Glatfelter (GLT) Q3 2023 Earnings Call Transcript

Glatfelter (GLT 0.68%)
Q3 2023 Earnings Call
Nov 02, 2023, 11:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the Glatfelter's Q3 2023 earnings release conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Ramesh Shettigar. Please go ahead, sir.

Ramesh Shettigar -- Senior Vice President, Chief Financial Officer, and Corporate Treasurer

Thank you, Lisa. Good morning, and welcome to Glatfelter's 2023 third quarter earnings conference call. This is Ramesh Shettigar, senior vice president, chief financial officer, and treasurer. On the call to present our third quarter results is Thomas Fahnemann, president and chief executive officer of Glatfelter; and myself.

Before we begin our presentation, I have a few standard reminders. During our call this morning, we will use the term adjusted earnings, as well as other non-GAAP financial measures. A reconciliation of these financial measures to our GAAP-based results is included in today's earnings release and in the investor slides. We will also make forward-looking statements today that are subject to risks and uncertainties.

Our 2022 form 10-K filed with the SEC and today's release are available on our website and disclose factors that could cause our actual results to differ materially from these forward-looking statements. These statements speak only as of today, and we undertake no obligation to update them. I will now turn the call over to Thomas.

Thomas Fahnemann -- President and Chief Executive Officer

Thank you, Ramesh. Hello, everyone, and welcome to Glatfelter's third quarter conference call for 2023. I'm pleased to begin today's call by sharing that our third quarter results improved over the second quarter. Our team took very concerted actions to address the one-time operational issues that occurred during the previous quarter, which contributed to our improved results in the third quarter.

Overall, we posted adjusted EBITDA of $25.5 million for this quarter, reflecting a strong sequential recovery as our turnaround strategy continues to deliver benefits and improve earnings through operational efficiencies and organizational rightsizing. Equally important, our enterprise EBITDA margin profile is trending in a positive direction with the third quarter margin achieving the highest level in the past eight quarters. Our third quarter performance also benefited from the accelerated sale of Ober-Schmitten, which allowed us to mitigate the site's previously anticipated future losses and drag on our overall performance. And most notably, our segments performed well overall with composite fiber posting sequential EBITDA gains, airlaid materials achieving sequential volume growth, and spunlace delivering operational improvements and disciplined cost control.

These outcomes were a direct result of important key turnaround initiatives, such as completing the broad reorganization of our Soultz, France facility; improving our Asheville, North Carolina operation; and expanding the commercial resources dedicated to increasing the profitability of our Sontara business. While I continue to be quite pleased with the team's ability to deliver these important achievements, we cannot minimize the ongoing negative impacts from the difficult market conditions that have been plaguing our industry and Glatfelter business throughout all of 2023. The unsettled geopolitical situation created by the Russia, Ukraine, and Middle East conflicts continues to wreak havoc on the global economy, including overall consumer confidence, energy stability, raw material pricing, and labor inflation. For these reasons, we are lowering our annual EBITDA guidance by $10 million.

This change reflects the downward pressure from the prevailing headwinds we continue to experience and anticipate for the foreseeable future. When we last issued guidance, we previously believed that market conditions and customer destocking would improve beginning with the third quarter based on market insights available at that time. However, these improvements have been slower to materialize than originally anticipated. Despite this environment, we remain confident in the fundamentals of our business and our ability to deliver ongoing improvements that will position our business to capture the benefits from an improved market in due time.

I will now turn the call over to Ramesh.

Ramesh Shettigar -- Senior Vice President, Chief Financial Officer, and Corporate Treasurer

Thank you, Thomas. Slide 3 of the investor presentation provides a summary of our third quarter results. Adjusted EBITDA was $25.5 million or approximately $8 million higher compared to the prior quarter. The sequential improvement was despite continued market weakness.

