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Welcome to Mativ's Third Quarter 2026 Earnings Conference Call. On the call today from Mativ are Shruti Singhal, President and Chief Executive Officer; Scott Minder, 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 Third Quarter 2026 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 SEC 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, which, along with the accompanying slide deck is now available on our website at ir.mativ.com. I will also note that unless we state otherwise, any comparisons we make to prior periods, including references to our performance since Mativ's formation are on a continuing operations basis, excluding the divested Engineered Papers business.

With that, I'll turn the call over to Shruti.

Thanks, Chris. Good morning, everyone, and thank you for joining us today to discuss Mativ's Third Quarter 2026 Financial Results. The third quarter reinforced Mativ's improving earnings power and strategic momentum. In Filtration & Advanced Materials, or FAM, our focused investments and commercial strategy translated into strong growth, meaningful margin expansion and indicative market share gains. I'm happy to report that we reached an important commercialization milestone in our aerospace and defense end market, and our aftermarket transportation portfolio continued to win in the marketplace.

In Sustainable & Adhesive Solutions, or SAS, the quarter was affected by 2 identifiable external headwinds, the operational disruption from the July tornado in Wisconsin and the newly imposed Canadian tariffs. Importantly, underlying customer demand and commercial traction remains solid, giving us confidence that our underlying performance reflected a healthy business with solid momentum. In fact, absent the temporary volume and logistics impacts from the Wisconsin tornado, consolidated Mativ adjusted EBITDA would have grown year-over-year in the third quarter, a clear testament to the earnings power we are building across the enterprise. Taken together, Q3 demonstrates why we believe Mativ offers an increasingly compelling combination of differentiated growth platforms, operational resilience and strong financial discipline.

FAM's momentum, SAS's ongoing stabilization and our continued progress on profitability, cash generation and deleveraging strengthen our confidence in the value creation opportunity ahead. It's been encouraging to see our teams execute with discipline through a year marked by unexpected events and pockets of soft demand. Year-to-date, that execution has translated into measurable financial progress. Through the first 9 months, Mativ adjusted EBITDA grew 8% and margins expanded by 100 basis points, alongside a 5% improvement in free cash flow. As we enter the final 2026 quarter, Mativ is operating from a stronger foundation with expanding commercial momentum and a portfolio increasingly positioned towards higher-value mission-critical applications. That strength is most visible in FAM. The segment delivered an exceptional third quarter, achieving its strongest year-over-year organic sales growth in its history, up more than 11%, adjusted EBITDA up 20% and 150 basis points of margin expansion.

Organic growth was broad-based, led by strength across our films categories and solid execution in industrial and aftermarket transportation filtration. Within films, aerospace and defense remains our primary growth catalyst complemented by robust demand for paint protection films. In Filtration, our growth in priority categories shows that differentiated product performance and close customer alignment are translating into share gains.

I'll take a moment to expand on our aerospace and defense end market and how it's becoming a more meaningful growth platform for Mativ. In Q3, specialty films revenue focused on commercial space increased by more than 30% year-over-year, reinforcing both the demand profile and this business' strategic value. This growth provides tangible proof that our focus on higher-value mission-critical applications is working. We are applying differentiated capabilities in advanced coatings and precision multilayer processing to solve complex thermal, optical and weight challenges for low earth orbit vehicles. As discussed in our May call, we are a long-term development partner with a leading commercial space launch provider supplying engineered materials that enable next-generation satellite constellations to operate reliably in extreme environments. Our solutions help to reduce payload mass, improve launch economics and support reliable connectivity.

During Q3, these materials reached a key operational milestone, moving from customer qualification to commercial usage. This transition supports our partners' expanding launch cadence, scaling meaningfully across 2027 and builds an attractive long-term Mativ growth platform. This progress demonstrates how our strategic growth blueprint is translating into commercial wins that benefit financial results. It also illustrates how Mativ's technical capabilities bring value to markets where reliability, performance and customer qualification create meaningful barriers to entry.

Beyond our commercial wins in films, we continue to strengthen our innovation and sustainability profile within filtration. We are scaling a lignin-based filter media product that replaces fossil-based resins with a natural plant-derived polymer. Already validated and in production with major aftermarket transportation customers across demanding engine, air, oil and fuel filtration applications, this solution can reduce the carbon footprint of the filter media compared with conventional alternatives while maintaining filtration efficiency and durability.

Importantly, it delivers these environmental and regulatory benefits while meeting customers' performance requirements. It's a good example of how Mativ's differentiated R&D turns our customers' sustainability goals into scalable, competitive market advantages. While FAM showcased its strategic growth potential, SAS demonstrated true operational tenacity, highlighting the resilience of our customer relationships and the effectiveness of our operating teams.

In July, the severe tornado struck our primary third-party distribution center in Menasha, Wisconsin and wiped out the vast majority of our paper and packaging inventory. To restore shipping velocity with minimal downtime after this devastating event, our logistics teams orchestrated an agile transition from a single warehouse to an interim network of 3 regional warehouses. While this mix shift footprint enabled us to get back up to speed quickly, managing inventory across 3 sites introduced inefficiencies. These additional inventory handling and transportation costs increased our Q3 operational expenses and will likely remain a modest headwind in the near term as we reoptimize the network.

I have been impressed by the resilience, dedication and agility shown by our employees and operating partners throughout this ongoing recovery process. It has required difficult trade-offs, creative problem solving and cross-functional coordination under tight deadlines. Our transparent communication and commitment to restoring customer supply as quickly as possible have been well received. In fact, one of our largest paper and packaging customers suggested that Mativ could write the playbook on how to recover a warehouse post a disaster. This speaks directly to the deep commercial trust Mativ commands in the marketplace. Looking ahead, we have a firm handle on the remaining recovery process steps. Although the interim footprint will remain less efficient in the near term, order fulfillment is returning to more normalized levels, and our focus is shifting from rebuilding capabilities to network optimization and margin restoration as we look to finish 2026 strong and enter 2027 on more stable footing.

In Healthcare, performance reflected ongoing customer inventory destocking against elevated channel builds in the prior year across a handful of high-volume product lines. Tapes, labels and liners were roughly flat versus prior year. Labels and liners increased while our tapes business faced demand headwinds in Europe and the impact of newly established Canadian tariffs in North America. To provide additional color on recent cross-border trade dynamics, our Renfrew Canada facility exports finished cable and construction tapes into the U.S. building and construction market.

This exposure is relatively small, representing approximately 2% of consolidated annual revenue. However, given the magnitude of the 50% tariff, we are actively tracking customer inventory levels and order cadence to stay ahead of any demand impact. To mitigate these exposures, in the near term, we have collaborated across our customer and supplier base to protect volumes and relationships while working to minimize the net financial impact. If this trade policy prevails over the longer term, we have developed a comprehensive playbook focused on alternative sourcing, pass-throughs and targeted price increases. Overall, the SAS team is executing well and effectively navigating Q3's interim operational headwinds. Beyond managing near-term dynamics, we are structurally working to strengthen Mativ's long-term operating efficiency through AI and digital transformation. As we continue to navigate within this fast-paced technology environment, we are converting exploratory pilots into intentional business-led capabilities that improve how we operate, decide and compete.

Building on the previously shared enterprise framework, our strategy balances foundational workforce productivity, expanding employee capacity and decision speed with targeted high-return business performance initiatives. Specifically, we are driving execution across 3 core programs designed to accelerate commercial growth, automate production scheduling and improve yield and reduce waste across our manufacturing footprint. Underpinning these high-impact deployments is a relentless focus on resource optimization, driving steady margin expansion, stronger operational execution and durable long-term returns. Ultimately, these structural initiatives build upon the operational discipline our teams are demonstrating every day.

Before I hand over the call to Scott, let me summarize Q3. FAM delivered high-quality growth and margin expansion, while SAS stabilized its financial results after unplanned disruptions and our cash generation in both segments demonstrated the strength of our operating model. Mativ is poised to finish 2026 with increased commercial momentum, improving financial performance and multiple levers that create shareholder value. As near-term external pressures abate and our high-margin growth platforms continue to scale, we are positioned to unlock enhanced earnings power and free cash flow generation capabilities in 2027 and beyond.

With that, Scott can walk you through the financials in more detail.

Thanks, Shruti, and good morning. I'll start by saying that Q3 showed solid underlying progress despite external disruptions that were beyond our control. While the tornado significantly impacted our business and financial results, our crisis management team made tangible progress on their restoration plan. As a result, the Q3 sales impact was between $20 million and $25 million, in line with the aggressive recovery expectations laid out on our last earnings call.

Moving to our consolidated Q3 financials. Net sales were $500 million, decreasing by more than 2% year-over-year on an organic basis and down nearly 3% as reported. Lower volume mix, primarily due to the tornadoes impact and unfavorable currency were partially offset by higher selling prices. Q3's adjusted EBITDA of $62 million decreased by 7% versus prior year. A favorable price-to-cost ratio was more than offset by lower volume mix and higher distribution expenses, partly due to the tornadoes impact as well as increased SG&A expenses and unfavorable currency.

Our adjusted EBITDA margin of 12.5% decreased by 50 basis points compared to prior year. Taking a look by segment, FAM produced its strongest ever quarterly sales growth with net sales of $219 million, rising by more than 11% on an organic basis and by more than 10% on a reported basis when compared to prior year. This growth was driven by higher volume mix in our films and filtration businesses due to strong demand from the aerospace, defense and aftermarket transportation end markets as well as higher selling prices across the segment.

FAM's adjusted EBITDA of $40 million increased by 20% year-over-year, while margins of 18.1% improved by 150 basis points. These strong gains were led by higher volume mix and a favorable price-to-cost ratio and were partially offset by increased manufacturing costs. SAS net sales of $281 million were down by more than 10% year-over-year, primarily due to 3 factors: First, the tornado effects on our Paper and Packaging business; second, the ongoing destocking impact within our Healthcare business; and lastly, the impact from newly created Canadian tariffs on select tape exports to the U.S. Lower volume mix and unfavorable currency were partially offset by higher selling prices across the segment. SAS adjusted EBITDA of $33 million decreased by 25% year-over-year due to lower volume mix and higher distribution expenses resulting from the tornado, which were partially offset by a favorable price-to-cost ratio.

Looking at corporate items, unallocated expense of $10 million increased slightly versus prior year due to higher advisory expenses. Other expense of $0.4 million compared to other expense of $3.9 million in the prior year. This improvement was primarily due to lower 2026 pension costs and foreign currency losses in 2025. Q3's tax expense was $2.6 million, resulting in a tax rate of 186% and was driven by our geographical earnings mix and our inability to benefit from losses in some jurisdictions that carry a full valuation allowance. Interest expense of $18 million increased slightly versus prior year as the benefit from lower average debt balances was more than offset by the impact from higher average borrowing rates on the floating portion of our outstanding debt.

Turning to cash generation. Q3's free cash flow was $38 million, reducing by $29 million year-over-year. This decrease was primarily driven by the tornadoes impact in a comparison to a robust prior period that included a more significant working capital release and lower capital expenditures as the business intensified its focus on cash flow optimization. Importantly, underlying cash generation remains solid, our ongoing operational discipline focused on enhancing working capital efficiency is driving greater consistency in our free cash flow generation.

In early November, we sold our previously closed Appleton, Wisconsin facility for approximately $7 million. This site was classified as an asset held for sale on our balance sheet. This transaction will be reflected in our Q4 financials and demonstrates our ongoing commitment to footprint optimization and the monetization of noncore assets. At quarter end, net debt of $879 million decreased by 6% year-over-year, primarily due to a $52 million reduction in our outstanding debt balance.

Net leverage, as defined in our credit agreement, was 3.8x at the end of Q3, improving by 400 basis points versus prior year. Taking a step back, when you look beyond the tornado-related disruption, our Q3 results extended the operating momentum evident in our strong Q2 performance. Without the storm's impact, we would have generated year-over-year adjusted EBITDA growth. In fact, our year-to-date results show measurable improvement in the company's core financial profile. Through the first 9 months, adjusted EBITDA of $185 million was up 8% year-over-year, with margins of 12.2% expanding by 100 basis points. Free cash flow of $9 million increased by 5% over prior year. These results demonstrate an improved earnings quality, greater cash flow consistency and continued progress toward our long-term objectives.

Now let's turn to Q4 and the drivers that shape our outlook. First, I'll offer a quick comment on the financial aspects of our tornado recovery efforts. Our insurance claims are proceeding, and we expect full reimbursement for all damaged inventory. Looking at the broader business, we expect continued momentum across the majority of our business categories, producing year-over-year organic volume growth in both operating segments. Order pacing through October and into November gives us confidence in this result.

Advanced films and filtration should remain key revenue and margin growth drivers with strong demand across the aerospace, defense and aftermarket transportation end markets. These businesses support our strategic portfolio shift toward differentiated higher-value applications. We expect to continue managing a few discrete well-understood headwinds in Q4. In Paper and Packaging, the distribution footprint inefficiency will continue to be a cost headwind as we finalize our long-term fulfillment architecture. For revenue, we expect Q3's negative impact to be transitory as our order fulfillment cadence returns to more normalized rates in this business.

In Healthcare, customer destocking is expected to continue through year-end with order pattern normalization in early 2027. And finally, the 50% Canadian tariffs implemented in August are creating near-term margin and volume pressures in our North American tapes business. We have actions underway to reduce the impact of these items and are confident that they won't impede the company's underlying positive trajectory. Factoring in these moving pieces, we expect fourth quarter adjusted EBITDA to remain resilient and broadly stable with a low single-digit percent moderation year-over-year, driven primarily by the temporary headwinds from storm-related costs and North American tariffs.

Looking through the near-term disruptions, we continue to strengthen our core growth engines. Supported by rigorous execution, cost discipline and close customer alignment, we remain on track to deliver full year revenue, earnings and cash generation ahead of prior year levels. We'll remain disciplined in our capital allocation using excess cash for continued debt reduction. As a result, we continue to expect reaching the upper end of our target leverage range of 2.5x to 3.5x by mid-2027. In summary, the investment case for Mativ is strengthening. Our highest value platforms are growing. Margin and cash generation are improving. Debt leverage is moving in a consistent downward direction and near-term headwinds are temporary and manageable. We believe that this combination creates a credible path to sustained shareholder value creation.

With that, I'll hand the call back to Shruti for his closing remarks.

Thanks, Scott. I'll leave you with one key takeaway today. Mativ is becoming a stronger, more focused and more valuable enterprise. Our differentiated growth platforms are gaining momentum. Our underlying financial performance is improving, and our teams are executing with discipline on the initiatives within our control. Progress in aerospace and defense and aftermarket transportation end markets demonstrate the growth potential being unlocked in our portfolio.

At the same time, improving year-to-date EBITDA and margins, more consistent cash generation and deleveraging progress show disciplined execution. While we remain clear-eyed about near-term risk, we believe that the current headwinds temporary nature, combined with actions already underway, create meaningful tailwinds into 2027. We are confident in the company's direction and are focused on converting this momentum into durable earnings growth, stronger cash flow and shareholder value.

Thank you to our employees, customers and to our shareholders for your continued trust and support. With that, let's open the line for your questions. Operator?

Your question comes from the line of Daniel Harriman with Sidoti Company.

