Edited Transcript of NP earnings conference call or presentation 11-May-20 3:00pm GMT

Turning now ought deed at the quarter. in spite of a weakening outer environment, our teams delivered hard volume gains at our targeted growth categories of filtration, deed labels, digital inspire and premium packaging. This peak queue performance, along with improved manufacturing efficiencies and continued charge discipline, helped drive important year-on-year increases at profits and margins at both affair segments. With higher profits and disciplined asset management, reply above invested principal increased ought double-digit levels.

Cash flows because the part increased more than $10 million versus final year, farther bolstering our liquidity. We ended the part with liquidity of impartial beneath $200 million and are committed ought taking suitable actions ought keep our liquidity and strong financial spot because we occupation along this year. nevertheless I'd alike ought cost more time talking nearly our big first quarter, what's more important now is sharing the actions underway ought tongue expected negative shock from the COVID-19 pandemic. I've been extremely pleased with the global collaboration and rapid response of our teams during this challenging period.

As I noted earlier, our peak priority is the safety and health of our employees. The new protocols we implemented ought defend employees and contractors eat been effective, and we've had no disruption ought our operations. I'm also identical pleased that our safety deed at the part improved, building above the trend started late final year. With changes at the outer outlook, we quickly began assessing latent financial impacts and proactively began reducing costs. These actions included: significantly cutting spending at areas alike maintenance, marketing and SG&A; reducing operating labor and machine schedules; reorganizing ought enable salaried headcount reductions; deferring annual revenue increases; cool travel, new hiring and internship programs; and idling a fairly paper machine, which I'll oration nearly shortly.

Further, ought maximize money flow, we implemented additional measures including reducing principal spending by 50% from our previous guidance, driving working principal efficiencies, reducing pension contributions and suspending division repurchases. nevertheless unable ought fully offset the impacts from COVID-19, we imagine these actions, valued at above $50 million, will enable us ought assert plentiful liquidity.

We also exited our planned acquisition of Vectorply. among the time we tendered our present until when the bargain was terminated, there was clearly a material modify at conditions. This was a prudent decision because Neenah, allowing us ought assert our strong remains sheet going into an unexpected economic downturn and, more importantly, coming out of it.

Let me become ought our efforts with customers. because you energy imagine, many customers are currently focused above their immediate needs versus longer-term projects or new opportunities. We're working with them ought encounter these needs, nevertheless at the identical time, never losing scene of being prepared with new capabilities and ways of doing business. One of the ways we're doing that is by continuing ought invest at R&D capabilities. Our R&D occupation contributes ought our long-term growth and has led ought the launch of little new products this year. Many of these products, such because low-emission filtration media, fiber-based elastic alternatives and digital inspire media because ordinary textiles, eat both at cost-in-use and environmental benefits ought customers.

In enjoy ought customers, we also developed plans and worked closely with keen suppliers ought safeguard our equip chain. nevertheless we've had no mandated or supply-driven disruptions ought our businesses, because always, we govern operations at queue with customer demand. With softening economies and markets, we began ought look weaker demand at mid-March, specially at printing Papers.

Consequently, we decided ought idle one of our fairly paper machines at Wisconsin beginning at early May. nevertheless these are never simple decisions, it allows us ought more fully cargo our other machines and optimize our asset footprint, helping ought insure that we linger charge competitive. We wish this deed ought preserve above $1 million annually, starting at the second half of the year and will book a related onetime, largely noncash blame of nearly $2 million at the second quarter. because you can see, we've reacted quickly and taken aggressive, prudent actions ought defend our strong financial standing nevertheless staying fully engaged with our employees, customers and suppliers, and with a advice towards short-term and long-term success.

I'll oration nearly our hope afterward at the exclaim nevertheless will now become things above ought Bonnie ought cover financial results at more detail.

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Bonnie J. Cruickshank-Lind, Neenah, Inc. - Executive officer [4]

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Thanks, Julie. Good morning, everyone. I'd also alike ought add my appreciation because everyone who is fighting the war during these challenging mature and similarly, acknowledge the amazing trade by our employees responding ought these conditions.