Main drivers included benefits from turnaround actions, absence of one-time adverse items in the second quarter, and the sale of the Ober-Schmitten operations in mid-August. Airlaid materials EBITDA was lower by approximately $5 million versus a record-high quarter during the same period last year. This was mainly driven by adverse price-cost gap, lower shipments, and lower production to manage inventory levels. Composite fibers EBITDA was higher by approximately $1 million, driven by favorable price-cost gap as raw materials, energy, and freight costs declined at a faster pace than selling price and energy surcharge reductions.

Spunlace EBITDA was higher by approximately $4 million compared to the same quarter last year, driven by actions from the turnaround strategy and favorable price-cost gap. Slide 5 shows a summary of third quarter results for the airlaid materials segment. Revenues were down 8% on a constant-currency basis versus the same period last year, mainly driven by lower shipments and lower selling prices of approximately $5 million. Selling prices were lower, mainly due to cost pass-through arrangements reflecting declines in raw material costs and energy surcharges in Europe and selective price concessions to non-floating customers to preserve volume.

On a net basis, the price-cost gap was unfavorable to earnings by $2.2 million. Volume was lower by 4% year over year, primarily due to weaker shipments in the feminine hygiene and tabletop categories. This was largely driven by residual inventory destocking, market weakness in Europe, and ongoing competition from alternate substrates due to the high cost of fluff pulp. Operations were unfavorable by $1.8 million versus the prior year, primarily due to lower production to manage inventory levels and higher maintenance spending.

Foreign exchange and related currency hedging positively impacted earnings by $700,000 due to strengthening of the euro. Slide 6 shows a summary of third quarter results for the composite fibers segment. Total revenues were down 20% on a constant-currency basis due to the lower shipments and lower selling prices of $2.1 million from floating prices implemented with larger food and beverage customers. The year-over-year volume decline of 11% was driven by the combination of us initiating the wind-down and subsequent divestiture of the Ober-Schmitten assets and from the softness in food and beverage, composite laminates, and metalized product categories.

Ongoing market weakness and inventory destocking also impacted some of our larger customers. The lower shipments, combined with unfavorable mix from declines in higher-margin products, negatively impacted income by $2.6 million. In addition, Ober-Schmitten results were negative $1.7 million year over year due to significantly lower volume and productivity. On a positive note, lower prices for key raw materials, energy, and freight improved earnings by $6.8 million versus the same quarter last year, reversing the negative price-cost gap trend.

Operations and other was favorable by $500,000, driven by benefits from cost-out actions but were partially offset by lower production to manage inventory. Foreign exchange was unfavorable by $300,000, driven by hedging gains from last year. Slide 7 shows a summary of third quarter results for the spunlace segment. Revenues were down 19% on a constant-currency basis, driven by lower shipments of 18% and lower selling prices of approximately $1 million coming from raw material costs pass-through provisions, primarily on the hygiene and wipe side.

The volume decline was seen across all categories and negatively impacted results by $1.6 million. The three primary drivers leading up to this were general market weakness in Europe where customers traded down to cheaper imports from Turkey and China, production constraints at Sontara's outsource converter despite stable North American demand; and unprofitable customer accounts in Soultz, France that we chose to exit. To counteract these headwinds, we rightsized our operations at this site earlier this year, reducing our workforce by 25% to improve site profitability. And the customer rationalization from this site's portfolio further bolstered margins.

Raw material, energy, and other inflation were favorable by $4.7 million, eliminating the price-cost gap experienced for all of 2022 and into 2023. Operations, FX, and other items were $1.4 million favorable through intense focus on manufacturing efficiencies, headcount reductions, and exiting unprofitable customer relationships. Slide 8 shows corporate costs and other financial items. Corporate costs were slightly higher versus the same period last year.

In the current quarter, we had a 1.2 million write-down of raw materials sold into the seconds market related to faulty material provided by a key supplier in 2022. We have filed a claim with the supplier, and we are actively working with them and their insurance carrier to recover our costs. This negative financial impact was partially offset by benefits from the headcount reduction actions and lower professional services costs compared to the same quarter last year. Slide 9 shows our cash flow summary.