Shruti, in A&D, you highlighted moving from customer qualification to commercial usage. Would you be able to provide some estimates for the size of that business today and what it could look like in the future? And then along the same lines, FAM margins really took a big step up in the quarter. Is this new business that's the real driver here? And what can we expect from FAM's margins moving forward?

Thanks, Dan, for the question. I appreciate it. Maybe I'll take the first part and then let Scott talk a little bit about the margins. As I mentioned, Q3 was a really exciting quarter for our commercial space business. As I pointed out, our materials, they're included in the vehicles launched into the low earth orbit, and they were part of our customers' successful trial.

So as a result, our business now is moving into commercial production, and we are ramping up our throughput and output for this business. So in Q3, our commercial space films, they grew by more than 30% year-on-year. That's what really helped propel FAM to an organic growth rate of more than 11%. So it's really important to understand that reaching that commercial deployment milestone, that's a true validation that we can leverage our existing capabilities, know-how, assets and deliver a state-of-the-art solution under some very, very strict and tight timelines and performance requirements.

And moving from this qualification to commercialization step was a pivotal milestone in Q3 for our company and for our commercial space business. Our films are now used in standard production runs. We've proven that and qualified. And this should then continues to allow for scaling up in 2027 as our customer ramps up its launch frequency. And to sum up, this really does validate our product and process capabilities and sets up the stage very nicely for a broader profitable expansion into the fast-growing aerospace defense sector. Scott, maybe you'll comment on the margins.

Sure. Thanks, Shruti. I'll take a shot at that. Yes, along with the 11% organic sales growth that Shruti pointed out, FAM segment margins did increase by 150 basis points year-over-year, reaching just over 18%. And really, the driver of that, both the sales and the profitability gains was volume and mix. And that really was a result of the higher-margin portions of FAM's portfolio, so most notably the commercial space films that Shruti mentioned, but also aftermarket automotive filtration as well as automotive films expanded faster than other portions of that portfolio. We also did still see a moderately favorable price-to-cost ratio in the quarter. So when I think about what's coming as we look ahead, Q3's favorable tailwinds really should stay with us in Q4. We expect commercial space films growth to continue as our primary customer here ramps up its schedule. And we also expect continued growth in the other categories I mentioned, aftermarket automotive, both for filtration and protective films.

One thing to remind you of, as I mentioned earlier, we did still have a favorable price-to-cost ratio, and that's really been a result of our proactive price realization in 2026 ahead of those cost inputs. We expect that to continue to taper in the fourth quarter as those input costs do start to catch up to the pricing. So the headline for me here really is Q3 success drivers largely remain in place. I think we've significantly strengthened FAM's foundation through a lot of what we've been doing. We're delivering innovation-led growth in collaboration with customers. We're gaining and in some cases recovering market share with key customers and profitable product categories. And I think really importantly, we're operating with commercial and cost discipline, both here in Mativ, but also within FAM. So when you put all that together, I think you have a really solid recipe for more consistent and profitable growth over the long term here in the FAM segment.

That's helpful. Another one for me, just kind of shifting gears towards the tornado impact. In the remarks, you noted that adjusted EBITDA would have grown year-over-year absent the tornado impact. And it sounds to us like the top line impact was within your kind of your guided range. Can you quantify the EBITDA impact from lost sales and the logistics inefficiencies inside the SAS segment results?

Yes, I can take a shot at that. So as you cited, the tornado impact on sales in Q3 was in our range of $20 million to $25 million, which we laid out on our last earnings call. That kind of makes it sounds easy when you hit the target. But to get to that result, the team had to react quickly. They literally started the recovery the next day. And in doing that, their priority was twofold: meet customer commitments and preserve long-term customer relationships, which they've done. To achieve that aggressive recovery timeline, the team worked very quickly with our third-party warehouse provider to stand up an interim distribution network. So beyond that topline impact that we called out, there were some profitability headwinds also in Q3. First, the loss contribution on those lower sales in the $20 million to $25 million range. And then the additional costs related to transportation and warehousing costs for that temporary warehouse. We now have 3 warehouse buildings instead of the one we have, which drives additional cost.

So when you think about SAS as the segment's year-over-year EBITDA decline, this tornado impact was greater than 50% of that. So while the storm created challenges, it also showed what our team was capable of accomplishing for our customers and ultimately for our business. So as we look ahead, on the top line, we expect to largely recover Q3's lost sales over the next couple of quarters, including in Q4. And on the profitability side, there are a couple of moving parts still as we head into Q4.

So I think we talked earlier that we expect our insurance coverage to offset the inventory losses and the process there is progressing. We're also working with our insurance providers on a business interruption claim for additional storm-related costs. We'll keep you posted how that works. And as we pointed out in our Q4 guidance, we do expect some of the additional costs related to our interim distribution network inefficiencies to remain as we work toward a more permanent solution in that business. So as the team pivots from reactionary response mode to more purposeful planning, we expect improvements in our fulfillment and distribution processes over time. And we do believe that these improvements will ultimately reduce operating costs and importantly, inventory levels, making our business stronger than ever before as a result of this unfortunate storm.

Maybe I'll just be adding...

Last one for me. Go ahead, Shruti.

Yes. I'll just add a couple of thoughts. Thanks, Scott, for that. As you look beyond the dollars and cents, first and foremost, I really would like to thank our team for their incredible effort. This was a lot of work, their resilience and their focus on customer was greatly appreciated. We started the recovery process, as Scott mentioned, the next day, and we were shipping our customer orders within 72 hours of our distribution center being completely destroyed. So really amazing effort on behalf of the team, which has led to incredible results.

Our customer, also, we are very grateful to them for their partnership. Their response has been very consistent, positive. And while we lost sales, as we mentioned, in Q3, but expect to fully recover them within the next couple of quarters. The most important thing is, again, very grateful to our customers' partnership. We did not lose any customers. In fact, one of our largest customers actually said that we could write the book on how to recover from a warehouse disaster. So we did take myself and my leadership team in October took a time to thank the team in Menasha and our team across Wisconsin. And they went right back to work on exceeding and meeting our customers' expectations. It's how they're wired. This is who they are. They show up every day and they want to do what's right for our customers. And I'm very grateful to them. I thank them for their efforts in Q3 and continued efforts in Q4.

Last one for me, just about the guide. You're guiding for Q4 adjusted EBITDA to remain resilient and broadly stable with only a low single-digit percentage moderation year-over-year. But to us, that seems counter to your comments for year-over-year organic volume growth in both segments. Can you kind of walk us through the moving parts within your Q4 low single-digit percentage EBITDA moderation?

Sure, Dan. This is Scott. I'll take it. It's a fair question. And there really are different drivers in Q4, one for the top line and then one or a couple for the bottom line. The growth drivers are much more durable and the profit impacts that I'm going to walk through here are much more temporary in nature. So I'll start with revenue and the positives around volume growth. As we talked earlier, FAM's expected volume growth is being driven by positive contributions from commercial space films and filtration media and paint protection films for the automotive aftermarket. In SAS, we expect that the Paper & Packaging volume recovery post tornado will outpace the destocking we talked about in health care. So both segments, we expect to have volume growth.

But on the earnings side, there are a few temporary headwinds, which we did talk about, but I'll go through them here again that are offsetting the benefits from that volume growth. So first, those 50% Canadian tariffs that were implemented mid-August that applies to about 2% of our sales. Most notably here are finished tapes we produce and run through Ontario that are bound for U.S. building and construction customers. So we're working with these customers to find solutions to limit the impact, but we're still trying to preserve the long-term relationships here. We also talked about the ongoing distribution inefficiency within our tornado recovery efforts. We also talked about how we're working to solve that and ultimately make the business more efficient through cost and inventory going forward. And then lastly, the mix impact here from the customer destocking in healthcare is unfavorable for us.

So when I step back, I think it's important to view Q4 within the context of our full year trajectory and the structural improvements we've made across Mativ. So I think we here strongly believe today that Mativ is a fundamentally better business than it was 12 months ago. Year-to-date, Mativ's results have improved across the board. Gross margins increased while SG&A expenses have decreased. Adjusted EBITDA has grown by 8% and margins have expanded by 100 basis points. And free cash flow is ahead of last year's record pace, including the results from the third quarter. So despite the low single-digit percent EBITDA headwind that we cited for Q4, we remain on track to deliver full year revenue, earnings and cash generation ahead of a strong 2025 year. The earnings headwinds in Q4 are temporary, while the more durable volume growth should enable a strong start to 2027 as we start to see those temporary headwinds dissipate. Go ahead, Shruti.

Thanks, Scott. I'll pick up on that final theme for a moment. 2026 has been a really strong year for Mativ. As we think about, as Scott pointed out, our first 9 months, first 3 quarters, we've really improved profitability and margins and matched record cash flow results. What you don't see in all those stats is behind the scenes and what the entire team at Mativ has done, all our employees and how we have successfully navigated significant disruptions, whether it came from extreme weather-related, geopolitical, et cetera.

And we've been able to do both. We've been able to literally weather the storm and improve our results because we've been able to change the fundamentals of how we operate at Mativ. So we're leading with innovation. We talked about what we are doing in the commercial space film program, the lignin-based filtration media, both which we expect to grow, have good growth potential. We're acting with discipline. We're maintaining the cost efficiency and cash generation mindset that we started off in 2025, and we are continuing with that. And we are making progress on our long-term targets, as Scott mentioned, continued leverage reduction with available free cash flow and margin expansion through execution. So in short, and summarizing, we have transformed ourselves, and we are setting up our pivot to growth in 2027.

There are no further questions at this time. I will now turn the call back to Shruti Singhal for closing remarks.

In closing, I want to thank all of you for joining us today. We look forward to speaking with you again in February. Have a great rest of the day. Be safe. Thank you.

This concludes today's call. Thank you for attending. You may now disconnect.

Welcome to Mativ's Second Quarter 2026 Earnings Conference Call. On the call today from Mativ are Shruti Singhal, President and Chief Executive Officer; Scott Minder, 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 Second Quarter 2026 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 SEC 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, which along with the accompanying slide deck, is now available on our website at ir.mativ.com.

I will also note that unless we say otherwise, any comparisons we make to prior periods, including references to our performance since Mativ's formation, are on a continuing operations basis, excluding the divested Engineered Papers business.

With that, I'll turn the call over to Shruti.

Thanks, Chris. Good morning, everyone, and thank you for joining us today to discuss Mativ's second quarter 2026 financial results. I am excited to be speaking with you as this quarter represents a profound turning point in our journey, and I'm eager to share the details of our progress.

When we established Mativ, 4 years ago, we knew that the company would require fundamental rewiring of how we operate, go-to-market, and allocate capital. Over the past 18 months, we have transformed our culture, commercial engine, and operating rhythm to manage a set of diversified businesses as one Mativ that delivers value for our customers, employees, and shareholders.

Today, I'm incredibly proud to report that our Q2 2026 results present the strongest quarterly performance since Mativ's inception. We are no longer just talking about transformation. The strategic actions we put in motion have fundamentally reshaped our business and are firmly anchored across every level of the organization. The evidence is visible in both how we execute and the strong financial results we are delivering.

I want to take a moment to acknowledge our global team of dedicated employees. The macroeconomic environment remains undeniably complex. We continue to navigate shifting demand patterns, geopolitical uncertainties, and dynamic supply chain landscapes. I'm proud of how our teams have executed with relentless focus, agility, and precision. They're actively shaping our end markets through continuous innovation, deep customer partnerships, and a relentless commitment to operational excellence.

Before we dive into our segment performance and the strategic initiatives defining our future, I want to unpack the key achievements from this quarter.

In Q2, Mativ delivered organic growth in a highly dynamic market environment, emphasizing the resilience of our diversified portfolio and the customer-focused efforts of our commercial teams. Our ability to perform in this environment is a testament to how our engineered solutions enable our customers' innovation and are often critical to unlocking their product's ultimate value and performance.

Our unwavering focus has been on driving high-quality, profitable growth, structurally elevating our margin profile, and translating that into significant cash flow generation. That focus is noticeable in our Q2 financial statements, where we delivered robust results versus a strong year-ago quarter across multiple metrics, including adjusted EBITDA of $75 million versus $67 million in the prior year. Adjusted EBITDA margin of 14.1% compared to 12.8% in the prior year, and free cash flow of $60 million versus $49 million in the prior year.

This performance is a result of our proactive value-based pricing strategy, rigorous cost-managed programs, and strategic footprint optimization. We are successfully capturing the value of our technical expertise we provide to customers, while simultaneously driving efficiencies across our operations and cost structure.

Switching to our segments, I'm pleased to report that our SAS segment produced record adjusted EBITDA and margins, with many key product categories showing organic growth. Tapes and labels expanded by almost 10%, led by all finished tape categories and tape backings.

Commercial print and packaging outperformed market conditions, delivering flat to modest growth while the underlying market declined. This outperformance reflects the strength of our commercial execution in our SAS segment.

Sticking to the SAS segment, I'll provide a quick update on our healthcare category. In Q1, we discussed 2 discrete events that negatively impacted our volumes: a temporary facility outage in Knoxville, and customer destocking actions. I'm happy to report that the outage was brief and that operations were back to normal in early Q2. The resulting volume recovery successfully offset the ongoing impact from unrelated customer destocking in the quarter. Looking ahead to the second half of the year, we expect healthcare to remain a minor headwind to our consolidated results.

In FAM, growth was driven by double-digit increases in specialty films, while we continue to see steady demand for our solutions for industrial process filtration and industrial netting. Clean air and water are global imperatives, and our advanced filtration media remain solutions of choice in these pursuits due to reliability and lifetime ownership benefits.

We were honored to be recognized recently by MANN+HUMMEL, one of our strategic filtration customers, with their Supplier Collaboration Award, underlining our decades-long partnership.

Pivoting towards the future, on our last earnings call, we introduced a foundational blueprint for Mativ's future, centered on a unified vision to be the preferred global partner for customers, delivering innovative and sustainable material solutions. Today, we're excited to expand on that framework, detailing the specific elements of our growth strategy that will guide how we compete, deliver value, and drive long-term profitable growth.

At the heart of our strategy remains our core purpose. We go beyond supplying products by transforming materials into performance, elevating our customers' innovations. These priorities are underpinned by 4 distinct competitive advantages. We engineer specialty materials using advanced manufacturing technologies, ensuring their performance in the toughest conditions.

With a robust global supply chain, R&D labs, and manufacturing facilities, we are exactly where our customers need us. We make high quality our standard, building reliability into every delivery. Most importantly, we co-create with our customers and collaborate openly across product categories, partnering closely to drive breakthrough solutions.

As we navigate today's dynamic market environment, Mativ's portfolio diversity continues to be a strategic advantage, elevated by cross-company collaboration and knowledge sharing, which act as force multipliers. We serve as a critical enabler for our customers' evolving R&D efforts, providing highly customized materials that drive their innovation, sustainability, and performance requirements. Ultimately, when our customers win, Mativ wins alongside with them.

As evidence that our strategy is translating into commercial success, we recently communicated a sizable new commitment within the aerospace and defense market. Today, I'm pleased to share that our partner, a globally recognized leader in space exploration, continues to successfully test our products. This customized specialty film delivers a lightweighting solution that enables deployment of next-generation communication technology. Through deep partnership, Mativ co-developed a product with robust performance requirements using our proprietary manufacturing methods in novel ways. Performance and reliability are mission-critical in this end market, making it a perfect match for the quality of Mativ's highly engineered products.

