Executive Summary / Key Takeaways

• Mativ Holdings, formed by the 2022 merger of SWM and Neenah, is a specialty materials leader strategically pivoting under new leadership to address a challenging demand environment and high leverage.
• The company reported a significant GAAP net loss of $425.5 million in Q1 2025, primarily due to a $411.9 million goodwill impairment in the Filtration Advanced Materials (FAM) segment, highlighting valuation pressures amidst market softness.
• Despite overall sales decline, the Sustainable Adhesive Solutions (SAS) segment continues its strong performance trajectory, demonstrating organic growth and margin expansion, serving as a model for commercial execution across the company.
• Management has outlined concrete actions to improve financial performance and deleverage, targeting $10-$15 million in additional cost reductions in 2025, reducing CapEx to $40 million, and decreasing inventory by $20-$30 million to generate significant free cash flow.
• A strategic portfolio review is underway to evaluate assets, unlock value, and strengthen the balance sheet, alongside ongoing efforts to optimize the manufacturing footprint and leverage differentiated technology in high-growth niches like healthcare, filtration, and advanced films.

A Specialty Materials Leader Responds to Headwinds

Mativ Holdings, Inc. stands as a global leader in specialty materials, a position forged through the significant 2022 merger of SWM and Neenah. This union brought together diverse portfolios, creating a business-to-business and consumer product entity focused on premium applications across varied end-markets, including filtration, healthcare, and sustainable packaging. Leveraging a broad portfolio of technologies combining polymers, fibers, and resins, Mativ aims to engineer solutions that optimize customer product performance across multiple stages of the value chain.

The company operates through two reportable segments: Filtration Advanced Materials (FAM) and Sustainable Adhesive Solutions (SAS). FAM focuses on filtration media, advanced films, coating, converting, and extruded mesh, serving markets like water/air purification, transportation, and building. SAS specializes in tapes, labels, liners, specialty paper, packaging, and healthcare solutions, catering to construction, DIY, packaging, and medical sectors.

In the wake of the merger, Mativ embarked on a strategic journey to integrate operations, capture synergies, and optimize its structure. This involved streamlining its manufacturing footprint, reducing the number of sites from 48 at the time of the merger to 35 by late 2024, and decreasing outside warehouses by over 25%. Portfolio adjustments included the divestiture of the Engineered Papers business in late 2023 and the sale of nonstrategic facilities in 2024. These actions were designed to reduce complexity and improve efficiency.

However, this period of integration and optimization has coincided with a continuously suppressed demand environment. Management has noted that an expected return to pre-pandemic demand levels has simply not materialized, with additional uncertainty posed by the current macroeconomic climate. This challenging backdrop has significantly impacted performance, particularly in the FAM segment.

Competitive Landscape and Technological Edge

Operating within the specialty materials industry, Mativ competes with a range of players, from large diversified conglomerates to more niche-focused companies. Key publicly traded competitors include Avery Dennison (AVY), Berry Global (BERY), 3M Company (MMM), and Kimberly-Clark (KMB). These rivals offer overlapping products in areas like adhesives, films, nonwovens, and filtration.

Mativ positions itself by focusing on specialized, high-performance solutions and leveraging its differentiated technology. Its "purpose-built assets" and expertise in combining polymers, fibers, and resins allow it to develop products with specific performance advantages. For instance, in filtration, Mativ's technology enables high-efficiency media used in critical applications like transportation, water purification, and HVAC. In advanced films, the company develops solutions for paint protection, optical applications, and medical uses, including interlayer films for ballistic resistance and medical films for advanced wound care. The SAS segment utilizes technology for performance labels, release liners, specialty papers, and healthcare materials like advanced wound care and medical packaging.

While larger competitors like AVY and MMM may possess greater scale, broader portfolios, and extensive R&D budgets, Mativ seeks to differentiate through targeted innovation and application-specific expertise. For example, in certain nonwovens applications, Mativ's technology may offer higher durability or processing efficiency compared to standard offerings. In the competitive film market, where Asian competitors are introducing lower-cost alternatives, Mativ is responding by developing a mid-tier product and emphasizing the performance benefits of its premium offerings. The company is also investing in new technologies like smart glass film partnerships and advanced tape technologies for electric vehicles, aiming to capture growth in emerging, high-value niches. These investments, such as the new medical films line in the UK and a specialty tape line in Canada, are expected to contribute over $115 million in incremental revenue over the next three to four years, demonstrating a focus on leveraging technology for future growth despite the current market softness.

Mativ's localized supply chain solutions, where products sold in a region are often manufactured there, also provide a competitive advantage, particularly in a geopolitical environment marked by increasing tariff uncertainty. This contrasts with competitors who may rely more heavily on cross-border supply, potentially exposing them to greater tariff impacts.

However, Mativ faces vulnerabilities, including customer concentration in certain areas and exposure to volatile raw material costs, which can impact margins relative to larger, more cost-efficient players like BERY. The company's strategic portfolio review aims to address how each product category contributes to the bottom line and competitive position, seeking to balance contributions and unlock value.

Recent Performance and Strategic Pivot

The challenging market conditions were evident in Mativ's first quarter 2025 financial results. Consolidated net sales decreased 3.1% year-over-year to $484.8 million. This decline was primarily driven by a 7.4% decrease in the FAM segment's sales to $187.6 million, impacted by lower volume/mix, reduced selling prices, and unfavorable currency translation, particularly in automotive and construction end markets. The SAS segment's sales remained essentially flat at $297.2 million, with organic growth offset by the impact of prior-year facility closures and currency translation.