We had a identical good first part along total financial metrics. peak and bottom queue deed was impressive. Margins improved significantly. money jog and liquidity were identical good, and reply above principal increased. Consolidated sales of $234 million were down 3%, nevertheless we delivered strong volume-driven increases at technical products and hard growth at premium packaging, though no enough ought overcome declines at a identical challenging Paper fair and headwinds from currency.

GAAP operating pay was $24 million and was $27 million above an adjusted basis. This was up from $17 million a year ago. nevertheless there were no adjustments at 2019, there were $3.5 million of unusual costs this year. These adjusting items were: a onetime payment of nearly $1 million ought our operations workers ought compensate them because hardships related ought COVID-19; corporate costs related ought the terminated Vectorply acquisition, also nearly $1 million; and then finally, $1.4 million of costs because restructuring, following implementation of our new functional organization and because marginal other items. because a reminder, details above adjusting items and the breakdown by piece is included at our salary release.

The part used to eat been even more impressive, nevertheless because 2 things. alike most companies, we saw orders and shipments begin ought autumn off significantly at the second half of March because the economic hope worsened. This was specially right at our fairly Paper segment. We, therefore, made changes ought increase reserves because uncollectible accounts receivable at both segments ought muse this worsening outlook.

I'll begin with a publication of affair results and adjusted pay ago turning ought corporate items, including liquidity and principal allocation priorities.

In Technical Products, quarterly sales of $142 million grew 2% and were 3% higher above a continuous coin basis. The increase was driven by 7% of volume growth with increases at both filtration and deed materials. Filtration grew at the low ought mid-single digits with gains at communication and other filtration products and an improved mix and new business.

Performance materials growth was led by double-digit increases at backings because we gained division with the launch of new products at North America and grew volume at Asia and Latin America. deed materials also increased at key categories alike colour sublimation and labels. Partly offsetting the favorable volume were lower net prices, largely at deed materials because of selling charge adjusters because some customers and a lower impose mix.

Adjusted operating pay was $17 million, up nearly $6 million, nevertheless operating margins were an impressive 12% compared ought 8% final year. at enjoy ought higher sales, pay increased because of improved manufacturing costs, including fixed charge absorption benefit, that's from higher manufacture volumes, and lower input costs versus a year ago. These certain items were partly offset by $1.3 million of higher SG&A, which I'll oration nearly a moment later.

Turning ought fairly Paper and Packaging, quarterly sales of $91 million were down 8%. This was largely because of a 6% decline at volume, largely commercial print, where fair demand fell by more than 10%. Commercial print is a short-lead-time kind and reflected a more immediate shock from the COVID crisis. We also had lower sales related ought the transition from a principal distributor that we began final year.

Partly offsetting the commercial print decline was growth at premium packaging, led by a double-digit modify at labels and at our consumer channel, where sales of our ASTROBRIGHTS brand grew by double digits because at-home activities increased and online sales grew.

Adjusted operating pay was $16 million, up nearly $4 million, and operating margins remained at the upper teens. The increased charge was because of lower input costs also because charge improvements, which combined, offset the shock of lower volume.

Looking next at corporate items. Consolidated SG&A was $26.6 million. This was up $1.3 million from final year because we incurred $1.7 million of increased costs because of our higher maintain because uncollectible accounts receivable and timing of leads, legal expenses. The majority of this increase was at Technical Products.

We wish consolidated SG&A ought medium a moment above $23 million per part because the remainder of this year, which is down from our historic jog impose of nearly $25 million per quarter.

Unallocated corporate costs above an adjusted base were impartial above $6 million and up less than $300,000 from final year. Quarterly favour cost was $2.9 million, down from $3.2 million final year because a arise of lower medium debt. Our impose assess at the part was 21%. This was up from 17% final year when we benefited from a reduction ought our maintain because doubtful impose positions following completion of an audit at Germany. We currently imagine our total year impose will exist no more than our prior guidance of 22%.

In late March, because a precaution, we drew down $65 million from our revolving belief facility, and hence we ended the part with debt of $272 million and money of $78 million. This net debt of impartial beneath $200 million resulted at a net debt-to-EBITDA ratio of 1.5x. along with other quarterly financial data, EBITDA is reconciled ought GAAP above schedules posted above our website if you are interested.