This opportunity validates our state-of-the-art product and process technologies and sets the stage for further expansion into the rapidly growing aerospace and defense sector. The program is ramping up as planned and should serve as the foundation for a new growth channel as we look towards 2027 and beyond.

Capitalizing on high-value, demanding opportunities requires a keen focus on our core strengths. To further unlock the integrated value of our diverse portfolio and enable prioritized capital allocation decisions, we have clearly defined our 3 technology platforms. To begin with, coating and saturation improves material performance by making products stronger, more resilient, and more functional. This platform drives innovation in critical applications like engineered films, performance tapes, release liners, advanced wound care, and medical device attachments.

Next is extrusion manufacturing. Here we deliver custom solutions designed for precision and performance at scale, supporting essential needs in water filtration, advanced films, HVAC, and erosion control. Lastly, in fiber solutions and specialized assembly, we engineer high-performance fiber-based materials, taking custom solutions from concept through to finished assembly for sectors such as climate control, transportation filtration, consumer wellness, and paper and packaging. These technology platforms represent capabilities where we have a distinct right to win. They leverage our material science and technical expertise and inform our disciplined capital investment process.

By adding a technical capability dimension to our existing market and product views, we are elevating discrete capabilities into a cohesive center of excellence network. By leveraging our interconnected technology platforms simultaneously, we can deliver more comprehensive, complex solutions that address a broader range of our customer needs. This ensures long-term growth opportunities, increased asset utilization, higher margin potential, and maximized capital investment returns.

Together, these newly formalized elements provide a well-defined roadmap that builds upon the blueprint shared last quarter. We're working internally and with external experts to focus on top-line growth and to unlock meaningful new opportunities across our end markets. As we continue to refine and execute these go-to-market strategies, we'll keep you informed on the progress and the resulting shareholder value creation.

Finally, we're leveraging AI and data analytics to drive significant efficiencies across these technology platforms. We're rolling out pilot initiatives to optimize production scheduling and reduce process waste. By replacing manual production sequencing with real-time predictive insights, we'll empower our operators to make faster decisions that boost asset utilization and increase yields.

As we validate these solutions, we'll scale them across our network, delivering sustainable cost savings, enhancing reliability, and strengthening on-time customer delivery.

Before closing, I want to address the impact from a severe tornado that struck central Wisconsin on July 27. It extensively damaged our primary third-party paper and packaging distribution center in Menasha. First and foremost, all Mativ and third-party site personnel are safe. Our thoughts are with our people and their affected communities, and we are actively supporting local relief efforts.

While the warehouse sustained structural damage and briefly interrupted customer shipments, our response has been swift. We immediately mobilized a crisis management team, optimized manufacturing capacity to rebuild inventory, and secured alternative warehouse space. While these recovery efforts continue, we're maintaining transparent communications with our customers to manage fulfillment expectations.

I am immensely proud of the resilience and agility shown by our employees and partners. Though we face near-term logistical hurdles, we are highly confident in our recovery strategy. We are deploying all available resources, including working with our insurance providers to mitigate financial impact. We believe that these impacts are manageable and mostly contained to Q3 2026.

With that, I'll turn the call over to Scott to provide a more detailed overview of our financial performance.

Thanks, and good morning. As Shruti said earlier, we delivered robust Q2 results. I'll provide some additional color on the quarter, a progress update on our key objectives, and our financial outlook. Starting with our Q2 financials, net sales were $532 million, marking Mativ's best second quarter. Sales were up nearly 2% year-over-year on an organic basis and up more than 1% as reported. Favorable selling prices and currency were partially offset by lower volume mix.

Q2 adjusted EBITDA of $75 million was a quarterly record and increased by nearly 12% versus prior year. A favorable price-to-cost ratio was partially offset by higher manufacturing and distribution expenses and somewhat unfavorable volume mix.

Adjusted EBITDA margin of 14.1% increased by 130 basis points compared to prior year, and built on record results achieved in Q2 2025.

Taking a look by segment, FAM net sales of roughly $202 million were largely flat versus prior year on an organic basis and were down 1% on a reported basis. This was driven by lower volume mix from our filtration business and the impact from our exited Wilson, North Carolina facility. These declines were partially offset by favorable selling prices and foreign currency translation benefits.

FAM adjusted EBITDA of $35 million increased by 1% year-over-year, while margins of 17.6% improved by 50 basis points. These gains were led by a favorable price-to-cost ratio as proactive pricing actions outweighed general cost inflation within the quarter and lower SG&A expenses. Higher manufacturing costs and lower volume mix served as partial offsets.

SAS net sales of $330 million were up more than 2% year-over-year due to higher selling prices and favorable currency, partially offset by lower volume mix. Strong tapes and labels growth was offset by lower volumes in other categories.

SAS adjusted EBITDA of $50 million was a quarterly record, increasing by more than 18% year-over-year, with margins of 15.3% improving by 210 basis points. Earnings benefited from a favorable price-to-cost ratio as proactive pricing actions more than offset general cost inflation within the quarter, including higher manufacturing and distribution costs and SG&A expenses.

Looking at corporate items, unallocated expense of roughly $11 million increased by about $1 million versus prior year due to higher advisory expenses.

Other expense of $0.5 million compared to other income of $1.5 million in the prior year. 2025's income was due to asset disposal gains.

Q2's tax rate was 47%, driven by our geographical earnings mix and our inability to benefit from losses in certain jurisdictions that carry a full valuation allowance.

Interest expense of $19 million increased slightly versus prior year due to higher average borrowing rates on the floating portion of our outstanding debt. Lower Q2 2026 debt balances provided a partial offset.

Free cash flow of $60 million marked Mativ's strongest Q2 performance, improving by more than $10 million compared to prior year due to lower restructuring expenses and capital expenditure timing.

As expected, we invested in inventory in Q2 to support our strategic growth initiatives. We worked diligently to offset these investments through ongoing efficiency gains. As a result, working capital represented 11.5% of sales, improving by 150 basis points compared to prior year.

At quarter end, net debt totaled $908 million, reducing by $61 million sequentially. I'm happy to report that our net leverage stood at 3.8x at the end of Q2, improving by 300 basis points versus Q1 2026. Over the past year, we've improved our net leverage by 700 basis points. This substantial progress on a key business metric is ahead of our expectations and reflects ongoing capital allocation discipline.

Early in Q2, we refinanced much of our capital structure, making our nearest debt maturity more than 3 years away and staggering other expected maturities beyond 2029. As part of this refinancing, we right-sized our debt facilities to account for the Engineered Papers divestiture and footprint optimization actions in prior years. As a result, available liquidity declined versus the Q1 level, along with unused capacity fees. We're confident that our revised capital structure gives us the needed capacity and flexibility to manage through the business cycle.

Next, I'll provide context around the ongoing Middle East conflict's impact on our business. Much of Q2 saw significantly higher prices for crude oil and its derivatives, which affected the cost of many of our raw material inputs. While we can't predict how the conflict will evolve, our expectations are that commodity costs will remain elevated for the rest of the year. We expect 2026's full-year inflation impact to be between $40 million and $50 million, in line with estimates provided on our Q1 earnings call.

In response to this outlook, we proactively took pricing actions across our portfolio in late Q1 and early Q2 to offset increases in input, manufacturing, and distribution costs. These expected cost increases are more heavily weighted to the second half of the year due to elongated global supply chains and the timing of our cost recognition methodology. As a result, we anticipate Q2's favorable price-to-cost performance to contract as we move through the second half of the year.

Taking a step back, it's our strategic intent to fully recover cost increases in our business through a combination of product pricing and productivity initiatives over time. Our price-to-cost ratio will vary quarter-to-quarter, but these proactive measures are critical to maintaining a healthy business for our customers, suppliers, employees, and shareholders.

Now I'll summarize and share our outlook. Our strong Q2 performance reflects the decisive actions we've taken over the past 18 months to build a more resilient and agile Mativ. This quarter's robust profitability and cash flow build on record prior year results and serve to further strengthen our foundation. While geopolitical disruptions have reduced our long-term visibility, we expect the direct impact from the Middle East conflict to be manageable. We're deploying mitigation strategies and closely monitoring for any indirect effects on broader market demand.

Ultimately, our new strategic growth blueprint is built to navigate these types of fluctuations. By unlocking the integrated value within our portfolio and prioritizing high-growth, high-return markets, we're actively controlling what we can, while effectively mitigating external risks.

Excluding the tornado's impact on our paper and packaging category, we expect to pivot to modest volume growth in Q3, driven by our advanced films, leading to higher year-over-year sales. Our Q3 price-to-cost performance is expected to be less favorable than Q2's result due to the timing of price increases and the recognized impact of higher raw material costs. We anticipate continued strong cash generation and focused deployment actions to enable full repayment of our outstanding revolver balance and allow for further debt reduction progress by year-end.

As a result, we expect net leverage to be in the mid-to-high 3x levels by year-end and within our target leverage range of 2.5x to 3.5x by mid-2027 ahead of our previous expectations.

Stepping back from Q2's results and growing momentum within our business, I want to take a moment to discuss the potential impacts from the tornado in Wisconsin. While we're still working through the details to fully assess the effects on our Q3 financial results, I'd like to provide some facts to help dimension the potential impacts.

First, the damaged facility is a leased distribution center, housing paper and packaging inventory used to create and ship customer orders. We maintain insurance coverage that we expect to substantially offset inventory losses and business disruption costs. The loss and recovery amounts and their timing are not yet known. No production assets were impacted by the storm beyond a short power outage. All production facilities are fully operational. We're working with our labor and product conversion suppliers to quickly resume full shipment capacity. In fact, we began limited customer shipments within 72 hours of the storm's initial impact.

Lastly, we're working to increase production and finished goods processing output quickly and responsibly. Our teams are doing a phenomenal job, taking decisive actions to get our distribution efforts back on track and maximize output at our production facilities.

In summary, we believe that the business impact from this weather event is manageable and mostly contained to Q3 2026. We expect to largely recover lost sales over time and anticipate our insurance coverage to substantially offset related asset losses and business disruption costs.

We estimate the resulting Q3 sales impact to be between $20 million and $25 million as our distribution network rebuilds with modest recovery of these sales starting in Q4. This outlook is based on current information, and our view will likely evolve as the team continues to work through recovery plans.

Our strong financial performance in the first half of 2026 gives our business momentum heading into the second half of the year. The team is executing well and making solid progress on our strategic objectives, including cost reductions of $15 million to $20 million.

Prior to the storm's impact, the business expected to be modestly ahead of last year's record Q3 adjusted EBITDA results of $67 million. While geopolitics and weather events are unpredictable and can negatively affect our revenues, we're taking actions to limit their impact on our earnings and cash flow generation.

I'll conclude by reflecting on my first 6 months at Mativ. I'm happy to see the momentum built in 2025 accelerating in 2026. We have great people doing exciting things. We're executing across the organization, innovating and selling products our customers need and value, improving processes and implementing tools to streamline our cost structure, and managing our cash generation and capital deployment efforts to great effect.

We're still in the early phases of the journey to make Mativ a best-in-class specialty materials producer, achieving our long-term profitable growth goals and strategic ambitions. There are, and will be unexpected challenges, but the team is taking these hurdles in stride and building confidence in performance as we go.

With that, I'll hand the call back to Shruti for his closing remarks.

Thank you, Scott. As we close today's call, I want to leave you with one key takeaway. Mativ is as strong as it's ever been. Over the past several quarters, we've talked extensively about transformation, building a stronger foundation, improving execution, strengthening our balance sheet, and positioning the business for long-term success. Those efforts remain important, but today we're increasingly focused on growth.

We have a clearer strategy, a stronger operating cadence, and greater confidence in our ability to create value for customers and shareholders. Just as importantly, we have great people doing exciting things across our business every day. Whether it's developing innovative solutions with our customers, improving our operations with next-level technology, or finding new ways to serve the markets we support. Our teams are making a meaningful difference and tangible impact on our results.

What gives me confidence in our future is not just the performance we have delivered this quarter, it's the culture we have built, the momentum we are creating, and the opportunities we see ahead of us. We know there is still work to do, but we are operating from a position of strength. And I believe Mativ is better positioned than ever to capitalize on the opportunities in front of us.

Thank you to our employees, customers, and shareholders for your continued trust and support.

With that, let's open the line for your questions. Operator?

[Operator Instructions] Your first question comes from the line of Daniel Harriman from Sidoti.

Shruti, it's really exciting to see the aerospace and defense win progressing, and it's also exciting to hear that it's focused on a space application. I'm curious if you could just kind of give us an update on how you see this evolving over the next few quarters and into the long term.

And then Scott, regarding the volume growth that you expect in the third quarter, can you just give us an update on what gives you confidence in that volume growth and how you see this becoming a trend over the longer term?

Thanks, Dan, for that question and appreciate your kind words. Yes, I'm really proud of every team member at Mativ on a great accomplishment in Q2. Thank you, everybody.

Regarding the aerospace and defense, we talked a little bit about it last quarter. We have received a sizable commitment from a global space and exploration leader. What this is, is a customized lightweight specialty film, engineered for some very critical performance parameters. I can't really comment on the size of the revenue for 2026 and beyond because of confidentiality, but what you should note is that this is a high-value product and it's a very high-demanding performance requirement, which of course is also leading to a high-growth opportunity for our company.

I'm proud to say and happy to say that we are scaling this as planned, in very close collaboration with our customer. It's at a very steady and measured pace, and we're accelerating as needed by our customer.

Now, you know, this is where I say I'm proud of our diversified portfolio. We're really able to leverage our technical capabilities, deep product expertise across our portfolio at Mativ. And this is helping us propel into some lucrative growth sectors.

Now, this opportunity also validates our state-of-the-art product and technical and innovation capabilities and how our process and manufacturing enables to bring these technologies to fruition.

And lastly, I would say, Dan, is it also anchors our expansion into a very new high-growth market, which is the vision we had starting 18 months ago. And our products and our technical capabilities and our manufacturing capabilities have presented us with a very attractive value proposition as we're going forward.

I'll let Scott comment a bit about the volume and the growth. Scott, go ahead.

Dan, I think you're pointing out an important piece of our outlook here. I'm going to answer your question really from a longer-term point of view, so I am going to keep the impact from the Wisconsin tornado aside on our paper and packaging business.

So, if you look at our trend toward volume growth has really been taking shape over the past few quarters. We've improved year-over-year top-line performance as we've progressed throughout the year. In Q1, organic sales were about flat. In Q2 organic sales grew by nearly 2% with volume growth in some key categories, but really led overall by price.

So in Q3, again, ex the paper packaging business, we anticipate adding modest volume growth to Q2's favorable organic sales growth. And the big difference, as Shruti pointed out, is really the ramp up in our films business related to that A&D win.

So if you take a step back from the quarterly details, I think what we're doing here is building a business that's designed to grow and sustain itself across the business cycle. So in Q3, as we said, we're pivoting to growth on the strength of films for A&D. But this win is really the first major proof point for the strategy we talked about. Today, we're better leveraging our material science capabilities along with our advanced manufacturing technologies to serve high-growth demanding end markets. And as Shruti said, we're unlocking the integrated value that's inherent inside Mativ.

So as a result, our confidence is growing in our ability to generate positive volume growth over time.