Gross profit fell 13.6% to $72.6 million, reflecting higher manufacturing and distribution costs, unfavorable price/input cost dynamics, and lower FAM volumes. Nonmanufacturing expenses saw a modest increase, partly due to costs associated with the CEO transition.

The most significant impact on the bottom line was a substantial operating loss of $430.6 million, compared to a $13.8 million operating loss in the prior year period. This was largely attributable to a $411.9 million non-cash goodwill impairment charge recorded in the FAM segment during the quarter.

This impairment was triggered by a sustained decline in the company's share price and a quantitative impairment test that increased the discount rate for the FAM reporting unit to 14.0% to reflect perceived risks in achieving forecasted cash flows in its markets. The SAS segment's fair value was estimated to exceed its carrying value, though a sensitivity analysis indicated potential for impairment under different assumptions.

Excluding the impairment, FAM's operating profit decreased significantly year-over-year, while SAS demonstrated improved operating profit, driven by volume gains and cost management, continuing its positive momentum seen throughout 2024. The SAS segment achieved its fourth consecutive quarter of sales growth and fifth consecutive quarter of adjusted EBITDA and margin growth in Q1 2025, highlighting its relative strength.

In March 2025, Mativ appointed Shruti Singhal as its new President and CEO. This leadership change signals a pivot to a "much higher sense of urgency" to turn around performance and accelerate execution. Management has established three near-term priorities: driving enhanced commercial execution, sharpening efforts to delever the balance sheet, and conducting a strategic review of the portfolio.

Enhanced commercial execution is being led by Ryan Elwart across both segments, aiming to leverage the successful go-to-market approach of the SAS team, improve pipeline discipline, and increase cross-selling opportunities. Efforts are underway to address challenges in the Advanced Films business, including resolving quality issues, developing a mid-tier product, and focusing on growth in adjacent medical and optical film markets.

Sharpening deleveraging efforts is a top priority. The company ended Q1 2025 with total debt of $1,122.8 million and a net leverage ratio of 4.7x, providing 0.8x headroom against its covenant.

Management is targeting significant free cash flow generation to reduce debt. This includes implementing pricing actions (effective March), launching a task force to identify $10-$15 million in additional cost reductions in 2025 (contributing to a total of $30-$35 million by year-end 2026), reducing capital expenditures to approximately $40 million for the full year 2025 (down from $55 million in 2024), and aggressively reducing inventory levels by $20-$30 million in 2025. These actions are expected to result in working capital becoming a $10 million source of cash for the full year 2025, a significant improvement from prior periods.

The strategic portfolio review will evaluate the contribution and positioning of the company's diverse assets and business lines to identify opportunities to unlock value and strengthen the balance sheet.

Outlook and Risks

Looking ahead, Mativ expects market demand uncertainty to persist, with softness seen through early May anticipated to continue affecting Q2 2025 results. However, management forecasts a significant sequential step-up in adjusted EBITDA in Q2 2025, similar to the prior year's $20 million increase, driven by sequential volume growth (particularly in SAS), higher fixed cost absorption, and improved price versus input cost dynamics. Seasonally higher production costs from Q1 are not expected to impact the remainder of the year.

For the full year 2025, the financial guidance reflects the company's focus on cost control and cash generation. Interest expense is projected to be around $75 million plus $9 million in AR facility fees. Depreciation, amortization, and stock-based compensation are expected to be around $100 million, with one-time costs around $15-$20 million. The normalized tax rate is estimated at 24%.

The primary goal remains deleveraging, with management targeting meaningful progress towards their 2.5x-3.5x net leverage range in the back half of 2025 and aiming to be within that range in 2026. The nearest significant debt maturity is in May 2027.

Key risks to this outlook include the continued sluggishness of macroeconomic conditions and end-market demand (automotive, construction), potential indirect impacts from tariffs on commercial activity despite minimal direct exposure, and the execution risk associated with the Advanced Films turnaround and the broader cost reduction and commercial excellence initiatives. The sensitivity of the SAS segment's valuation to changes in discount rates also highlights a potential risk of future impairment if market conditions or performance deteriorate. While the company plans to continue its dividend, the priority for cash flow is firmly on debt reduction until leverage targets are met.

Conclusion

Mativ Holdings is navigating a complex period marked by a challenging demand environment and the need to reduce leverage following its formation merger. The significant goodwill impairment in Q1 2025 underscores the impact of current market realities on valuation. However, the company is not passively waiting for a market recovery. Under new leadership, Mativ is implementing a strategic pivot focused on aggressive cost reduction, enhanced commercial execution leveraging the successful SAS model, and a comprehensive portfolio review.

The concrete targets for cost savings, CapEx reduction, and inventory management signal a clear commitment to generating free cash flow and accelerating debt reduction. While demand remains uncertain, the expected sequential improvement in Q2 EBITDA and the focus on controllables provide a potential path towards improved profitability and a stronger balance sheet. The successful turnaround of the healthcare business and ongoing investments in differentiated technology in high-growth niches offer tangible examples of the company's capabilities. The investment thesis hinges on Mativ's ability to execute swiftly and decisively on its stated priorities, leveraging its specialized materials expertise and optimized footprint to drive profitable growth and deleveraging amidst persistent market headwinds and competitive pressures.