In the third quarter of 2023, our adjusted free cash flow was in line with the same period last year. Cash interest was elevated by approximately $8 million related to higher interest rates. Working capital cash usage was lower by approximately $23 million, driven by raw material price declines and working capital management. Other cash flow items were unfavorable by approximately $15 million versus the same period in 2022, driven by higher prepayments and cash costs for implementing our turnaround actions.

Slide 10 shows some balance sheet and liquidity metrics. Our leverage ratio as calculated under the bank credit agreement was 3.1 times as of September 30, and we had available liquidity of approximately $185 million at quarter end. Slide 11 is a summary of our EBITDA and cash flow guidance for 2023. While our Q3 EBITDA was certainly a strong recovery from Q2, the ongoing market weakness present challenges to realizing the full potential of our turnaround initiatives.

We expect this to continue into Q4, coupled with volatility and input costs, such as energy, driven by the geopolitical conflicts in Russia, Ukraine, and the Middle East. As a result, we're lowering our full-year EBITDA guidance by $10 million. Regarding cash flow items, we expect the following: cash interest of approximately $50 million, capital expenditures to be between $30 million and $35 million. We expect approximately $60 million of cash usage from working capital and turnaround-related cash costs combined.

This is approximately $15 million higher than our prior guidance and is driven by unfavorable payment terms with European utilities. And cash taxes are expected to be about $15 million or $2.5 million lower than our prior guidance. This concludes my prepared remarks. I will now turn the call back to Thomas.

Thomas Fahnemann -- President and Chief Executive Officer

Thank you, Ramesh. As I referenced during our previous second quarter call, there are several areas that are extremely important for us to deliver on for the remainder of 2023 and well into 2024. Our customers' expectations of us remain very high for navigating the challenging economic headwinds. The management team and I continue to carefully evaluate the ongoing cost to serve our customers and make the appropriate adjustments while delivering on our high product standards and overall sustainability goals.

Recently, our performance was recognized when Glatfelter's Asheville facility was awarded the prestigious supplier of the year designation by Rockline Industries to further distinguish us as a business partner who shares Rockline's core values. In addition, we have been nominated as a finalist for the 2023 Hygienix Innovation Award for our GlatPure product range, which includes a full complement of bio-based absorbent hygiene components derived from renewable materials. And last but certainly not least, we will further advance all efforts related to the turnaround strategy as this program has served us very well throughout 2023. While not a new theme, we will continue our efforts to optimize our product portfolio, along with balancing price versus volume.

Also, we will capture ongoing operational efficiencies by investing in our most productive assets, and we will refine our organizational structure to optimize resources while conveying a sense of urgency and accountability. We are committed to instilling a culture of continuous transformation as an ongoing way of doing business, which I'm confident will serve us well for many years to come. When combined, the power of all these actions is aimed at positioning the company to capture the markets as they begin to improve at some point in the future. I will now open the call for questions.

Questions & Answers:

Operator

Thank you, Thomas. [Operator instructions] Our first call comes from Josh Wool with Carlson Capital. Please go ahead, sir. Your line is open.

Josh Wool -- Carlson Capital -- Analyst

Thomas, Ramesh, good morning. Thanks for taking my questions.

Ramesh Shettigar -- Senior Vice President, Chief Financial Officer, and Corporate Treasurer

Good morning, Josh.

Thomas Fahnemann -- President and Chief Executive Officer

Good morning.

Josh Wool -- Carlson Capital -- Analyst

As usual, I'll start with the top line and then move down to EBITDA and margin, and then I have a few questions on cash flow and the guide. Starting with volumes, obviously, destocking has taken a toll on your customers and some of your competitors, but some of these players were able to report sequential volume improvement. However, your volumes, particularly in composite fibers and spunlace, weakened sequentially. So maybe you could give a little bit more color on what drove the decline.

And particularly in composite fibers, how much of that was driven by the shut of Ober-Schmitten? And then how much was walking away from unprofitable business or destocking getting worse or losing share to some of these other substrates?