Perfect. And then, Scott, kind of similarly, like what you were just discussing, with the strong momentum that you're coming out of in the first half and the volume growth in Q3 that you just discussed, seems like prior to the tornado impact, the business was on track for modest EBITDA growth in the third quarter. So to the extent that you can, could you just help us a little bit with the earnings bridge here from 2Q to 3Q?

And then, Shruti, over the past 18 months during your tenure, we've seen year-over-year EBITDA growth, and obviously second quarter results were fantastic. It seems like you guys are making really great progress in all of your long-term objectives. Could you help us understand how we should think about margin progression over the next couple of years, given the momentum that you've been building?

Yes, Dan, I can start there and happy to break that down. And as you suggested, I'm going to separate my answer here to really cover the business, excluding the tornado impact, and then I'll give some thoughts on that impact separately.

So, kind of as you pointed out, the business has performed well in the first half of the year. This was largely due to our focus on gross margins and costs. Heading into Q3, we talked about this, but we have competing factors impacting our EBITDA. So 2 are structural tailwinds and 1 is a transitory headwind. So I'll start by giving a little more detail on that headwind.

We expect a natural tapering of our favorable price-to-cost ratio that we benefited from in the first half of the year. We were very proactive with our pricing actions in Q1, and that, coupled with our accounting methodology, provided a benefit particularly to Q2's results.

Raw material cost increases, which, as we know, were elevated further by the Middle East conflict in Q2, were capitalized in the quarter and will largely impact Q3's results. And this is a standard accounting practice, and it can create temporary timing mismatches in periods of rapid inflation like we saw in Q2, or deflation. So these are temporary.

But the tailwinds are really structural. So first, we're pivoting to growth, as we just talked about in Q3, and we expect these additional sales to provide ongoing benefit in the second half of the year and beyond.

And second, our continuing cost-out initiatives are fundamentally lowering our cost structure for this business. And that will continue to benefit us in the quarters to come. But in Q3, these competing factors, the long-term benefit from the new business wins and the cost-outs, along with the short-term impact from the price-to-cost volatility, combined to only give us a small net positive in Q3.

So separately, just adding a little bit around the tornado, and I want everyone to keep in mind that this event occurred about 10 days ago. We're still working through the impact in recovery details. But at this point, we do feel confident that we understand the revenue impact as the team on site has quickly restarted distribution efforts and they're working to get back to the prior shipping pace as we speak.

So as a result, we expect a top-line reduction of $20 million to $25 million in Q3. And I think it's important to reiterate that we believe that the impact here is mostly limited to Q3. We're not prepared to provide a Q3 EBITDA impact at this time as we continue to work through the recovery efforts on site. However, I can say that we believe that we can mitigate some of the earnings impact from the delayed sales in the quarter. And we should start to recover those sales in Q4.

And one last point just to reiterate. We do have insurance coverage here, and we believe that we're going to substantially offset inventory losses and business disruption costs over time. So take a step back, the momentum we built here in the first half of 2026 is durable. It really showcases our execution capabilities and we're layering growth onto that in the second half of the year. We're delivering significantly improved results across the income statement and across the cash flow statement. And the discipline that got us to this point is now built into our DNA.

And as we talked about, we're adding growth competencies to our toolbox and we're starting to find success. We believe one of many to come. And as I said in my remarks, I believe we're in the early phases of our journey to make Mativ a best-in-class specialty materials producer. And I think our best days are still in front of us.

So, Shruti, I'll turn it back to you.

Yes. Thanks, Scott. And just pivoting from your comment about discipline. To your question around margin, Dan, this is a result of a very focused and deliberate effort on behalf of the team. I can tell you the team's really proud on what we have been able to achieve in the last five quarters in a row. I have full confidence in my team, whether it's commercial or finance and the supporting teams on how we are executing on this initiative.

A big driver was, as Scott mentioned before, it's a combination of our pricing actions that we took. We got ahead of it. And we -- also our cost savings target that we have set for ourselves.

If you recall, that was about $15 million to $20 million of cost-out for this year, which by the way is on track -- we're on track to deliver that. And as you saw in today's result, our pricing strategy and how we capture value stay ahead of the input cost, that's working.

As I've said before, there's only so much we can do with cost out. And I believe strongly that we have set a good foundation for the company. That's why now we are pivoting our focus to profitable growth. We are making very deliberate, very focused choices on where we want to focus and grow, where we can win, and what will drive the highest impact to our company. So where is this growth going to be, how it's going to be accretive to our margins, how are we going to optimize the utilization across our manufacturing network and our assets? All this is a part of how we deliver long-term positive margin evolution.

I hope that answers your question.

Yes, it does. Thank you, Shruti. And then just one final one for me this morning, back to you, Shruti. And I was really sorry to hear about the tornado damage of the distribution center, but very thankful that nobody was injured. I know Scott kind of touched on it a little bit, but is there any more color you can add on the overall impact there and maybe the expected recovery?

Yes, Dan, thank you for keeping our team in your thoughts and prayers. Really appreciate it. Yes, we are very grateful that everybody at Mativ and our third-party partners is safe. Earlier this week, I was there physically with my team in Wisconsin. And I also visited the extensively damaged third-party distribution center for paper and packaging that we referenced. As I said, all our Mativ and third-party personnel are safe.

The tornado impact was very severe. I first-hand saw the havoc that Mother Nature can cause just in 20 seconds. The Mativ manufacturing operations and site was not affected and all our facilities remain fully operational. The third-party distribution center was impacted and damaged as we mentioned.

We are maintaining a continuous transparent communication with all our customers. They have been very supportive and we are very grateful to them for working alongside with us. And as Scott mentioned that within 72 hours, we have started shipments to our customers.

I have to say, Dan, at this point, that what makes me really proud is the resilience of my teammates, what I saw with my own eyes. We had a war room set up, a crisis management team that was in place, and we were on the phones, on emails, with our customers, making sure we get the products to them as quickly and as safely as possible. That makes me really proud of our team and gives me a lot of confidence on the comments that you heard from Scott that our recovery strategy is very robust and we will manage this through this very terrible tragedy in Q3 2026 successfully.

So I'm confident of our recovery process and the tools and strategy we have put in place.

Great. I really appreciate it. And again, congratulations on the great quarter and performance.

Thanks, Dan.

At this time, there are no further questions. I will now pass the call back to Shruti Singhal, President and CEO.

In closing, I want to thank all of you for joining us today. I'm really proud of what we have achieved together as one Mativ and excited about the opportunities ahead. We all look forward to speaking with you again in November. Have a great rest of your day. Thank you.

This concludes today's call. Thank you all for attending. You may now disconnect.

Hello. Welcome to Mativ's First Quarter 2026 Earnings Conference Call. On the call today from Mativ are Shruti Singhal, President and Chief Executive Officer; Scott Minder, 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 2026 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 SEC 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 to the closest GAAP metrics are included in the appendix of the earnings release which, along with the accompanying slide deck is now 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. We appreciate your time and your continued interest in Mativ. I am delighted to share our financial results, provide operational updates and formally introduce the next phase of our strategic evolution.

Before we discuss the Q1 performance, I would like to pause and reflect on a meaningful milestone. This marks my first full year as Mativ's CEO. Looking back at the last 12 months, I am deeply inspired by our global workforce's resilience, adaptability and unwavering commitment. Having navigated complex macroeconomic and more recently, geopolitical landscapes, the transformation we initiated a year ago is bearing fruit, placing us on a firmer foundation today. The cultural shift driven across the organization fundamentally altered our operational DNA. We are no longer reacting to the market. We are actively shaping our outcomes and focusing aggressively on things we can control.

This pivot is evident enterprise-wide, widened margin, optimized SG&A expenses, transform cash flow and a unified team culture. Our actions remain swift deliberate and impactful.

Over the trailing 12 months, we transformed Mativ into an agile and more capable organization by holding firm to the following foundational priorities. First and foremost, we are an integral part of our customers' value proposition and the engine that powers their innovation efforts. Our highly engineered solutions are critical to our customers' success and our collaborative and co-creative relationships have never been more stronger. Usually, our solution is only a small portion of their final product's cost, but it is key to enabling its value and performance.

Second, our rigorous cost-cutting initiatives yielded nearly $20 million in realized savings across SG&A, operations and procurement in 2025. And our 2026 cost savings target of $15 million to $20 million is proceeding on schedule. The aggressive steps we are taking, simplifying operational workflows, removing bottlenecks and cutting inefficiencies, directly impact our bottom line.

Third, we made significant progress in our delevering efforts, enabled by improved profit margins and cash flow generation. In early April, we successfully refinanced the majority of our debt tranches. Scott will share more details but this transaction solidified and simplified our capital structure, derisked our balance sheet and enhanced Mativ's financial flexibility.

Lastly, a year ago, we announced a strategic portfolio review of our assets and business lines to better balance the contribution of our product categories across a variety of financial and market dimensions. As a result, we took decisive actions on facilities, products and assets. We optimized our operational footprint by closing an underperforming plant in Wilson, North Carolina. We successfully streamlined our SKUs to reduce complexity and improve supply chain efficiency. Furthermore, we optimized our R&D initiatives and purposefully reallocated resources towards the highest return projects that directly support our commercial pipeline.

By rigorously evaluating our business lines and taking these necessary actions, we have strengthened our foundation and position ourselves for the next phase of strategic transformation. We will now shift our focus to accelerating growth, better aligning our broad capabilities with the strongest markets and opportunities to drive sustainable long-term value. As part of our strategic planning process, we will continue to evaluate opportunities to create value by optimizing assets, costs and capital allocation.

Transitioning to our Q1 performance. This was a solid opening to the year by maintaining a relentless focus on commercial excellence, pricing implementation, financial and operational discipline, we achieved year-over-year profitability growth despite the surrounding economic headwinds. Scott will walk you through the financials in detail, but I'll point out that the true highlights of this quarter lie in our profit margin expansion and cash flow performance, marking our strongest consolidated Q1 margin and cash flow performance since our mid-2022 merger. Both segments generated significant adjusted EBITDA and margin increases. Our strategic pricing initiatives and stringent cost controls are working in tandem to create value.

Looking past the P&L, our free cash flow narrative remains a point of immense pride, building on phenomenal cash flow generation from last year. Historically, Q1 is our most demanding quarter for cash flow due to seasonal working capital buildups. Nonetheless, we achieved significant year-over-year improvement, which is a substantial step change from the heavy use of cash in the prior year. Our tactics have become highly cash flow centric, providing us with liquidity to navigate uncertainties while paying down debt. This also lays a solid foundation for another year of strong cash flow performance.

While incredibly proud of our adjusted EBITDA margin and cash flow performance, we operate in a volatile macro environment, where the overall demand picture remains mixed across our portfolio. In Q1, we experienced a few discrete pockets of volume weakness across our diversified business portfolio. Most notably, within our health care vertical. First, customer destocking actions in Q1 2026 compared to customer inventory building in the prior year to support their product plans. Second, we experienced supply chain inefficiencies related to a temporary outage late in the quarter at our Knoxville, Tennessee facility.

Beyond health care, demand remains soft in our release liner and labels businesses. Despite these headwinds, Mativ's strength lies in diversification. Our global reach and varied product portfolio allows us to accelerate on pockets of growth to offset weakness. As evidenced, in our FAM segment, our European filtration business demonstrated solid momentum, particularly in aftermarket transportation, water and industrial applications. We also captured gains in paint protection and industrial films. In our SAS segment, we saw growth across all finished have categories and in commercial print.

Lastly, I'm pleased to report that we recently earned a sizable new commitment for specialty films from a new aerospace customer. This is another proof point for our strategy of applying existing process capabilities and product knowledge to grow in adjacent markets.

In addition, we are focused on extending our commercial pipeline by increasing wallet share via cross-sell opportunities with existing customers and leveraging our broad product portfolio in adjacent applications. I'll highlight that FAM sales pipeline has materially increased versus a year ago, an important tool to offset sluggish market demand going forward.

Switching gears to the impacts related to the global macro landscape. We saw limited direct impact from the Middle East crisis in the first quarter, primarily due to our localized supply chains. Looking ahead, given the elevated oil and derivative prices, we expect input cost increases in resins, polymers and select chemicals. Our commercial and procurement teams work in lockstep, leveraging our pricing agility and remaining proactive on further pricing actions to maintain a favorable price versus cost ratio for 2026.

We had already implemented pricing actions in January due to the expected raw material inflation forecasted for 2026. When the subsequent Middle East crisis amplified this forecast, we announced the second pricing action in March to cover those incremental input costs. Although the direct impact of the current Middle East crisis on Mativ are minimal and well within our control, we recognize that the broader indirect impact on market demand and overall commercial activity remain uncertain. Our pricing agility allows us to capture the benefits sooner and more evenly, preserving margins during times of stress. Our strategic pricing efforts ensure that we realize higher margins over time.

Pivoting to the future, as introduced on our last earnings call, we have formalized a new strategic blueprint that will guide how Mativ grows its top line, operates and wins in the marketplace. We have defined a clear unified vision for Mativ to be the preferred global partner for customers, delivering performance-critical material solutions.

At the heart of this strategy, is our core purpose. Our materials and solutions are the key components that enable and elevate our customers' innovations. Whether we are purifying air and liquids, protecting surfaces in harsh conditions, ensuring materials stick and release on demand or ensuring life-saving devices stay attached to your body, our solutions are the critical components that make this progress possible.

We succeed by playing to our strengths. We go beyond just supplying products by transforming materials into performance. With uncompromising quality, global reach and deep customer collaboration, we help solve their most complex challenges. In today's dynamic environment, we must relentlessly pursue ease, speed and reliability. We are actively focusing our sustainability and innovation efforts, leveraging our technical capabilities to accelerate progress across our key growth areas. We are continuing to optimize operations to run a faster, more efficient business. We want to make it effortless for customers to work with us, ensuring we exceed expectations every time they engage with us. We are making deliberate strategic choices to invest where we can win and grow. This means aggressively advancing our go-to-market strategy, unlocking the full integrated value of our diverse portfolio and concentrating our resources on high-growth, high-return markets.

As we continue to refine our go-to-market strategies, over the coming months, we will keep you informed on our progress and impact. We have the right talent, the right portfolio, and we refine our strategy blueprint to lead Mativ into its next phase of profitable growth and on a clear path to long-term value creation.

With that, I'll turn the call over to Scott to provide a more detailed overview of our financial performance.

Thanks, Shruti, and good morning. With solid first quarter results, Mativ laid a strong foundation to achieve our 2026 strategic and financial objectives.

Starting with our financials. Matt net sales were $480 million nearly flat year-over-year on an organic basis and down about 1% as reported. Favorable selling prices and currency were offset by lower volume/mix. Q1 adjusted EBITDA was $47.5 million, up 28% versus prior year, a favorable price-to-input cost ratio lower manufacturing expenses and favorable currency were partially offset by unfavorable volume mix. Our adjusted EBITDA margin was 9.9% and which was up 220 basis points versus prior year. This represents our strongest Q1 margin performance since the mid-2022 merger.

Looking at results by segment. FAM net sales of $188 million increased by more than 2% on an organic basis and were up modestly on a reported basis, both versus prior year. This growth was driven by favorable currency and slightly higher selling prices. These benefits were partially offset by lower volume/mix. FAM adjusted EBITDA of $27 million increased by 41% year-over-year, while margins of 14.6% improved by 430 basis points over the same period. These gains were led by a favorable price-to-input cost ratio, lower manufacturing costs, favorable currency and lower SG&A expenses. Marginally lower volume mix partially offset these benefits.

