Good day, and thank you for standing by. Welcome to Magnera's Q2 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Mr. Robert Weilminster. Please go ahead.

Thank you, operator, and thank you everyone for joining Magnera's second fiscal quarter 2025 earnings call. Joining me, I have Magnera's Chief Executive Officer, Curt Begle, and Chief Financial Officer, Jim Till. Following our prepared remarks, we will have a question-and-answer session. A few things to note before handing over the call. On our website at magnera.com, you can find today's press release and earnings call presentation under Investor Relations. You can also go directly to ir.magnera.com to review the investor presentations from our recent conference attendance. During the month of February, we attended Barclays Industrial Select Conference, JPMorgan's Leveraged Finance Conference, and Bank of America's Global Agriculture and Materials Conference. As referenced on Slide 2, during the call, we will be discussing certain non-GAAP financial measures. These measures are reconciled to the most directly comparable GAAP financial measures in our earnings press release and in the appendix of the presentation available on our website. Additionally, a reminder that we will make certain forward-looking statements. These statements are made based upon management's expectations and beliefs concerning future events impacting the company and therefore are subject to risks and uncertainties. Actual results or outcomes may differ materially from those expressed or implied in our forward-looking statements. Some factors that could cause the results or outcomes to differ are in the company's latest SEC filings and our news releases. These statements speak only as of today, and we undertake no obligation to update them. I will now turn the call over to Magnera's CEO, Curt Begle.

Thank you, Robert. Good morning, everyone, and thank you for joining us. We're excited to share our second quarter results and provide an update on the momentum we're building across the organization as a new company. I'll begin with an overview of our business, highlight new innovative product launches, summarize our key takeaways for the quarter, provide an update on synergy realization, and discuss the potential impact of tariffs and ongoing market uncertainty before I turn the call over to Jim for our financial update. Slides 5 and 6 provide a reminder of Magnera's distinguished position as a global leader in material solutions with a growth engine focused on product differentiation for premium applications that delight end users. Our strategic market positioning is complemented by the widest array of technology platforms in our personal care and consumer solutions categories relative to our peer set. We leverage our research and development centers of excellence by collaborating with our customers and suppliers to address the ever-changing demands of the consumer. Our manufacturing footprint effectively serves our global CPG and regional customers with business continuity options. As the circular economy remains a key focus, our local supply chain is more effective for our customers and more beneficial for the environment. Our team continues to identify actions that will further optimize our footprint to improve efficiency and increase value to our customers given Magnera's scale. Slides 7 through 9 are recent examples of product launches that further demonstrate our ability to pivot our portfolio to high-end applications in the face of dynamic market conditions. We are proud to have been acknowledged and awarded the Most Innovative Building Material at the 2025 International Builders Show. Our new TYPAR branded Clear Acrylic Flashing solution was recognized for builder efficiency by streamlining window installation and inspection. It is the seventh new product line extension in the past three years for our trusted TYPAR product line and is why we maintain a top position in the North American infrastructure market. In addition to gaining new customers, we view the market short housing position in the United States and Canada to be a future tailwind for organic growth. The next product spotlight addresses a growing consumer preference for soft touch and feel for premium incontinence applications. Our new KamiSoft and UltraSoft products were developed through material science and our deep understanding of required performance characteristics. The team successfully combined innovative patterns with proprietary material chemistry to deliver unparalleled drapability and superior barrier properties. These premium products provide twice the softness compared to the standard offering. By manufacturing these products with a variety of raw materials and basis weights, we are able to reduce the production carbon footprint. Now shifting to our second quarter performance and an update on synergies and tariffs. Energy inflation in Europe proved to be a significant headwind with natural gas and electricity costs higher than the prior March quarter. In addition, we experienced cost increases in primary raw materials such as resin and cellulose fibers. We intend to recover these increases in the second half through our price pass-through mechanisms and productivity. As the quarter progressed, we experienced inconsistent order patterns from our customers due to a growing level of market uncertainty. Many of our largest customers adopted a wait-and-see approach as reflected in the market consumption data for the quarter. Given these recent order trends, which are inconsistent with our historical order patterns, we are working closely with our customers. Should our customers decide to reduce their own inventories due to a drop in consumption, this could impact our sales. While we don't anticipate the current market dynamics to become permanent, we are prepared to execute the required actions, which could include idling more capacity or initiating footprint rationalization in response to what we deem our new longer-term market realities. Moving now to a synergy update on Slide 12. We remain committed to our $55 million net synergies over three years and have progressed from the assessment stage to the implementation across our three major pillars. We are effectively streamlining our organization and optimizing our SG&A structure by addressing redundancies in functional areas to enable a more responsive and agile workforce. Our procurement and operational teams have made great progress in executing alternate raw material qualifications, and we are ramping up efforts to optimize our production pipeline while we harmonize warehouse space and rationalize capacity for productivity gains. All actions are grounded by our unwavering commitment to the safety of our employees and supply surety for our customers. Our team is working diligently to build flexibility in our supply base with procurement being a competitive strength for the company. We expect procurement and operations to deliver value this year and further accelerate cost reductions in 2026. Regarding tariffs, we broadly view the impact as being in line with what our CPG customers are communicating related to consumption of the essential everyday use products we provide. As it relates to our cost of goods sold, we view the potential impacts to be limited as the majority of our raw materials are sourced and shipped within the geography of our production sites. We benefit from being a local supplier to our customers with a global footprint that provides business continuity plans in uncertain times. We are tracking tariff communications and mindful of supply chain rebalancing efforts and the potential for short-term supply repositioning as markets react to the implemented tariff measures. As the market landscape evolves, we will work toward offsetting cost increases through pricing actions. As I noted, we are prepared to take additional action to optimize our business to match consumer demand realities. For Magnera, we view this time of uncertainty as an opportunity to reinforce the core fundamentals that will deliver long-term value creation for our shareholders. As we realize synergies and gain market share with our highly differentiated technology platforms, we will leverage our scale and innovative product offerings to deliver value and support customer growth. Now I will turn the call over to Jim, who will review Magnera's financial results.