Thomas Fahnemann -- President and Chief Executive Officer

OK. Yeah, let me just maybe go through the different segments because every segment is behaving a little bit different, Josh. So let's maybe talk about destocking, which we were hoping that we are done with that, but it's still ongoing. And what we are experiencing in the -- what we experienced in the third quarter.

So if I go through the different segments, definitely feminine hygiene segment is still on a path of destocking. So we see some weakness in the market overall, plus destocking. So that's one area where we we definitely see this, which we didn't expect. The other one is a tabletop foodservices.

Normally, Q3 is a relatively strong quarter. I mean, you have all these outside activities for the restaurant business and all this, and this has been relatively weak. And there's also still destocking happening, and it happened in the third quarter. Moving on, we are also seeing it in certain subsegments of our wipes business, where we still have some demand, is actually relatively stable, what we can see.

But there are still a lot of inventories at our customers, and they are destocking here. And then let me talk about the food and beverage businesses a little bit. I think we have kind of two areas and two things going on there. If I may start with coffee, there's still destocking going on.

And what we're also seeing is that although overall coffee consumption is stable, even maybe growing a little bit, we are seeing, and this is mainly true for Europe, a move from single serve, where we are participating to normal filter coffee, and that's a price issue. So there, we see some weakness. And overall tea, although, overall, an underlying demand is still, I would say, relatively stable. Customers are still sitting on a lot of inventory coming from 2021 and 2022.

So that's kind of the -- and if I look at -- maybe if I look more in the area of spunlace, I would say in that area the critical cleaning segment is probably the one which is most impacted, still impacted by destocking.

Josh Wool -- Carlson Capital -- Analyst

OK. That's helpful. And then maybe to compare a little bit the regions or I guess Europe versus North America, one of your competitors in wipes talked about seeing more consumer weakness and more competitive intensity in Europe versus North America. And it seems like you called out some of the same things this morning in your press release in airlaid.

So how would you compare Europe versus North America? And is it a secular trend or just a kind of a moment in time?

Thomas Fahnemann -- President and Chief Executive Officer

No, I think there's a couple of issues here, Josh. Number one, what we are seeing is that the overall economy is weaker in Europe compared to the U.S., and we also see that consumers are relatively hesitant. And so we see definitely the U.S markets are still much healthier than the European market. On top of this very, I would say, weak macroeconomic environment in Europe, what we're also seeing that we have relatively inexpensive imports coming in from Turkey, from Asia, China, which are also negatively impacting it.

And we are seeing also in Europe some in some areas some trends of trying to substitute certain products with -- with cheaper substrates. So all that is coming up, but I would totally agree Europe is much more challenging than the U.S.

Josh Wool -- Carlson Capital -- Analyst

OK. And then the last one on just the volumes. As you plan for 2024, what visibility do you have into a volume recovery? I know it seems like you're taking a conservative stand, given you expected some improvement in Q3 and it didn't materialize. And what are the tangible data points? I mean, we -- I can read what some of your customers say about kind of their growth algorithm shifting from price to more volume growth.

But what else should we be looking at or thinking about as we try to, I guess, plan for 2024?

Thomas Fahnemann -- President and Chief Executive Officer

Yeah. Again, to be quite honest, there's not a lot of visibility right now. Like you rightfully pointed out, we thought that we have kind of reached the bottom at the end of Q2 and that Q3 would help us from a volume standpoint, didn't do that. So it's really difficult.

But what I -- for us right now and if I look at our next 12 months ahead, and this is not all market, but this is also the things we are doing internally in our turnaround strategy and our continuous transformation process. So I would say, as far as volume is concerned, we have reached the bottom as far as Glatfelter is concerned. So we are building up. I think the big question is if the markets are coming back earlier, we are well-positioned to capture then the value which is in there.

It will come faster. But overall, we are planning volume growth for next year. But it's not coming from the market. It's just based on what we have right now.