SAS net sales of $291 million were down 2% year-over-year. Lower volume mix was partially offset by favorable currency and selling prices. As Shruti mentioned, this was driven mainly by lower-than-expected health care volumes. SAS adjusted EBITDA of roughly $31 million increased by approximately 16% year-over-year with margins of 10.5%, improving by 160 basis points. Earnings benefited from a favorable price-to-input cost ratio and reduced SG&A expenses. This was partially offset by lower volume mix.

Before I cover corporate I want to highlight a reporting change that we implemented this quarter. As a legacy of our 2022 merger, a portion of our overhead costs remained unallocated at the corporate level. To better reflect the underlying costs of our business, we'll now allocate certain centralized expenses, specifically IT infrastructure, finance and accounting shared services and regional HR directly to our segments.

As a result, adjusted EBITDA margins for both segments are approximately 100 basis points lower than originally reported. This change represents an internal expense reallocation. Consolidated adjusted EBITDA and margin remained unchanged. To assist with modeling and to ensure accurate year-over-year comparisons, we recently published an 8-K providing restated quarterly figures for 2025.

Now looking at corporate items, unallocated expense of roughly $11 million increased by nearly $2 million versus prior year due to higher advisory expenses. Other income of roughly $2 million compared to an expense of $2 million in the prior year. This improvement was due to foreign currency gains. Our Q1 tax rate was negative, driven by our geographical earnings mix and our inability to benefit from losses in certain jurisdictions that have a full valuation allowance. Q1 interest expense of roughly $18 million decreased slightly versus prior year, primarily due to lower debt balances.

Q1 2026 free cash flow was a use of $7 million, improving by more than $22 million versus prior year. This represents our best Q1 performance since the merger in mid-2022. It was driven by a year-over-year operating cash flow improvement of more than $16 million due to lower restructuring expenses and capital expenditure timing.

At quarter end, net debt was approximately $954 million, representing a slight seasonal uptick as we invest in inventory ahead of our increasing Q2 and Q3 production schedules. Our liquidity was roughly $499 million on a reported basis, while our net leverage as defined in our credit agreement was 4.1x. This marks a slight decrease versus 2025 year-end level. We continue to expect material progress towards our leverage goal of 2.5 to 3.5x as we move through 2026. Debt reduction remains our primary capital allocation priority.

After a comprehensive review of our capital structure, we refinanced our existing credit facilities in April, ahead of an early May [ go-current ] date for a significant portion of these facilities. As a result, we simplified our capital structure reducing the number of outstanding debt tranches as well as the number of bank group participants from 15 to 8. We rightsized our revolving credit facility to $305 million, reducing unused borrowing fees as a result, and we eliminated our delayed draw term loan. The revised cash flow revolver and new $90 million term loan A facilities mature in 2031 and the new $500 million term loan B matures in 2033.

While the Middle East conflict added an element of volatility to our capital raising efforts, we chose to move quickly and derisk our upcoming maturities with new capital at market prevailing terms. We expect our annual interest expense to be approximately $76 million going forward, marginally above the $74 million we estimated for our previous capital structure.

With our new facilities in place and no debt maturities until late 2029, we're focused on executing in the marketplace, generating strong free cash flow and addressing our prepayable debt tranches to further delever and strengthen our balance sheet.

Next, I'd like to spend a few minutes providing some context on recent geopolitical events and how they've impacted our markets and our business. The current Middle East conflict has heightened volatility and increased our input costs. Oil prices have risen sharply since early March, and we're facing higher costs for many of our crude oil-based inputs, namely polymers, resins, and some chemical feedstocks.

Coming into 2026, we estimated full year raw material inflation to be $20 million to $25 million across our basket of purchases with increases weighing more heavily on the second half of the year. We took pricing action in January to fully offset this inflation within 2026. Based on today's forecasted input costs, we now estimate total full year inflation impact to be $40 million to $50 million. As a result of this revised view, we took incremental pricing actions across all product categories in late Q1 to fully recover these additional costs. While these actions are challenging for our customers and our teams, they're clearly linked to underlying inflation. Similar to our efforts and results in 2025 and Q1 2026, we expect our pricing actions fully offset the $40 million to $50 million of forecasted input cost inflation in 2026.

Our input cost inflation estimates are subject to material changes depending on geopolitical events and market expectations. We'll remain vigilant and nimble with our pricing, and we'll keep you updated over the coming months.

Now I'll share our Q2 2026 outlook. Our first quarter results built a strong foundation for the year, highlighted by solid profitability, margin growth and improved cash flow performance. As we look ahead, the market volatility created by geopolitical events and its impact on our business reduces our forward visibility. As Shruti outlined earlier, we expect direct business impacts from the Middle East crisis to be manageable as we take steps to mitigate challenges quickly. This includes price increases to offset additional input cost inflation.

We're closely monitoring for any potential indirect impact on broader market demand. Our new strategic growth blueprint is designed to counteract fluctuating market conditions by unlocking our portfolio's integrated value and by focusing our resources on high-growth, high-return opportunities and market adjacencies. Bottom line, we're taking actions on things within our control, and deploying mitigation strategies for those things beyond our control.

As a result, we expect Q2 adjusted EBITDA to be down a mid-single-digit percentage compared to a strong prior year as a result of lower volumes, largely due to near-term demand weakness in our health care business. As Shruti discussed earlier, growth in FAM's films and filtration businesses a favorable price to input cost ratio and SG&A savings should provide partial offsets.

A year ago, we successfully adapted to a new tariff-based macro environment, improved the resilience of our operations. Today, we're confident in our ability to manage through the input cost volatility and demand uncertainty created by geopolitical events.

With that, I'll hand the call back to Shruti for his closing remarks.

Thank you, Scott. In closing, our first quarter results clearly demonstrate that the cultural and operational transformation we set in motion over the past year is working. We delivered our strongest Q1 consolidated margin and cash flow performance since our mid-2022 merger. This was comprised of significant margin improvements across both segments and a substantial step change in cash flow generation, setting us up for another year of strong free cash flow.

While we are closely monitoring the broader macroeconomic environment and geopolitical headwinds, particularly the recent inflationary pressures on our input costs, we have proven our ability to be nimble, proactive and adapt to the world around us. Our commercial agility, value-based pricing strategies, and rigorous operational discipline give us the confidence that we can successfully navigate this volatility and continue to deliver consistent results in times of uncertainty.

Looking ahead, our newly formalized strategic blueprint is actively guiding our growth trajectory. We are not waiting to see how the market evolves, we are leading it. Our commitment is to unlock the full integrated value of our diverse portfolio and to be the preferred global partner for customers, delivering performance-critical solutions. By concentrating our resources on high-growth, high-return markets and relentlessly focusing on quality, performance and reliability, we are charting a clear path towards profitable growth and sustain long-term value creation.

With that, let's open the line for your questions. Operator?

[Operator Instructions] Your question comes from the line of Daniel Harriman from Sidoti.

Congrats on the continued progress. I've got quite a few this morning to please bear with me, but I'll start out with two. First for Shruti, you mentioned customer destocking at supply chain inefficiencies within the health care vertical. And I was just hoping you might be able to provide a little bit more detail on this development and when we should expect conditions to normalize?

And then Scott, as it pertains to price cost, you've done a really good job of offsetting costs with some pricing, and it sounds like you were able to get ahead of some expected inflation thus far in 2026 through these price increases. Do you think you'll be able to continue driving the favorable pricing should input costs continue to rise? And then conversely, should cost come down quicker than we expect, do you expect to reduce prices?

Thanks, Dan, for your question and your kind words. I appreciate it. Regarding our health care vertical. So we had 2 specific challenges. One was around customer destocking action. So it's created a bit of a tough comparison to prior year. So when customers were building inventory, we supported them in their product launch plans. So we're lapping that right now. Secondly, we had an issue with a temporary operational outage in our Knoxville, Tennessee plant, which is now fully resolved, and the plant is fully operational at this time.

So on the point about normalization we don't have an exact time line on that based on customer, end user demand. But this is only a near-term issue for us. We do expect that at the back half, things would start to get better and we see an improving trend.

But one thing to keep in mind, which I mentioned during my remarks as well, that the strength in our portfolio is the very diverse portfolio we have. So if one category goes down, we are offsetting these near-term headwinds with, for example, our European filtration business is strong. Our finished [ tapes ] business is strong. And what I mentioned about the new commitment and films and with the customers in aerospace, that's strong. So we have other things to offset this near-term demand weakness in our health care category. Scott?

Sure. Dan. First, thanks for the recognition. Pricing is not easy work for our teams. It requires a lot of analysis and back and forth with the customer. And it also really requires being proactive when costs are rising quickly to preserve margins.

So -- but on to your question about what's next. First, I think it's important to appreciate that the ongoing conflict in the Middle East has created some significant longer-term disruption to oil and related markets for a couple of reasons. I mean there's been pretty significant infrastructure damage in the region. It has created elevated logistics and insurance costs, and I think those are going to be with us for a while. And even longer term, I think there's going to remain a lingering risk premium in the market for some time.

So as a result of that, we expect input cost inflation to be pretty sticky in 2026, regardless of the timing for a resolution. So a quick reduction to a lower baseline price is not likely in our view. On the flip side, if the conflict does intensify and oil prices rise and settle at a higher level we're going to follow the same playbook. We're going to take further pricing actions to preserve our margins.

So that's really the more tactical view. If we take a step back, I think pricing plays 2 important roles at Mativ, and Shruti talked a little bit about this. In the near term, it is critical for margin management, as I described. Over the longer term, I believe it's a critical part of our customer and shareholder value proposition. Over the last 12 months, this company has been on a mission to improve our margins. We've taken hard, but needed, actions to reduce our footprint and our SG&A costs, and we've improved our operations and supply chains to reduce complexity. We're really focused on preserving this foundation and make progress on our long-term objective around margins. And to get there, and more importantly, to stay there, it requires pricing actions to offset inflation.

And then lastly, I think long term, as I mentioned, we strongly believe that margin management is a critical component of our value creation. For customers, it really does enable longer-term investments in innovation and capabilities. And for our shareholders, it improves the health and stability of our financial results. So I think this is really good work that we're doing, and we're going to continue down this path regardless of the situation presented to us externally.

That's really helpful, guys. Moving on, Shruti, we were excited to see or hear about the commitment of specialty films from a large aerospace customer. Can you quantify for us maybe the expected revenue impact that, that commitment is going to have and maybe the time line for when we should see results contributing to the overall business?

And then, Scott, going back to you, cash flow generation -- free cash flow generation in the first quarter was up significantly year-over-year. But I'm just curious, given the seasonal working capital build as the year progresses, how should we think about that cash flow cadence for the balance of 2026.

Thanks, Dan, for the question there. I'll take the first one. I mean, we are super excited about this new specialty films commitment for the aerospace customer. Let me tell you, this is a great example where cross-functional teams within Mativ come together. We take our existing product-based, technology, innovate to customers' needs and their unmet need, and we grow in adjacent and really high-value markets.

Now due to customer confidentiality, I can't really disclose the financial terms or be very precise on the timing for Mativ's revenue contribution. But what I can say is that we expect the commercial relationship to commence in Q2 and it's going to ramp up slowly with shipments starting later in the second quarter. But this is a great example of the strategic blueprint point that I was making earlier that it brings everything together. We created a strong foundation. Now we are innovating with customer needs and serving the market and expanding into high-value markets. So we are very excited about it, and I'm very proud of our team on what they've been able to accomplish with the customer.

Okay. Over to me. Question on cash flow. A little bit about our seasonal pattern here. I mean historically, Q1 is our most demanding cash flow period for a couple of reasons. We called out that we generally have seasonal working capital build ahead of higher Q2 and Q3 production levels. And second, we also have outflows in the first quarter related to the payout of the prior year's incentive compensation.

So it was -- I think you noted, Dan, that in Q1, free cash flow was a use of $7 million. But that was a $22 million improvement year-over-year. Two components to that, largely due to improved earnings and then business realignment costs of $9 million in the prior year that didn't recur. So if we look ahead across 2026, we do expect a normal cash flow seasonality to the business. And by that, I mean, we expect to generate our strongest cash in Q2 and Q3 and close out the year on a positive note.

As a reminder, though, I do want to point out back in February, we did say we plan to invest additional cash in 2026 for growth. So $10 million additional working capital and $5 million of additional CapEx. And I think you can think about that spending as being proportional across the remainder of the year.

I think it is important to recognize that Mativ has intensified its focus on free cash flow over the last 12 months. Our teams, as we've talked, have worked really hard to improve profit margins, increase working capital efficiency. And we've really shown a lot of discipline around capital expenditures. So as a result, we did generate record free cash flow, as we've mentioned a couple of times now, of $94 million in 2025 amidst some pretty challenging market conditions for us. And as we said last quarter, we're on track to generate significant free cash flow again in 2026, and that's despite the market volatility that we're experiencing.

So the bottom line here for me, the team is highly focused on delivering value through cash generation and capital allocation across all types of market environments.

Great, guys. I appreciate that. And then if I may, Shruti, just the last one. You mentioned moving on to the next phase of the comprehensive portfolio review that you've been undertaking for quite some time now. And to the extent that you can talk about it, I'm just curious if we should expect any divestitures of noncore assets as you complete the first phase and move on to the next.

Thanks again, Dan. So as I've mentioned before and over the last 12 months, we did a very rigorous portfolio analysis, the Board, the management team, across all our facilities, different product categories, various assets, and we wanted to make sure that we strategically balance each of those categories, what the contribution they make across lots of factors and characteristics went into it, such as the impact they have on the bottom line and what's our competitive position, how does it impact the margin profile and the overall focus around product diversity in our portfolio.

So as I also mentioned, this resulted in, for example, a closure of our Wilson, North Carolina plant. The team did a really nice job on SKU rationalization. We've been -- a significant impact on that. That has an impact on our -- how we run our plants, the efficiencies, the working capital, all of the above. And then also on our R&D resources. We align our R&D resources and projects to the ones that have a high return on our investment and that are really needed by our customers. So really putting our customers first there. So those are some of the things we've made some very, very decisive actions.

So we -- as we are doing this, we have really strengthened our foundation. We have demonstrated that over the last 4 quarters, and we position ourselves for the next step, which is our strategic transformation that I mentioned, our strategic blueprint, which is to guide Mativ's top line growth, how we continue on our operational and financial discipline and execution so that we keep winning in the marketplace like the example I gave on the specialty films in the aerospace.

So of course, the Board and I and the management team, we will continue to evaluate our businesses for opportunities that come in to optimize our assets and facilities and cost and cash utilization that Scott was alluding to. But today, we believe at Mativ that we have a broad portfolio that is really well positioned to win in the market, and we can pursue the areas that we feel are the strongest for the long-term profitable growth of Mativ. So -- we -- that's why we're moving forward with our strategic blueprint and really focusing on operations as well as on the top line growth.

We have reached the end of the Q&A session. I will now turn the call back to Shruti Singhal for closing remarks.

Thank you. Finally, a sincere thanks to all our Mativ employees. Your dedication and adaptability over the past year were a key to delivering this quarter's success. So a big thank you from myself, the Board and the management team. We really appreciate it. Thank you, everyone, for joining us today. We look forward to speaking to you again on our next earnings call in August. Have a great day. Thank you.