Most of our debt is comprised of a $175 million senior unsecured letter due at can of 2021. nevertheless we had plans early at the year ought refinance, debt markets tightened because economic projections worsened, and we've decided ought delay. We summary ought actively bug debt markets and feel comfortable at our capacity ought refinance this afterward at the year with condition more favorable than what's available at the fair today.

I'd also alike ought comment briefly above our global revolving belief facility, where we eat long-standing relationships with the high-quality banks that contain this facility. The revolver is asset-based and sized at a maximum of $225 million. due ought March 31, availability was $117 million, and with money above hand of $78 million, provided us with a strong liquidity spot going into the crisis. Covenants are no expected ought exist an issue. beneath the senior note, covenants principally modify into play virgin if we incur new debt, nevertheless revolver covenants are triggered virgin if availability falls below $28 million.

Cash generated from operations was $14 million at the first quarter. This is up significantly from $3 million final year. First part operating money jog is typically lower because accounts receivable and inventories increased from year-end lows. because example, at 2020, our first part money jog included a $14 million negative shock from increases at working capital. principal spending at the part was $5 million. That's comparable ought final year.

Next, I'll oration nearly our liquidity hope and principal deployment priorities. because mentioned, we headed at the second part with a strong remains sheet and substantial available liquidity above existing belief lines. Expectations are because global economic activity ought decline significantly at the second quarter, and we will occupation ought flex our costs because much because possible ought competition demand. However, because a manufacturing company, we eat a sizable quantity of fixed costs, and shedding charge because a short-term decline is often no prudent or even possible. at general, I'd impose our variable border ought exist nearly 35%.

Julie listed actions we've taken ought control costs and maximize money flow. allow me equip some more detail nearly a little of those. principal spending this year is expected ought exist nearly $15 million, robust below our ordinary expected range. We've minimized maintenance projects and chop nonessential spending nevertheless when proceeding with projects that forward a meaningful charge savings at the short jog or key ought long-term growth objectives.

Our retirement plans eat been robust maintained, giving us the occur ought lessen pension contributions. total money outlays because total retirement plans are projected ought exist $7 million this year. That's nearly $6 million less than we contributed at 2019.

In the U.S., we're utilizing government plans, such because the CARES Act, ought defer payroll and other impose payments and impose that we'll defer nearly $5 million of money this year. Operations outer the U.S. will advantage from government subsidies because well, and that could exist up ought an additional $3 million. Finally, working principal can exist a important source of money at a downturn. impartial because it increased $14 million at the first quarter, it could quickly lessen by at least that amount. And because always, we continually occupation ought minimize our working principal needs.

Our civilization of principal training has served us robust at the past, and we've learned from the big Recession at 2008 and '09. Our teams comprehend what ought do, and our short-term priorities are clear: preserving our principal and our flexibility hence that we can influence aggressively and opportunistically when things begin ought turn.

On a personal note, you can eat seen our announcement final week that I will exist retiring from Neenah. progression planning has been underway because some time, and my October 1 retirement appointment will help insure an tidy transition of duties. at more than 60 salary calls, I imagine I've lay the company record and hopefully, no longer strong alike a robot. It has been an honor and a right ought exist a division of the development of Neenah above the past 16 years, and I've enjoyed the occur ought modify ought comprehend many of our stock and bondholders, many of you above this call. I'm looking forward ought watching the team here summary ought modify the company at the future.

With that, I'd alike ought become it uphold ought you, Julie.

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Julie A. Schertell, Neenah, Inc. - President, CEO, COO & Director [5]

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Thank you, Bonnie. I'd alike ought begin by talking a sheet more nearly how we're managing along the contemporary country and then add some thoughts above near-term impacts and recovery. Obviously, it's a identical fluid and doubtful mature because everyone, making right forecast challenging. By taking rapid and clever actions ought maximize liquidity, we wish ought manifest at a spot of energy that will employ us ought accept favour of latent fair opportunities.

Initial activities at a emergency are focused above containment, and our #1 priority was ought defend the health and safety of employees. because I mentioned earlier, we quickly initiated strong safety protocols at total sites ought defend our people.