And if I look at our process right now, at our budget, we are kind of looking at the market right now. We are not betting on any market improvements. But with actions we are taking, which we can influence, we see volume growth for next year.

Josh Wool -- Carlson Capital -- Analyst

That's helpful. And then moving to just profitability, I would agree you guys have made progress on overall margins. But I guess the issue is with the depressed top line. The absolute dollars are flattish on a year-over-year basis.

So my question is, based on what you just said, if your volume improvement is coming from just your own growth and not a market assumption, how much more progress can you make on just EBITDA margin in this type of environment? And how much will be predicated or premised on a turnaround in volumes to really kind of reach that historical level of profitability that we've talked about getting back to?

Thomas Fahnemann -- President and Chief Executive Officer

Yeah. Again, without going into too much detail, but if you look at two of our main businesses, if I look at airlaid, a little softer as far as EBITDA margin is concerned in the third quarter. But also composite fibers, I mean, we are already in the double-digits. And you might remember when we said at the beginning of -- we introduced the turnaround strategy that we said the business needs to be between 10% and 15% depending on where we are in the marketplace.

So if I look at airlaid, if I look at -- and airlaid was there before, but composite fibers is there now in Q3 in a very difficult market environment, we kind of positioned it. And I think -- so that's very promising. Now coming to spunlace, we still have a way to go. But if you look at the year-over-year improvement, and again, with spunlace you have to look at two different segments, we have the hygiene and wipes and we have, which probably will get 5%, 6% EBITDA margin than Sontara.

Overall, we are making a lot of progress there as well if you look really into the segments. But there's still the biggest gap to where we want to be is still in spunlace, but if I look at the last two, three quarters, we have made a lot of progress.

Josh Wool -- Carlson Capital -- Analyst

OK. And then I have one question just on composite fibers' profitability. It seems like you got some nice improvement from the decline in softwood and fluff pulp prices, which I know are on a lag. Those prices also came down in Q3.

So should we expect to see a little bit more price-cost in Q4 based on those declines? And then have you guys been impacted at all by some of the capacity closures in North America on the fluff and softwood pulp side?

Thomas Fahnemann -- President and Chief Executive Officer

I mean, I would -- we are still expecting a little bit of that in Q4. But I mean, as a rule of thumb, we are buying the raw materials and normally, let's just say three months later, we are consuming them. In some cases, it's earlier, but kind of everything you've seen in Q3 was actually bought in Q2 and now for Q4. So there should be some lag effect, light effect there.

Overall, outlook for pulp is kind of difficult, like a lot of other things, I would say, overall, the market is still weak. What we have seen is in some areas that people say have kind of bottomed out now as far as pricing is concerned. Now fluff, which is a very, very important raw material for us, unfortunately, it took much longer to get down there. And it didn't come as far down as we were hoping to be quite honest.

But it came down and we should see some positive effects in Q4. Now your other question is impacting us. Right now we don't have any supply issues. So this is all fine.

But overall, if you think about 500,000, 600,000 tons less capacity in the market, that might have an impact.

Ramesh Shettigar -- Senior Vice President, Chief Financial Officer, and Corporate Treasurer

Yeah, Josh, and trying to hang on to this price-cost gap for as long as we can on the non-floating side is also going to be a key focus area for us in Q4. And that will also help improve the margin profile. I mean, basically, we want to make sure there is firm evidence of some of these key input costs coming down in a sustained way before we start to give that up in price.

Josh Wool -- Carlson Capital -- Analyst

OK. And then I have one question about cash flow and one question about the guide. I guess, first on the guide, you have one quarter left. And if I just remove or take $10 million out of the midpoint of your EBITDA guide last year, it implies a pretty wide range for Q4.

So I guess I'm wondering what are the key factors that will drive whether we land at the higher end or the lower end of that range?

Ramesh Shettigar -- Senior Vice President, Chief Financial Officer, and Corporate Treasurer

Yeah. I would say, Josh, look, we previously guided between $100 and $110 million. So even if you take the midpoint there of $105 million, we're essentially calling for roughly a $95 million EBITDA year, all right? And to get to $95 million, that implies a $27 million EBITDA for Q4. So yes, the market continues to remain soft.