This concludes today's call. Thank you for attending. You may now disconnect.

Welcome to Mativ's Fourth Quarter and Full Year 2025 Earnings Conference Call. On the call today from Mativ are Shruti Singhal, Chief Executive Officer; Scott Minder, Chief Financial Officer; and Chris Kuepper, Director of Investor Relations. Today's call is being recorded and will be made 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 Fourth Quarter and Full Year 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 SEC 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 to the closest GAAP metrics are included in the appendix of the earnings release, which, along with the accompanying slide deck is now 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. We appreciate your continued interest in Mativ and are pleased to have this opportunity to share our outstanding results for the fourth quarter and full year of 2025, marking a period of remarkable success and progress. As I reflect on the past 12 months, I am incredibly proud and inspired by the unwavering commitment, agility and perseverance the Mativ team has demonstrated. 2025 was not just another year, it was a transformational journey for our company. We faced a convergence of external headwinds from anemic demand in certain industrial sectors to a dynamic and often unpredictable trade and macroeconomic environment. Yet it was also the year we proved that Mativ is built to navigate these challenges and emerge even stronger. We not only overcame these obstacles but also showcased Mativ's strength and determination to thrive and grow. Our fourth quarter results were a powerful culmination to this exceptional year.

We delivered year-over-year improvements in sales, adjusted EBITDA and adjusted EBITDA margin. The metric that best showcases our operational discipline was free cash flow. We generated record free cash flow for the full year, more than double compared to the prior year. This is the direct result of an enterprise-wide focus on disciplined execution, prudent inventory management and aggressive expense control.

Early on in 2025, our mandate became clear: improve the company's performance and build a foundation for sustainable profitable growth. I can confidently say today that we have made significant progress towards that goal. Over the past year, a cultural transformation has been underway at Mativ that fundamentally reset our trajectory. It fosters agility, speed, and accountability. By streamlining decision-making and bringing our teams closer to the customer, we have shifted from a reactive stance to a productive, growth-driven approach, confidently shaping our future. We also moved from a defensive posture, reacting to market volatility to an offensive one, where we drive our own destiny through focused execution. We established a strong foundation built on 3 strategic pillars: driving enhanced commercial excellence, strengthening our balance sheet and optimizing our portfolio.

Let's start with the first pillar, commercial excellence. In a global environment characterized by weak end market demand, driving top line growth requires more than just serving the current market. It requires share growth and value maximization. Capping off this year, Q4 net sales grew to $463 million, with organic sales up 1.9% compared to prior year.

These results validate how our unified sales force is collaborating across segments, leveraging the full Mativ portfolio to expand our growth pipeline and deliver innovative solutions to both existing and new customers. The resilience of our results also underlines how our portfolio of highly engineered technical materials is instrumental to our customers' success. We are partnering with customers to solve their most complex challenges, supporting their global operations with a reliable and localized supply chain and cutting-edge products. In the second pillar, strengthening our balance sheet, operational and working capital efficiencies was central to achieving this objective. Recognizing in early 2025 that volume leverage would be a challenge during the year, we focused on what was within our control, our pricing, our cost structure, our capital investments and our inventory levels.

We successfully drove pricing execution with precision to carefully manage our price versus input cost performance, ensuring coverage of our raw material inflation while we captured additional value through innovation and supply chain excellence. In 2025, our cost-cutting efforts yielded savings across the business of nearly $20 million. The results were evident throughout 2025, culminating with Q4's adjusted EBITDA growing 19% to $53.5 million and margins increased by 180 basis points compared to prior year.

This margin expansion is clear evidence that our determined initiatives are taking hold and driving value. Another principle of this pillar is cash flow. I am pleased to report that we generated record free cash flow of $94 million in 2025, increasing nearly 140% year-over-year. In 2025, with a focus on inventory efficiency, we intentionally lowered our inventory levels by $26 million versus 2024, while supporting full year organic sales growth of 2.5% and not compromising customer service levels. We also lowered our annual capital expenditures by $15 million while prioritizing safety and growth projects. The additional free cash flow allowed us to reduce our net debt by over $60 million and advance towards our target leverage range.

This continued focus on cash flow generation provides us with liquidity and flexibility to navigate future uncertainties while continuing to invest in our highest return opportunities. Finally, our third pillar centers around optimizing our portfolio. Over the past 3 quarters, we have performed a comprehensive portfolio review, including assets, product categories, facilities and support functions.

In 2025, we took decisive steps in closing an underperforming facility in Wilson, North Carolina, and we further optimized our supply chain support infrastructure. We streamlined SKUs and optimized R&D resources by prioritizing efforts and expenditures to better leverage resources while minimizing impact to our commercial pipeline. Portfolio optimization remains a top priority for 2026. We are harmonizing our go-to-market strategies to match customer needs and demand trends. aligning our broad portfolio with areas of strongest growth. This approach will guide innovation, manufacturing, supply chain and sales resources, ensuring capital is deployed where it can deliver the greatest impact. With that, let's turn to our segment results for the quarter. Our Filtration and Advanced Materials segment, or FAM, had an outstanding quarter and built on its momentum from last quarter.

This marks the second quarter of sales and adjusted EBITDA growth since the merger. Net sales were up more than 5% versus prior year. with notable growth in all categories, led by double-digit growth in transportation and industrial filtration, paint protection films and erosion control netting.

In our Sustainable and Adhesive Solutions segment, or SAS, sales were down slightly on an organic basis, driven by lower-than-expected volumes. SAS growth in key categories was led by health care, cable tapes as well as commercial print, more than offset by headwinds in labels, automotive tapes and release liners, partly in Europe. We remain optimistic about overcoming these pockets of softness and are confident in our ability to adapt effectively as market conditions evolve throughout 2026. Before I turn to our outlook, I'll provide a few thoughts on the macro environment, how it affects Mativ and how we drive value. We are operating in a world of heightened complexity with dynamic trade movements and pockets of significant geopolitical instability. These realities require us to remain agile and adapt our business. Mativ is uniquely positioned to navigate this constantly evolving environment.

Our global footprint allows us to be close to our customers in over 100 countries, mitigating single region risks. Our diverse supply chain and procurement strategies have proven resilience, ensuring that we can deliver for our customers on time without interruption and at a fair price. To demonstrate our strategy and full range of capabilities and how they drive value, I'll share a brief overview of our value proposition.

We engineer surfaces and substrates through coating, saturation, extrusion and adhesive technologies to unlock material performance in some of the most demanding customer applications. Our harmonized global network consistently delivers continuous tight tolerance, highly complex profiles from development through high-volume production. Our global supply chain scale delivered through localized assets and service capabilities guarantees efficient execution and dependable fulfillment. These capabilities are at the core of our customer relationships. Mativ wins when our customers win in their markets. This builds long-lasting relationships on a foundation of trust that drives sustained demand and value creation. We are committed to growing these strategic imperatives in the years ahead. Looking ahead, I'm encouraged by the opportunity to build on the foundation we established in 2025.

Scott will walk you through our underlying assumptions for 2026, but I want to leave you with a key takeaway. As we continue to strengthen our performance, I want to emphasize our unwavering focus on profitable growth and confident execution. The improvements we made in 2025, strengthening our balance sheet, rightsizing our inventory and optimizing our cost structure, provide the foundation for future growth and resilience against uncertainty.

We have and will continue to transform Mativ into an agile, more capable entity, one that can better navigate dynamic environments to achieve profitable growth and increased cash flow generation. In 2026, our cost-saving efforts will remain a focus with Wave 2 expected to deliver additional $15 million to $20 million of realized savings throughout 2026. Another important priority in 2026 will also be leveraging AI as a foundational enterprise capability. We are strategically pursuing a dual approach to AI, balancing return on investment, use cases like sales lead generation, advanced production scheduling and predictive maintenance with return on employee initiatives that boost productivity, such as AI-powered data analysis and contract management.

These applications will be embedded across commercial, operational, supply chain, finance and workforce functions to drive sustained performance and long-term competitive advantage. To sum up, I'm proud of our team's execution in the challenging 2025 demand environment. In both segments, we focused on factors within our control and drove tangible results. As a result, our consolidated adjusted EBITDA margins improved by 180 basis points versus prior year.

This strong performance is a testament to the dedication and expertise of the entire Mativ team, who also improved our company-wide safety metrics by almost 10%. I extend my deepest gratitude for their outstanding contribution and efforts. With that, I'll turn the call over to our new CFO, Scott Minder, to provide a more detailed overview of our financial performance. Welcome to the team, Scott.

Thanks, Shruti, and good morning. Let me start by saying that I'm excited to be part of Mativ's dynamic team. The company strengthened its foundation in 2025. And in 2026, we're accelerating progress toward our strategic objectives. Turning to our financials. 2025's results were solid, and we ended the year with a strong quarter. Mativ's full year 2025 net sales were just under $2 billion, up 2.5% organically and up modestly on a reported basis, both compared to prior year.

On the positive side, volume mix increases in both segments, favorable selling prices in our SAS segment and favorable currency helped to drive this growth. These benefits were partially offset by sales from closed or divested plants and unfavorable selling prices in our FAM segment.

2025's adjusted EBITDA was $225 million, up 3% versus prior year, a favorable price to input cost ratio and lower SG&A expenses provided an $18 million benefit. Increased distribution costs due to cross sourcing of certain products that would have been subject to tariffs, higher manufacturing costs and unfavorable volume mix provided partial offsets. Adjusted EPS were $0.70 versus $0.62 in the prior year. Turning to Q4. Mativ net sales were $463 million, increasing year-over-year by nearly 2% organically and 1% as reported. Favorable currency and selling prices were partially offset by lower volume mix. Adjusted Q4 EBITDA was $53.5 million, increasing 19% versus prior year. A favorable price-to-input cost ratio, along with lower manufacturing and SG&A expenses were partially offset by unfavorable volume mix and higher distribution costs.

Looking at our segments, FAM net sales of $177 million were up over 5% versus Q4 2024. This growth was driven by favorable volume mix and currency translation. These benefits were partially offset by slightly lower selling prices. FAM's adjusted EBITDA of $33 million increased by 26% year-over-year, while margins of 18.7% improved by 300 basis points over the same period. These gains were led by favorable prices net of input costs, improved volume mix and lower SG&A expenses.

Increased manufacturing costs partially offset these gains. In our SAS segment, net sales of $285 million were largely flat year-over-year on an organic basis and were down roughly $5 million on a reported basis. Favorable currency and selling prices were more than offset by lower organic volume mix. As Shruti mentioned, this was driven mainly by lower-than-expected volumes in labels, automotive tapes and release liners in part due to European markets. SAS's adjusted EBITDA of nearly $39 million increased by more than 8% year-over-year with margins of 13.6%, improving by 130 basis points. Earnings benefited from lower manufacturing costs and a favorable price-to-input cost ratio. This was partially offset by lower volume mix and higher distribution expenses.

Looking at corporate items, unallocated expense of roughly $19 million increased by $1 million versus prior year due to the timing of employee-related transition costs. Other expenses of roughly $3 million compared to other income of approximately $9 million in 2024. This change was driven by asset sale gains and favorable foreign currency movements in the prior year. Our Q4 2025 tax rate was a benefit driven largely by the impact from reductions in our valuation allowance.

Interest expense of $17 million decreased by 14% versus prior year, primarily due to lower debt balances. Throughout 2025, we've updated you on strategic initiatives to improve our cost structures and generate increased cash flow. As Srudhi highlighted, in year 1 of our 2-year cost savings focus, we generated nearly $20 million of realized benefits in 2025's P&L. In Wave 2, we expect to continue this progress, executing on multiple cost savings initiatives to yield an additional $15 million to $20 million of P&L benefits in 2026. We'll keep you updated as we make progress throughout the year. 2025's free cash flow of $94 million was the highest since the merger in mid-2022 and more than doubled 2024's result. It was driven by operating cash flow of nearly $134 million, which increased by more than 40% compared to prior year.

Disciplined capital expenditures of $40 million, as we previously guided, also supported this strong result. At the end of 2025, net debt was $934 million, reducing by $61 million or by more than 6% year-over-year. We closed the year with ample available liquidity of $515 million. Our net leverage ratio, as defined in our credit agreement, was 4.2x. While we made progress deleveraging in our cash flow utilization priority continues to be on debt reduction.

In 2026, we expect to make progress toward our leverage goal of 2.5 to 3.5x. Since arriving in January, I've worked with the team to understand our capital structure and develop a plan that thoughtfully addresses our debt maturities on a timely basis while maximizing flexibility and cost efficiency. More to come on this topic as we progress throughout the year. Now I'll share our Q1 and full year 2026 outlook. Similar to 2025, we're navigating an anemic end market demand environment in the first quarter, one that is impacted by tariffs and macroeconomic policies. As a result, demand signals into our business remain soft. We anticipate this to negatively impact our volume growth and operating efficiencies in the quarter.

We're working diligently to offset these manufacturing impacts in the near term by streamlining workflows, debottlenecking processes and eliminating waste. As a result of these efforts to offset the impacts from soft demand, we expect Q1 adjusted EBITDA to increase by 15% to 20% versus prior year, driven by a slightly favorable price-to-input cost ratio, operational improvements and SG&A savings.

Both of our business segments proved resilient while navigating a similar environment in 2025, and we're confident in our ability to manage through this landscape in early 2026. While we don't provide formal full year guidance, I'll give you some drivers for cash flow and expense. In 2026, we expect to invest $45 million in capital expenditures, increasing from 2025's restrained level. These investments are split roughly 50% on growth projects and 50% on efficiency and safety projects. Additional 2026 drivers include onetime cash costs between $5 million and $10 million to fund savings initiatives, a $10 million investment in net working capital to support volume growth, depreciation, amortization and stock-based compensation of $90 million combined, interest expense of roughly $74 million based on current market conditions; and finally, $8 million in annual fees for our accounts receivable securitization facility.

Looking at our raw material costs, we expect a $20 million to $25 million headwind, mainly driven by forecasted market price increases for resins, polymers, pulp and paper. These increases are weighted towards the second half of the year. As you saw in 2025, our commercial teams successfully implemented pricing to offset the impact from rising input costs. We expect to leverage this capability in 2026, maintaining a healthy balance between the timing and magnitude of pricing to offset the expected input cost increases.

I'll conclude by highlighting our key financial imperatives for 2026. Cash flow generation and disciplined deployment remain key focus areas. We expect to make progress toward our target leverage range of 2.5 to 3.5x. Rigorous cost discipline remains a focus with an additional $15 million to $20 million in cost savings expected within the year. These efforts, combined with several working capital efficiency projects are expected to drive meaningful free cash flow generation again in 2026. The team made great progress in 2025, and we intend to build on that in 2026. With that, I'll hand the call back to Shruti for his closing remarks.

Thank you, Scott. What you should take away from today's call is that Mativ has effectively ignited a comprehensive transformation. 2025 marked a pivotal juncture where we demonstrated the capacity to deliver robust financial results despite a complex macroeconomic landscape. Our performance characterized by year-over-year improvements in sales, adjusted EBITDA and margins serves as a clear validation of our operational strategy and business resilience.

