despite higher already inflationary pressures?

Sure. So let me take that one. The -- I'll start referring to the business in terms of ATM and then [ FBS ]. And so when I think about the FBS business going forward, I would expect continued sequential improvement in terms of margins for the back half of the year. And those will be up meaningfully again year-over-year. When I look at the ATM business, again, that's technical products and the legacy SWM AMS business. I would expect the margins were really decent here in the second quarter, and I would expect those to be relatively stable going forward. But the key point to understand is those year-over-year comparisons from that margin comparison in Q3 and Q4, they're going to be pretty dramatic.

Okay. And as we look at the guidance, obviously, there's a huge benefit coming from the restructuring or integration and cost synergies you're going to realize. But are you assuming any revenue synergies in the initial guidance?

As of right now, for the -- any revenue synergies, I would say no, not at that point. Those are more later stage. The synergies that we're talking about in terms of being on a $20 million run rate. So again, not all of that we still have a lot of duplicate costs right now as we sort of integrate. So I think it'd be a fraction of that, frankly. But that run rate would be about $20 million, and that's all cost. And I would just emphasize, there's clear line in sight of that. And -- we're exceptionally confident in that.

Yes. So the majority of that step-up in the back half is our base business. The minority is synergy realization in the back half.

Okay. And then finally, I know it's only 1 month since the mergers have been closed. But just curious in terms of what you're seeing initially in terms was it as expected or even better than expected?

Sure. I would tell you, it's going really well. Now we still are early days. I'm sure we'll hit some bumps in the road as everyone does. We established a transformation office in recognizing that this is a big integration. It can't be a hobby. And so that team really provides strong process and project management. That's the first thing. The second thing I would say is our org design is well underway and ahead of schedule. So that helps focus the organization and align everyone on priorities. The third element would be integration teams are in place and working really well together. So there's identified synergies have been vetted, aligned to each team. So everyone knows their functions, targets and goals. The early face synergies are on plan or ahead of plan, and we'll provide updates in the future each quarter. As far as any surprises, I'd say there's some really nice positive how similar our cultures are. We came from -- both came from [ Kimberly-Clark ], so it's probably some heritage similarities. We compete in similar markets. So there's some similarities there that drive common culture. The strength of the combined talent, the collaboration and focus of the team, they continue to find new opportunities and synergy opportunities. If there's any one different at our operating models were a little bit different, and we're aligning to be very market-facing, focused on the business units and our customers and we'll continue down that path. So all very positive so far, and we're really everyone's very energetic and excited about how we move forward together.

Okay. That's great. Congrats. And again, thank you for your question.

Thank you for your question. The Q&A session has now concluded. On behalf of our listeners, thank you for today's presentation. I would now like to hand the call over back to the management team for any closing remarks.

We appreciate your time today and your interest in Mativ and look forward to talking to you further.

Thank you all for joining. Have a lovely rest of your day. You may now disconnect your lines.