There is going to be some sequential growth Q3 to Q4. We also end up having some one-time rebates that typically come in the fourth quarter. So it's not as wide a range that we are anticipating for the fourth quarter, given that we're pretty much in early November now. And looking at the data coming from how we've done here in October, we're feeling optimistic of hitting that revised guidance, if you will, for the fourth quarter because of the visibility that we have from October and our ability to influence the continued initiatives on the turnaround and being able to keep a close watch on the market as well.

So we feel pretty good about where we are for the fourth quarter, not where we would have liked, clearly, but I think the market had a lot to do with it. We're glad Ober-Schmitten is behind us. We're glad that some of these one-time items that came in Q2 were truly one-time items. And I think the second quarter -- the third quarter's results have demonstrated that.

And so it's a matter of doing whatever we can within our span of control, making sure we keep a tight lid on costs and be ready with a very, very strong operating leverage for when that volume does come back to be able to really realize full potential here.

Josh Wool -- Carlson Capital -- Analyst

All right. Makes sense. My last question is just -- and I'm obviously not asking for a cash flow guide for next year. But as I think about just some of the items that you guys have dealt with this year in terms of like payable terms changing is, I guess, payment to utilities changing, the one-time turnaround cost that you're spending, can we think about next year's cash flow being more earnings-driven? And I guess vis-a-vis working capital the level you're at today, is it a normalized level? Is it a level that's high because raw material prices are still pretty high and so working capital could be a source of funds next year? Just any general color on the contours of free cash flow next year would be helpful.

Ramesh Shettigar -- Senior Vice President, Chief Financial Officer, and Corporate Treasurer

Absolutely, Josh. First of all, you're right that next year's cash flow will primarily be driven by earnings. But there are several one-time items that have hit us this year. It's the CEO transition cost that we've talked about.

It's the turnaround actions and the cash cost related to that. You're right about the working capital challenges on the payable side, but then we've also done a pretty good job of trying to counteract as much of that as possible with tight inventory management and really collection of past dues. So yes, overall, we would expect an improvement in the cash burn going from 2023 to 2024, driven by earnings, driven by some of these one-time items. And if input costs do continue to come down, then that use of capital -- working capital will also improve.

So we remain optimistic about our cash usage in 2024 relative to this year because there are a lot of things that we believe were onetime in nature that are not expected to repeat itself. And we are also looking forward to earnings growth year over year, which will also generate more cash flow for us.

Josh Wool -- Carlson Capital -- Analyst

Perfect. I'll turn it over. Thanks for all the color.

Thomas Fahnemann -- President and Chief Executive Officer

Thank you.

Operator

And our next question comes from Roger Spitz with Bank of America. Please go ahead, sir. Your line is open.

Roger Spitz -- Bank of America Merrill Lynch -- Analyst

Can you comment on why spunlace wipes and hygiene were down so much more than airlaid wipes and hygiene? Maybe talk about are they going after different markets, different uses, sort of comment the difference between the two?

Thomas Fahnemann -- President and Chief Executive Officer

Yeah. I mean, you have totally different qualities here and the airlaid is the qualitative higher product. And spunlace also as far as markets are concerned, this is yes, there is competition there, but it's still, I would say, our market position is relatively good in airlaid. Now spunlace is a highly competitive market environment.

And what you also see in spunlace, it is a lower-end product. And what you also see is there's a lot of competition from Asia. And we deliberately -- and this is what I was relating to when I talked about the Soultz and Ashville that we deliberately didn't participate in certain businesses and it's always a question of volume versus price. And I think we are on the right path because both sides are profitable now and they weren't before.

But we -- again, our decision that certain volumes, we don't want to participate in that kind of business.