Thank you, Curt. As a reminder, when we compare our results to the prior year March quarter, we've adjusted the prior year to present on a constant currency basis and include the Glatfelter merger. Reconciliations to our reported results can be found in the appendix. Turning now to our consolidated performance. March quarter sales were $824 million as strength in our Americas Consumer Solutions and Asia's Personal Care categories were offset by weaker performance in South America and Europe. Adjusted EBITDA for the quarter was $89 million as contributions from synergies, acquisitions and cost reduction efforts were partially offset by energy inflation in Europe, unfavorable product mix, and stand-alone costs. Looking at our operating segments on Slide 14. Sales from the Americas division delivered consistent year-over-year revenue of $473 million as organic volume growth in our infrastructure and wipes end markets was offset with competitive pressures from Asia imports in South America. As a result of these pressures, adjusted EBITDA was down $3 million due to unfavorable product mix despite overall flat volumes for the division. Moving to Slide 15. In our Rest of World division, which includes our Europe and Asia locations, we delivered revenues of $351 million. We experienced overall softer volumes for the division as weaker consumption levels negatively impacted our personal care category and our home food and beverage end markets in Europe. Adjusted EBITDA was down $5 million compared to the prior year quarter, primarily from $6 million of higher energy costs in Europe, as discussed earlier by Curt. As a reminder, a combination of pricing actions and energy pass-through mechanisms should result in a recovery of these costs in the June quarter. During the quarter, the company generated $42 million of post-merger adjusted free cash flow as CapEx in the quarter was $23 million, which was in line with our expectations as we prioritized maintenance level CapEx, while near-term consumption levels remain soft and market capacities remain long. We've ended the quarter with approximately $570 million of available liquidity, which represents a 14% improvement from the December quarter. Our net debt to pro forma adjusted EBITDA was 3.9x. In the near term, we will remain focused on strengthening our balance sheet, preserving liquidity, and improving operational agility as we navigate the evolving global landscape. Now turning to our guidance on Slide 16. During the quarter, I'm proud of the teams for their acceleration of the synergy realization efforts and furthering our cost reduction programs, which will improve our competitiveness over the long term. These actions, along with lower raw material prices and improving energy markets in Europe, will bring benefits to the second half. Offsetting these tailwinds are macro uncertainties and potential downstream impacts from the reshuffling of the global supply chain. Despite these macro uncertainties and corresponding revision of our fiscal 2025 adjusted EBITDA guidance to $360 million to $380 million, we are reaffirming our post-merger adjusted free cash flow guide of $75 million to $95 million, driven by an intense focus on CapEx and working capital initiatives. This concludes my financial overview, and I'll turn it back over to Curt.