Our progress is underpinned by a disciplined adherence to our 3 core pillars: enhanced commercial excellence, balance sheet strengthening and portfolio optimization. By rigorously managing factors within our control, we generated record free cash flow, more than doubling prior year's levels. This fiscal discipline has enabled us to materially reduce net debt and realign our leverage profile, thereby securing the operational flexibility required for future value creation. Looking towards 2026, Mativ is now structurally positioned for sustainable, profitable growth. We have the requisite leadership, strategy and capital discipline to deliver long-term shareholder value.

We remain fully committed to delivering for our customers, improving our leverage and balance sheet by generating significant cash flow and capturing volume and share gains that validate our go-to-market strategy. I am excited for our path ahead as we continue our increased pace of execution to drive value for Mativ, our customers and our shareholders. Thank you for joining us this morning. Operator, please open the line for questions.

Our first question is from Daniel Harriman from Sidoti.

I've got a couple for Shruti and then one for Scott today. But Shruti, you kind of talked about the headwinds within SAS, and I was hoping you may be able to provide a little bit more detail on the specific businesses that are being pressured there. And then whether you see any potential catalysts that could support improvement as we move through 2026?

And then we've been really impressed with the progress within FAM. And I'm just curious if you could talk to how sustainable you think that momentum is given the current demand backdrop. And then, Scott, we look forward to working with you. Welcome to the team. And I'm just curious if you could talk about the cadence of free cash flow in 2026, if we should expect that to kind of mirror the quarterly cadence from 2025.

I'll start. Thanks, Dan, for that question. I appreciate it and your kind words. Regarding SAS, the good thing about our portfolio is its ability to offset demand that's in weak in some markets with growth in the others. So specifically, we saw some weakness in automotive labels or automotive tapes, sorry, and industrial labels and particularly in release liners in Europe. But what we are doing is we are focusing on share gain opportunities in Europe. And in North America or beyond Europe, we're looking at our overall release liner portfolio and capitalizing on the better free trade agreements to be able to be competitive in the market in North America and also enabling share growth.

So I am very optimistic on release liners here going forward, especially in the second half of 2026. Regarding your question on FAM, really outstanding quarter. As we have mentioned in the past, this is an area we focused our investments, our resources, changing leadership and we are seeing the results of that. We are seeing growth in -- despite the markets, growth in transportation and industrial filtration.

We are seeing growth in our netting, which is the erosion control market. That we mentioned before, we are benefiting from the tariff that were implemented. And the films business, where we made significant investment, both capital as well as resources, we are seeing an improvement year-on-year and closing that gap. So overall impact is very favorable for FAM in Q4, and I expect that trend to continue in Q1. Scott, over to you.

Yes. Thanks, Dan. I appreciate the comments and looking forward to working with you as well. Really, I'm going to split your question into 2 parts. And I think we'll start with free cash flow and how that dovetails into leverage. The team did a really good job in 2025. We generated record free cash flow of $94 million. That more than doubled our 2024 result. And efforts were broad-based across the board, right, improved profitability by reducing costs. We increased margins.

We reduced inventory, and we really showed CapEx discipline. So we'll continue to push in these areas in '26, and we expect meaningful results. We talked about additional cost savings of $15 million to $20 million, ongoing CapEx discipline with some additional focus on growth investments. And we're going to continue the working capital focus.

We'll need to fund some growth as we talked about. So if you put all that together for the full year, we do anticipate a small decline from 2025 record levels, but that's primarily to fund growth. We talked about $10 million in working capital, and we talked about an additional $5 million in CapEx. But we also have opportunities to build on our working capital efficiency and continue to improve our profitability. You asked about a cadence. So from a cadence point of view, I think we're going to follow our normal kind of seasonal pattern. We'll have some outflow in Q1, hopefully improving on prior year. And we do that generally to rebuild inventory.

We expect strong generation in the middle part of the year and a positive finish to the year. So for me, the bottom line here, I've seen over what I've talked to folks and as I've come in, we really evolved the culture at Mativ to be more cash flow centric. And we expect this to produce good results in 2026 and great results over the long term. So that's free cash flow, and I think it dovetails pretty nicely right into leverage.

You're going to see some similarities in my answer because the topics are related. So again, I think the team did a great job here in 2025. From peak to where we ended the year, we reduced leverage by 0.5 turn, ended the year at 4.2, which was the low point for the year. And really, it was enabled by improvements across the financial statements. We increased profitability. We improved working capital. We stayed disciplined on our capital spending, and we focused that benefit on leverage reduction. We reduced debt by $60 million. That discipline is really built into the business. So our primary focus remains on leverage reduction in 2026. We expect to continue to make progress towards the goal we've given you of 2.5 to 3.5x, and we should end the year in 2026 as we see now in the mid- to high 3s, and we're going to keep you posted on that as the year progresses and we make progress toward that.

Our next question is from Lars Kjellberg from Stifel.

I'm just looking at or thinking about your guidance for Q1. Of course, you're looking up against a very, very easy comp from 24% last year and talking about up 10%, 15%. It kind of seems to be slowing progress on an underlying basis a bit. So can you talk to us a bit what you're seeing in the market? And if the seasonally weak quarter is sort of from an underlying perspective, low point and how you build through the balance of the year? Because again, if you look at the EBITDA essentially, you're ending up below where you were in '24. I appreciate there's been some corporate changes, but sort of the progress seems to be slowing a bit. So if you can provide any color on that, that would be of interest.

Yes. Maybe I can start off, Scott, and please feel free to comment. So Lars, thanks for that question. Again, good to hear from you. For Q1, I think what Scott mentioned is the guidance of 15% to 20%. And we see some weakness in demand on top line, especially in the categories I mentioned in our SAS segment.

But even in that -- in SAS, we are seeing other categories performing well, and I expect them to continue to perform well beyond Q1 and going into the remainder of the year. And as I mentioned, in our FAM category, while remember that FAM because of our presence in filtration is also in Europe, in automotive, the demand is weak there and especially in Q1. But the actions that we have taken and as that pipeline continues to flow, I expect the FAM segment to perform well in Q1 and also as we go into the remainder of the year. So starting off on a positive note in Q1, while navigating through the weak demand. But as we build our pipeline and commercialize those opportunities for the remainder of the year, both in SAS and FAM, I'm optimistic on our performance. Scott, feel free to add anything else.

Yes. Lars, good to meet you. I think Sri said most of it there. But top line, we expect probably very low single-digit volume growth rate, reflecting that soft demand environment. We're going to continue working on our pricing initiatives to help offset those input costs. Where we see the leverage coming through is really on the EBITDA. So while top line is muted, we expect EBITDA growth of 15% to 20%.

So offsetting that demand weakness in the manufacturing inefficiencies that come along with that with the efforts we worked on last year around operational costs and SG&A costs, we've got a program this year to take out another $15 million to $20 million that gets started on January 1. So I think we're doing a lot to continue to improve the earnings power of the business even despite top line that's relatively soft.

Just a quick follow-up on the commercial pipeline. True to, you obviously made a tremendous change to the commercial approach and you expect to win in the market. Can you share with us how you sort of view that commercial pipeline and how you expect to perform relative to the underlying market in the key segments you pursue?

Right. So it's a very focused approach on the commercial pipeline. The rigor and cadence by our commercial leadership is very different in terms of realistic opportunities. And we're controlling what we can control. As we mentioned, there's different categories in the market, which is weak. But as we look at our -- for example, our films business, we made the investments in resources and capital. We have made good progress in lead time reductions, quality improvements, and we're winning the customer confidence and trust back. And as a result, the business, that's one example of how our commercial pipeline and operations working. Similar in approach in filtration. We have seen good progress, and we know the automotive market, especially in Europe, is anemic. But we have seen good progress in HVAC, air pollution control and water filtration. We built a good pipeline there with customers, and we are winning in those.

So to sum it up, both in SAS and FAM segments, we are very surgical on our commercial pipeline. We're pursuing the opportunities with great precision. And our customer collaboration and intimacy, I would say, is better than I've ever seen before and even the customers have alluded to that. So that's why we are optimistic for Q1 and especially beyond in 2026.

Our next question is from Massimiliano Pilato from Stifel.

I have a couple on the comment on capturing volumes and share gains. Of course, you mentioned you had some headwinds in SAS. And you also mentioned higher input costs through 2026 to be offset by price increase. So how do you plan to capture volumes if the demand environment is still very muted and the ability to flex on prices is a little bit limited through 2026. That's the first one, and I'll ask the second one after that.

Thanks, Massi, for your question. Appreciate it. Regarding the share gain and pricing, so this is a collaborative effort. And it's -- like I mentioned in my comments as well, that it's very, very precise. So we are working very closely with our procurement, supply chain, operation teams to balance our costs with the commercial team going in for -- whether it's for the pricing or the share gain.

So very, very precise and very surgical process depending on the category. That's the approach we have taken. It's a proven play. We have shown that in our FAM business. As I mentioned, 2 consecutive quarters of growth. And that approach is also working in -- or being applied to SAS and because it's proven approach for us. And as a result, we are winning in the market segments, and that's -- we want to continue -- we will continue to do that in Q1 and beyond.

Yes. And if I could add one thing, Sri, I think -- yes, Massimiliano, if I could add. So our pricing is one, to recover input cost increases, but there's also a connection to value. And our products bring a lot of value to our customers. Think of like a film, a protected film. It's protecting a valuable asset.

So we feel like we bring value-add solutions to our customers, so we can get pricing in some of our applications because of the benefit it brings to customers. So one, it's to recover input costs, and we're committed to that, but it's also to capture the value we're bringing to the customer.

Then the second question relates to the rollout of new projects. Of course, you announced the partnership with Miru. How should we be thinking of the contribution of those new projects to flow through the P&L? Is it something that we can see in '26? Or is it more of a 2027 contribution?

Yes. Thanks, Massimiliano for -- so we are very excited about our partnership and collaboration with Miru. As I announced that we made investments and the technology is in terms of improving the energy efficiency in automobiles and buildings is very exciting for Mativ. We continue to work with Miru on a very close basis. We can expect to see some sales depending on market towards the end of 2026, but more flowing into 2027.

Got you. Very good. Then the last one on the outlook for Q1 '26. How much of the $15 million to $20 million of savings through '26 are already baked into Q1.

Well, on a run rate basis, we think we've got $5 million to $7 million that we're going to lap in 2026, not all in Q1. And then the rest of the savings will be new initiatives that we come up with from now until the end of the year. So there'll be a little bit more weighted to the middle to latter part of the year.

We currently have no further questions. So I will hand back to Shruti for closing remarks.

Thank you. First, I want to express my sincere gratitude to all Mativ employees for their dedication and hard work over the past 12 months in embracing change and delivering our Q4 and full year results. And finally, thanks to all of you for joining us this morning for our earnings call. We look forward to staying connected in the coming months and to welcoming you to our next earnings call in May. Have a wonderful day ahead. Thank you for your time.

Thank you. This concludes today's Mathys Fourth Quarter and Full Year 2025 Earnings Call. Thank you for joining. You may now disconnect your lines.

Apologies for the technical difficulties, and welcome to Mativ's Third 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 Third 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. I'm pleased to report that we delivered another quarter that exceeded our expectations with overall year-over-year improvement in our top line and bottom line results. On our last earnings call in August, we communicated our expectations for adjusted EBITDA to be 5% to 10% higher in Q3 year-over-year and for Q3 cash flow to be favorable as well versus prior year.

As you saw in our Q3 earnings release, adjusted EBITDA came in 10% higher at the top end of that range, and we doubled free cash flow versus last year on a year-to-date basis. As a matter of fact, if you take both Q2 and Q3 together, this has been our strongest 6-month period since the merger on both an adjusted EBITDA and free cash flow basis, demonstrating that the decisions we made earlier this year are working and are delivering a step change to our financials at almost every level.

On a consolidated basis, adjusted EBITDA of $66.8 million was up $6 million over Q3 of 2024, while sales of $513 million were up over 5% on an organic basis and 3% higher on a reported basis versus last year. This is a true testament to the strength and effectiveness of our sales force who are finding new and creative solutions to serve our customers with their unmet needs. Free cash flow came in at $66.7 million, which is $42 million higher year-over-year. Q3 free cash flow was also sequentially better by $17 million, making Q3 of 2025 now the second highest cash flow quarter since the merger. I'm very proud and energized by our global team's outstanding performance.

While our demand environment continues to be challenging as tariffs and macroeconomic policies constantly change how we operate in the market, our global Mativ team continues to show resilience and a strong commitment to driving commercial and operational excellence. Thank you to the entire Mativ team for embracing these changes and executing to our strategic imperatives.

Let me touch briefly on our segment results. SAS Sales continued their strong momentum from the previous quarters and were up 5% on an organic basis, the sixth consecutive quarter of year-over-year improvement in sales. SAS showed solid improvement across all categories with tapes and labels, liners and healthcare up mid-to-high single digits versus last year, and paper and packaging up low single digits. Our SAS commercial teams are driving incremental annual revenue in construction tapes with strategic distributor partners, cable tapes with an energy and telecom company, personal care liners with a global consumer goods company, and incremental holiday display features with a mass retail chain.

We also saw strong incremental demand from label converters and also in our consumer tape and healthcare categories. Additionally, we are driving market share gains in cable tapes, commercial print and consumer paper, and we are realizing cross-selling opportunities across our tapes and liners businesses. SAS adjusted EBITDA for the quarter was $48.3 million, up $7 million or over 17% versus prior year, while Q3 also represented our strongest SAS adjusted EBITDA margin since the merger at 15.3%, which was up 200 basis points year-over-year. SAS EBITDA and margin performance drove the majority of the improvement in our consolidated EBITDA and margin this quarter.

In our FAM segment, we marked a significant turnaround point. Q3 was the first quarter of growth in sales and adjusted EBITDA since the merger. FAM sales of $198 million increased by more than $8 million or over 4% from last year. This achievement reinforces our confidence in the effectiveness of our proven SAS go-to-market strategy across the FAM segment. We expect FAM to continue to compare favorably on a year-over-year basis in Q4 as well.

While overall demand patterns continue to be mixed and challenged in the construction and automotive sectors, we saw continued pockets of growth with filtration up high single digits, driven by water, HVAC and air pollution control. While in films, we are regaining business and continue to make meaningful progress towards closing the year-over-year comparison gap. Our FAM teams have driven 20-plus percent growth in HVAC, air pollution control markets and almost 10% growth in water filtration with significant increases in customer commitments. We also achieved above-market growth for transportation filtration and erosion control as well as growth in medical films.

As announced earlier this year, we have had a clear focus on three critical strategic priorities: driving enhanced commercial execution, strengthening our balance sheet, and conducting a strategic review of our portfolio. These priorities are propelling meaningful results in our operations and financial performance, allowing us to stay focused on the areas that we can control. At the same time, we are developing strategies for the prevailing macro uncertainties and have multiple actions underway to enable a more agile operating model, grow our market shares, provide growth opportunities for our employees and deliver long-term value creation for shareholders.

A key component of driving enhanced commercial execution is the ability to successfully execute pricing initiatives. We are very focused on maintaining a positive price versus input cost relationship, and our Q3 results show the outcome of that effort. We have formalized our pricing efforts through the development of a pricing process that is governed by a steering committee. The regular cadence of this committee will help ensure pricing structures are in line with prevailing market dynamics as well as input and associated labor costs.