Ramesh Shettigar -- Senior Vice President, Chief Financial Officer, and Corporate Treasurer

So yeah, Roger, and you know that the volume that Thomas is referring to is what I mentioned in my remarks, which is we had to take a look at the customer portfolio, particularly in Soultz, where that has been a very cost-uncompetitive site for us. We addressed it with taking a fair number of people out in terms of production workers, but then also went and looked at our customer book of business and the margin profile and chose to walk away from volume because it was just not contributing to the bottom line. So that is also adding to this comparison you're talking about between spunlace and airlaid.

Roger Spitz -- Bank of America Merrill Lynch -- Analyst

Got it. And just to be clear, the Asian competition is also fiber-based wipes and products as is yours, meaning --

Thomas Fahnemann -- President and Chief Executive Officer

Spunlace. Yeah, spunlace.

Roger Spitz -- Bank of America Merrill Lynch -- Analyst

You're not competing with propylene-based wipes, correct?

Thomas Fahnemann -- President and Chief Executive Officer

Correct, correct. No, no, that spunlace, that's comparable product and if we say Asia, spunlace and again, also there, Europe much more competitive than the U.S. But the spunlace capacity, it's Turkey. And I can also mention now that we were approached from the non-wovens association in Europe, whether we would start and participate in an anti-dumping claim and we are thinking about that.

So there's more product coming in where we said this is at the level of raw material prices. This doesn't make any sense. It's not sustainable. And so the industry in Europe right now, producers are through the organization, the association are considering an anti-dumping case.

Roger Spitz -- Bank of America Merrill Lynch -- Analyst

Got it. And then second question is what I refer to as sort of other operating cash flow costs, what I mean by that is if you look on your cash flow statement for OCF and then you've got EBITDA, interest, taxes, and working capital, right, the things identified and then everything else is kind of like everything else, it's restructuring, what have you, cost of severance and CEO change. So in first half of '23, that was a $16 million and change outflow. We don't have your 10-Q yet, so I don't know what was it in Q3? And do you have a guidance for what sort of that other number would be for the full year?

Ramesh Shettigar -- Senior Vice President, Chief Financial Officer, and Corporate Treasurer

Yeah. So I would say for the third quarter, it was about $4 million. And then for the fourth quarter also we're expecting about $4 million, Roger. So I think what you're trying to get at are the elements that go from, call it, free cash flow down to net cash flow, right? And if I use the column that we have in our cash flow statement, the year-to-date 2023, which is through Q3 and you look at this negative $67 million of free cash flow before we make our adjustments to get to adjusted, the pieces that are missing that you're not seeing on this page, which you will see in the Q are things like the Ober-Schmitten cash costs that we've had, things like the cash cost incurred with our refinancing in the first quarter and so on.

So when you add all that together, that's another $15 million of use of cash. So year to date, we are probably at around, call it, negative $80 million or so. And then we're -- based on our guidance going into the fourth quarter and for full year, we expect that to improve by about, call it, $10 million in the fourth quarter. And a good chunk of that is going to be coming from working capital.

So those are the elements that really get to what we define as net cash flow after all the sources and uses of cash to get to the cash burn. Is that helpful, Roger?

Roger Spitz -- Bank of America Merrill Lynch -- Analyst

Absolutely, absolutely. That's exactly what I was looking for. And then while covering up -- maybe you talked about this a little bit in the prior remarks about [Inaudible] covering up 31% and then metalized products down 41%. I guess both were a little surprising.

Is there any additional color you can provide on that?

Thomas Fahnemann -- President and Chief Executive Officer

Sure. Again, [Inaudible] we were really hit pretty hard with the Russia-Ukraine war because a lot of this material went into Russia and Ukraine. And we were always telling you guys that we are trying to find alternative because this material is coming from trade on one side, OK, very -- so we were able, and this is really -- was very positive to regain some business in the Ukraine and then also in Europe, the rest of Europe where other people were there and we were able to really capture additional volume in Europe. So that's how you can explain the volume.

Is this something where we say this is now continuing for the future because, I mean, on one side, this is really good news. But I'm not sure how sustainable that is, to be quite honest. We're still starting this. And so -- but yes, it looks promising.