Our second priority was ought insure affair continuity. We implemented a battle room structure, and our leadership team met each morning ought decide issues and equip guidance and directions ought backward global operations and safeguard our equip chain. We increased the frequency and transparency of communications internally with employees and externally with customers and equip partners.

Our third priority was liquidity. We entered the emergency with a strong financial position, and it was important that we developed and executed plans ought assert this. We ensured we had clean and timely visibility ought daily dashboards with keen news ought help us invent informed, disciplined decisions. And we developed plans and actions focused above things we can control that used to reinforce the resiliency of our business. because I said earlier, the steps we've implemented hence distant describe above $50 million of added money jog versus our creative plan.

On the revenue side, we've connected with customers at new ways. Our sales and marketing teams are having normal virtual meetings with customers, and we've implemented technology, enabling more streamlined automated ordering because portions of our business.

One example of how our efforts were successful was our capacity ought quickly ripen and ramp up look mask capabilities. nevertheless having virgin a modest financial impact, we wish ought equip the media this year ought backward the manufacture of approximately 100 million look masks. These efforts are no virgin the precise business ought perform ought help war the germ nevertheless also equip new opportunities ought colleague with customers at innovative and collaborative ways that backward longer-term growth.

Despite the many actions our teams are taking, it's clean the second part will exist identical challenging. at the big Recession of 2008 and 2009, our sales initially declined by approximately 30% ago recovering. demand because many of our categories is correlated with GDP, and published forecasts appear second part GDP declines ranging from 30% ought 40%. Our even of decline and velocity of recovery will alter by affair with Technical Products categories being more resilient than fairly Paper and Packaging. Filtration and labels are likely ought contain up well, with communication filtration rebounding because the financial recovers and miles driven begin ought increase.

Our remaining Technical Products categories ought also fully recover, though likely at a more measured pace. Commercial print Papers will feel the most pressure, specially if the recession is lengthy because companies cost less above marketing and advertising or find alternatives. Input costs are likely ought linger subdued, though favorable year-on-year comparisons will diminish because we influence along the year.

The principal challenge this year is clearly demand. nevertheless short-term salary strain is inevitable, because a arise of our actions, we don't hope that identical magnitude of shock above liquidity. We've modeled little scenarios ought analyze a mountain of latent outcomes. And if the hope were ought worsen, we've identified additional levers that we could quickly drag ought farther lessen spending and better money flow. Consequently, I'm identical confident that Neenah is taking the suitable steps ought backward our liquidity spot during this time.

Crisis often can carry opportunity, specially when operating from a spot of strength, because I imagine we are. during this time of uncertainty, we will summary ought found above what's made Neenah successful: strong customer relationships, superior manufacture quality, disciplined decision-making, a concentrate above capital-efficient growth and providing a reply ought our shareholders along a meaningful dividend.

Our strong financial spot is valued by customers, and we advantage from a local footprint and equip tie at our principal markets. We're collaborating with customers and suppliers and continuing R&D efforts ought backward short- and long-term growth. We're significantly reducing discretionary spending, organic principal and eat suspended division repurchases. We'll summary ought identify acquisition opportunities that can add value, though during this contemporary mature of uncertainty, we're clearly more cautious.

Last nevertheless no least, we linger committed ought our dividend. And based above our modeling, we wish ought eat plentiful liquidity along the downturn. nevertheless this year will exist challenging, I'm confident we're taking the precise actions. And first part results clearly demonstrated the energy of our underlying affair fundamentals.

But ultimately, it's our throng that drive our success, and Bonnie has definitely been one of those people. I manifest forward ought working with Paul DeSantis, our incoming CFO, and used to alike ought extend my deep appreciation ought Bonnie because total that she has done because Neenah above the past 16 years.

Neenah has frequently had a talented and dedicated workforce. Their commitment ought each other and ought Neenah is inspiring and was demonstrated again by their capacity ought occupation safely and advance total the road ought the aim ought forward a strong first quarter. I'm excited ought exist a division of this team and ought modify our company together at the years ahead.

Thank you because your time today, and I'll now hollow the exclaim because questions.

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Questions and Answers

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Operator [1]