Furthermore, our dedicated sales teams are continuing to expand our pipeline by working with our customers to complement current relationships with solutions that address their unmet needs, whether that is via the Mativ integration of another step in their value chain, a geographic supply chain solution or multiple Mativ category solutions across the broader enterprise. Our customers value our localized supply chain and our flexibility to partner with them how and where they go to market, and this ability is reflected in the number of long-term agreements we have been able to renew as well as incremental commitments we were able to book with existing and new customers.

When it comes to strengthening our balance sheet, earlier this year, we announced a number of initiatives to reduce our cost structure and capital expenditures and optimize our working capital levels. Those actions have driven quantifiable improvements in our margin and cash flow levels over the past 2 quarters and are materially reducing our leverage. Year-to-date, we have already delivered twice the amount of free cash flow as compared to full year 2024, and we expect our leverage to continue improving over the coming months and quarters.

Within our strategic portfolio review, we have executed on initiatives such as optimizing the footprint of our operations support structure and SKU rationalization. Also, over the past quarter, we have been working through an R&D optimization initiative to help allocate the right resources to our most worthwhile projects. We have prioritized our R&D projects towards those that are accretive in the near term while exceeding our ROI benchmarks. In doing so, we lowered our overall R&D spend with limited impact to our commercial pipeline, and we are working to leverage resources more effectively going forward.

As part of this portfolio review, in early October, we made the strategic decision to close our Wilson, North Carolina facility. Our intent is to wind down operations over the next couple of months, transition existing customers and employees, and close the facility by the end of Q4. We expect this closure to be accretive to earnings starting in Q1 2026. We now operate a total of 34 sites across the globe versus 48 at the time of the merger, and we will continue to look at opportunities to improve the operational performance of our sites with the lessons learned from our continuous quality and process improvement initiatives.

Our strategic review process is still underway with many work streams making good progress over the past 6 months since we kicked it off. It remains a key part of our focus this year, and we look forward to keeping you updated on this effort as we continue to make progress. On the operations front, we have several manufacturing, supply chain excellence and continuous improvement work streams underway. We have enhanced efficiency at multiple sites by increasing machine speeds on key production lines, all while maintaining our high standards of quality. Product quality improvements in many of our sites have also materially reduced scrap byproducts and our continuous process improvement initiatives have reduced changeover times and increased yields and machine uptimes.

We will continue rolling out these improvements to other sites throughout Q4 and beyond to leverage the benefits and accelerate improvements. We at Mativ embrace safety as the #1 value. Our safety programs over the past 12 months have successfully lowered injury rates by more than 15% and further removed significant risks across our global operations. We maintain strategic alignment by working directly with each site via our operational leaders through education, guidance and support in setting safety priorities, keeping each site accountable through our safety balanced scorecard indicator.

On the supply chain side, we are continuing to streamline our portfolio of products and number of SKUs, and we are cross-sourcing across the globe to minimize our tariff exposures. As a result of these actions, our continued USMCA exemptions and the recent updated tariff announcement, currently, less than 6% of our sales are subject to tariffs. We continue to mitigate and offset any new tariff impact on our business as well.

Our distribution expenses have been elevated over the past 2 quarters as we are cross-sourcing certain products across the Atlantic that would otherwise be subject to tariffs. We have a set of operational improvements underway to offset our distribution expenses, which include warehouse footprint optimization, a transportation management system that is now live in several of our U.S. locations and optimized freight quote management with our spot freight providers. As you can see, there is a lot going on here at Mativ to navigate the challenging demand environment, broaden our customer base, and transform us into a more agile entity that is primed for long-term success and value creation.

I'll now turn it over to Greg to provide additional color on how these initiatives have impacted our financial performance in Q3 and our expectations for the remainder of the fiscal year.

Thanks, Shruti and good morning, everyone. Consolidated net sales from continuing operations for the quarter were $513 million, up 3% compared to $498 million in the prior year on a reported basis and up $25 million or 5% on an organic basis as increases for both segments in volume mix and currency as well as SAS selling prices were partially offset by slightly unfavorable FAM selling prices. Adjusted EBITDA from continuing operations was $66.8 million, up 10% from $60.8 million in the prior year.

Favorable net selling price versus input costs, higher organic volume and lower manufacturing costs represented a combined $8 million favorable impact, which was partially offset by a combined $2 million of higher distribution and SG&A costs. Price versus input cost performance turned positive for the quarter as communicated on the Q2 call and is expected to be favorable in Q4 as well. Adjusted EPS were $0.39 a share versus $0.21 a share in the prior year period.

Turning to each of our segments. Net sales in our Filtration and Advanced Materials segment of $198 million were up 4% versus Q3 of 2024. The year-over-year increase was produced by higher volume mix and favorable currency translation, partially offset by lower selling prices. FAM adjusted EBITDA of $37 million increased slightly year-over-year, reflecting the effects of higher volume mix, partially offset by higher manufacturing costs.

In our Sustainable and Adhesive Solutions segment, net sales of $315 million were up more than $16 million or 5% on an organic basis and increased by just over $6 million or 2% from last year on a reported basis. Organic growth was driven by higher volumes across key categories and higher selling prices across the segment, along with favorable currency translation. SAS adjusted EBITDA performance of $48 million increased 17% year-over-year from $41 million in the prior year. The year-over-year performance resulted from favorable net selling price versus input cost performance, lower manufacturing costs and lower SG&A expenses, partially offset by unfavorable mix and higher distribution costs.

Turning to a few of the corporate items. Unallocated corporate adjusted EBITDA expense of $18 million increased by just under $2 million versus the prior year due to the timing of employee-related expenses. Interest expense of just under $18 million decreased slightly versus the prior year. When taking hedges into account, over 80% of our debt is at a fixed rate and matures on a staggered basis between 2027 and 2029. Other expense was $3.9 million in the current period and decreased over $8 million with the impact from losses on asset sales and unfavorable foreign currency being more prominent in the prior year period.

Our tax rate was a 43% benefit in the quarter, driven by a onetime adjustment and mix of earnings. At the end of the quarter, net debt was $932 million, a reduction of more than $60 million versus last quarter and available liquidity was $517 million. Our net leverage ratio, as defined in our credit agreement has been reduced to 4.2x, and we expect to be even closer to 4x level by the end of the year.

Deleveraging will continue to be our highest priority for cash flow utilization. With that in mind, as discussed on previous earnings calls, we have strategic initiatives underway to materially improve cash flow generation, and we'll continue this focus as we head into 2026. As a reminder, those initiatives are comprised of pricing actions as well as cost optimization initiatives.

We are targeting $35 million to $40 million of cost savings by year-end 2026, with $15 million to $20 million realized and flowing through the P&L in 2025. We are on track to manage our capital expenditures to $40 million in 2025 and continue to work to reduce our year-end inventory levels by $20 million in 2025 versus 2024. Working capital is expected to remain a source of cash of approximately $10 million for the full year 2025. Taken together, all of these efforts and initiatives have made Q2 and Q3 of 2025, two of our highest cash flow quarters since the merger.

Free cash flow for Q3 was $66 million, more than twice the amount we generated in Q3 of 2024. Our year-to-date free cash flow of $85 million is also more than twice the amount we generated year-to-date in 2024 and early realization of our expectations for the full year cash flow to double our 2024 levels. As a reminder, our Q4 cash flow levels are generally much lower due to our usual year-end seasonality, and we expect Q4 cash flow to be similar to prior year. We do, however, expect our working capital initiatives to contribute to strong free cash flow generation in 2026 and beyond.

As we look ahead, we acknowledge that market demand remains uncertain with additional impacts from tariffs and macroeconomic policy in the market impacting our levels of sales and operating leverage. However, with the positive momentum we have seen through early November across key categories in FAM and SAS, combined with our strategic initiatives, we expect our Q4 adjusted EBITDA to increase by at least 10% versus last year. This step-up will be driven by a year-over-year increase in volume, particularly on the SAS side, favorable relative net selling price versus input cost, operational improvements and cost savings.

For modeling purposes, for the full year 2025 on the tariff front, with all the recent announcements throughout the quarter, we are updating our guidance to now state that less than 6% of our annual sales are currently subject to tariffs. The previous guidance covered 7% of our annual sales. With that, Shruti, I'll hand it back to you for your closing remarks.

Thank you, Greg. What everyone should take away from this call is that we are proud of the progress we have made and the results we have delivered in Q3. The strength of our sales adjusted EBITDA and free cash flow performance, particularly over the past 6 months, demonstrates the effectiveness of our strategic decisions and the resilience of our business model. Our teams continue to execute with discipline and agility, driving commercial and operational excellence across both segments. While the macro environment remains dynamic, we are focused on the factors within our control, and we are taking proactive steps to position Mativ for long-term success.

Our strategic priorities, as communicated last quarter, driving enhanced commercial execution, sharpening efforts to delever the balance sheet and conducting a strategic portfolio review have not changed and are front and center. Our company-wide pivot towards a higher sense of urgency and faster pace of execution are yielding measurable results and are solidifying the foundation for generating continued value for our customers, employees and shareholders.

Thank you for joining us this morning. Operator, please open the line for questions.

[Operator Instructions] Our first question comes from Daniel Harriman with Sidoti.

Congrats on the quarter. I'll start out with two and then get back into the queue. But first, it's clear recently that the commercial actions within SAS are having a great effect on FAM and benefiting results there. And I'm just curious to hear more about the time line there and how long you think it will be until we see the full benefit of that commercial initiative? And then secondly, just curious, but I'm wondering if you can provide any additional updates or commentary on the ongoing portfolio review other than what you just mentioned in your prepared remarks.

Thanks, Dan, for your question and kind words. I really appreciate that. Regarding your first question on the actions against regarding FAM, we are starting to see the impact on those financials now. As you heard, year-on-year, quarter-on-quarter, we already have a 4% increase. This was the first quarter of growth in sales and adjusted EBITDA since the merger. So I'm really pleased with the progress we are making in FAM.

Keep in mind that FAM is much more exposed to Europe and the automotive and transportation sectors there, which is, as you know, going through major demand challenges. But what the team has done as commercial actions, looking at our HVAC, air pollution segments as well as the water filtration segment, we have seen a great pipeline build and very good commercial execution with 20-plus percent growth in HVAC and air pollution, and 10% growth in water filtration. And we are also making meaningful progress overall in our films business towards -- and really starting to close the year-on-year comparison gap. We're regaining share back. We -- our customers for our premium segment are coming back. Our Asia business is very strong. So the change is already materializing, and we expect FAM to perform favorably in Q4 as well.

In your second question regarding the strategic portfolio review. So as I said in my remarks, we are evaluating opportunities and constantly evaluate those opportunities to strengthen our go-to-market positioning. And as you know, we have been evaluating our portfolio ever since the merger, case in point, the EP divestiture about 1.5 years ago or so. I will certainly keep you updated on the progress and how we are doing. But be assured that the review is fully encompassing, meaning I talked about footprint rationalization. As a result, we closed our Wilson, North Carolina facility. That will be accretive to our EBITDA in 2026.

I talked about reviewing our entire R&D portfolio. We optimized the portfolio and have repositioned our resources as well as our portfolio for near-term gains. We reduced complexity by our SKU rationalization, and we're delayering and making our business more effective and efficient. So this review remains a key part of my and the team's focus and the Board's focus, and we will absolutely keep you updated as we make further progress.

Our next question comes from Massimiliano Pilato from Stifel.

Congrats on the quarter. And part of them have already been answered during the prepared remarks, but could you please provide more detail on the relative organic performance in terms of volumes and pricing within the subsegments? And how do you see those growth rates evolve into Q4 and 2026 and level of visibility of demand into next year? And the second question is on the closure of North Carolina facility. I would like to understand if there are any associated costs with the closure? And if you could quantify the cost improvement into Q1 '26.

Maybe I'll kick it off first. Thank you, Massi, for that question -- those questions. Regarding the demand, what we saw in Q3, for example, our cable tapes business, especially with our -- again, with the end user markets and the Big Beautiful Bill helping us there, that demand was up. We saw our commercial print segment. We -- as I mentioned, with some of the -- with the massive retail chain, we got an increase there. We -- I already touched upon the water filtration, HVAC piece with the data centers growth, talked about released liners. If you -- the personal care and hygiene segment there has seen a good demand in Q3.

And we also saw in our erosion control netting business, we're rewinning some of the volume back there. So those areas and some of the segments as examples where we've seen some good improvement in demand through the Q3. And on the Wilson closure, as I said, the -- it will be accretive to our EBITDA. And regarding the cost, maybe I'll let Greg take that one.

Yes. Yes. Overall, it represents less than 1% in sales overall. At the time of the closure, there will be -- we've already recognized some non-cash impairment charges in the current financials. There will be some onetime cash costs with the closure. But overall, yes, accretive to EBITDA and accretive to margins, and we should be seeing that flow through at the beginning of 2026.

Our next question comes from Lars Kjellberg with Stifel.

Great to see the good progress you're making. I'm curious about -- I mean you have obviously the new sort of commercial approach that is driving the best price cost relationship. But at the same time, you seem to be gaining share in the market, which is quite interesting because the market is generally quite soft. So can you sort of describe the mechanics here. What is making you win share in the market given the pricing policies that is driving the margin accretion that will be of interest and how those discussions go with your customers.

The other thing with all the various things you're now doing and we're starting to see clearly the benefit of margin accretion, et cetera, coming through, how should you have us look on '26 as a whole in terms of compensating for underlying inflation, et cetera? And with the progress you've seen, should we see a continuation of that towards 25 -- sorry, towards your 15% ultimate target for margins into '26 and beyond?

Thank you, Lars, for those questions. Let me take the first one. Our commercial execution, I'm really proud of what our sales force is doing. We have really prioritized and focused on our growth initiatives. We have delayered for faster decision-making. And we're really focusing -- the sales force is really focused on the growth segments, some of those which I mentioned.

And while having -- we've talked about in the past about cross-selling opportunities, and these are all being well supported by our operations excellence and supply chain excellence initiatives with better lead times, better service, our on-time shipment percentages are better. So when you take that full approach, we are -- that's how we are able to win in the marketplace and maintain pricing discipline. On the -- Greg, if you want to take the...

Yes, Lars, maybe I'll try to take the question on the margins and volume. Overall, as we're heading into the fourth quarter, we're expecting -- if you take out the currency impact because we're expecting to see a positive currency tailwind in sales again. Outside of that, I'd mentioned we would expect to see SAS volumes up some. But I do think we'll see much flatter volumes in Q4 year-over-year. But with what I shared in terms of expecting the bottom line EBITDA to be up by at least 10%, yes, it does play right into the increasing margins.

The path to 15%, we still believe that is -- that we're in businesses that are -- that's the right target, the 15%. But the path there is somewhat gradual. We've seen the improvement from '23 to '24 to '25. We've definitely seen the improvement here in Q2 and Q3, but it will be a gradual path to the 15%. We'd expect margins in '26. We're not providing any specific guidance at this point, but we would expect to see a continuation of that trend of the improved margins in 2026.

We currently have no further questions. So I will hand back over to the management team for any closing remarks.

Thank you. First, I want to express my sincere gratitude to all the Mativ employees for their dedication and hard work in delivering our Q3 results. Thank you very much. And finally, thanks to all of you for joining us this morning for our earnings call. We look forward to staying connected in the coming months and to welcoming you to our next earnings call in February. Have a great day, everybody, and thank you for dialing in.

Thank you very much, everyone, for joining. That concludes today's call. You may now disconnect your lines.