Let me put it like that. And we were -- that the team was really able to find alternative customers in Europe and where we were able to increase the volume. But it's not something where we said that's now an established business and we -- so we have to work hard on that one. But again, very positive news, at least in Q3, yes.

And sorry --

Ramesh Shettigar -- Senior Vice President, Chief Financial Officer, and Corporate Treasurer

Metalized.

Thomas Fahnemann -- President and Chief Executive Officer

Metalized business, this is a problem. And it's not really that we are losing market share. The overall market is down, and people are also looking for alternatives, cheaper alternatives, and all this. So that's really an issue right now and the volume is off.

In talking to our customers, they think the market will recover early next year. But this was something which we also didn't expect to this, I mean this extreme because certain segments, they are really fall off.

Label, in general, is down big time.

Roger Spitz -- Bank of America Merrill Lynch -- Analyst

OK. What are the typical alternatives to metalized products? I guess --

Thomas Fahnemann -- President and Chief Executive Officer

Now you can have plastics. And what you can also do is you can direct print --

Ramesh Shettigar -- Senior Vice President, Chief Financial Officer, and Corporate Treasurer

On to the glass.

Thomas Fahnemann -- President and Chief Executive Officer

On to the glass. So there's a couple of different ways how you can do that. And we are seeing that especially the metalized higher-end labels due to the cost pressure that they're also seeing mainly in Europe that they're trying to find alternatives, cheap alternatives.

Roger Spitz -- Bank of America Merrill Lynch -- Analyst

Got it. Thank you very much for your time.

Thomas Fahnemann -- President and Chief Executive Officer

No, thanks for the question.

Operator

[Operator instructions] And our next question comes from Mike Ginnings with Angelo Gordon. Please go ahead, sir. Your line is open.

Mike Ginnings -- Angelo Gordon -- Analyst

Morning, Thomas and Ramesh. Appreciate all the disclosure so far. Just have one question I wanted to double-click into. Can we talk about energy for a moment and sort of how you're thinking about kind of both the upside and downside risks associated with that through the balance of this year and into '24?

Ramesh Shettigar -- Senior Vice President, Chief Financial Officer, and Corporate Treasurer

Yeah, great, great question, Mike. Energy is certainly top of mind for us given the volatility that we've seen here pick up in the last few weeks, I would say, partly related to the Middle East conflict, partly related to, again, supply conditions in Europe, even though storage levels are at very, very high and healthy levels in countries like Germany with these pipeline issues that we're hearing about. I think we'll continue to probably see spikes in the spot market related to gas and the derivative impact of electricity. But from our standpoint, we're continuing to hedge opportunistically where we can for the markets that we operate in, which is France, U.K., Germany.

But this is something we're watching as well. But going into the fourth quarter, we were relatively well-hedged. And we've already layered in some hedges for the first quarter of 2024, but it's something that we will continue to watch and make sure we're taking exposure off the table. So no different than what we're doing right now, but certainly a volatile situation from an input cost perspective for us.

Mike Ginnings -- Angelo Gordon -- Analyst

Much appreciated.

Operator

And there are no further questions in queue. I'll hand it back to Thomas for any additional or closing remarks.

Thomas Fahnemann -- President and Chief Executive Officer

Thank you. Yeah. Thank you for your time and we really appreciate your ongoing support for Glatfelter, and then we'll talk to you again when we report our fourth quarter and the full year of 2023. Thank you very much.

Ramesh Shettigar -- Senior Vice President, Chief Financial Officer, and Corporate Treasurer

Thank you.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Ramesh Shettigar -- Senior Vice President, Chief Financial Officer, and Corporate Treasurer

Thomas Fahnemann -- President and Chief Executive Officer

Josh Wool -- Carlson Capital -- Analyst

Roger Spitz -- Bank of America Merrill Lynch -- Analyst

Mike Ginnings -- Angelo Gordon -- Analyst

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