As Jim highlighted in the 2025 guidance and outlook, we will be disciplined in our actions to deliver long-term shareholder value by prioritizing repayment of debt and reducing our leverage to approximately 3x. We're proud to deliver our first full quarter as Magnera and have officially pivoted from post-merger stabilization to optimization. These efforts will be meaningful as our synergy programs deliver on our planned savings. On the safety front, I'm proud to announce that several of our sites have reached important safety milestones such as our Caerphilly site in Wales, which recently celebrated 10 years working injury-free. This demonstrates what is possible and reinforces our focus on making safety personal as we pursue zero workplace injuries. In closing, this quarter has demonstrated the resilience of our business in a challenging environment. Magnera's action-oriented culture is one that attacks challenges head-on as we leverage our unique value proposition in the markets we serve. We appreciate your interest in Magnera. Jim and I are happy to address any questions you may have. Operator, please open the question queue.

Thank you. At this time, we will conduct the question-and-answer session. One moment for our first question comes from Gabe Hajde of Wells Fargo. Gabe, your line is open.

Curt, Jim, good morning.

Good morning.

Good morning.

I wanted to ask if you could clarify some of the tariff impacts, particularly regarding how products are moving into the U.S. and what that might represent as a percentage of revenue. Curt, in your earlier comments, you mentioned some changes in raw material movements, specifically cellulose fibers being exported from the U.S. There seemed to be positive price momentum, but it looks like that may be slowing down. What might be the percentage of COGS that could be affected? Also, how is the resin market behaving, and what is your expectation for the magnitude of impact in the second half?

Gabe, thanks and thanks for being with us today. A couple of things. Let me address the raw material question first. We did see inflation in the quarter, which is, as you know, we have a bit of a lag as it relates to the price changes, which would have been effective on April 1. And then there's a flow-through of that material that comes to the balance sheet. So we would see that balancing out and starting to recover from what we negatively experienced in the quarter before. But over time, it's relatively immaterial to our overall financial outlook. As it relates to other raw materials coming exported or imported into various countries, as we mentioned, we're pretty well established with local supply of materials. Where we do have some of those impacts, the team has worked through price pass-through mechanisms to our customers where they were impacted. And part of that is you’re working through the inventories that you have on hand. And then, of course, when that starts to flow through. So we've been leaning in, in terms of what that looks like, which customers would be impacted the most for our business and then making sure that we have the right pass-through mechanisms to them to recover those costs. From a demand standpoint, you have a bit of a situation where there are puts and takes. The big thing for us that we're keeping a very close eye on really is just inconsistent order patterns. We saw a lot of that in the back half of March and kind of bleeding into Q3, which gave us a bit of a pause in terms of the conservatism in the outlook because we're seeing customers that truly are kind of in a wait-and-see mode. They're unsure of what working capital targets they want to hit, what the demand outlook would look like for them. You've heard some of the large customers of ours that have called down their demand guidance. When that happens, historically, you'll start to see them ramping down some of their inventories. We just want to be mindful of that, which is why we've given essentially a flat quarter-over-quarter volume outlook, where we historically see a natural lift from first half to second half with Q3 and Q4 being the strongest quarters followed by Q2 and then rounded out by our fiscal Q4. The one thing that I would say that we're also keeping a close eye on, and we started to see some of the impact. It’s throughout the course of 2024 and early into 2025 with some of the materials going into other regions out of Asia into South America, for instance, or further into Europe. So we're keeping a close eye on it.

Okay. And maybe ask the question a little bit differently on the volume side. I mean, flattish in the Americas, sounded like U.S. or domestic was maybe up a little bit, in South America down, Rest of World down 3%. That doesn't seem like awful. So maybe what you've seen thus far through April, early May and pick the midpoint of $370 million, sort of what the embedded volume assumption is in there? Or is the bigger swing factor pricing or price pressure that you might see from material coming out of Southeast Asia going into other parts of the world?

Yes, I apologize if my earlier response didn't fully address your question. You are right that North America performed stronger, although we continued to face supply-demand challenges from Asia and South America throughout the quarter, which limited some of the growth we saw in the U.S. As a reminder, our presence in China is relatively small, making up 5% of our total revenue, and that segment remains quite stable. In Europe, we are questioning whether we are facing increased competitive threats or simply lower consumption levels. We believe it is wise to prepare for a possible decrease in overall consumption from our customers and the impacts that could have on orders. Recently, especially in the second half of March, we noticed inconsistent ordering patterns leading up to Liberation Day, and we are working to understand that environment. We are actively looking for effective ways to manage our production lines and consider idling capacity, which may have a temporary effect on our overall fixed cost structure. This is not perceived as a long-term change, as we are not experiencing significant market share loss. Instead, we need to assess consumer behavior, customer orders, and overall market demand. We conservatively estimate flat performance between the first and second halves of the year, which is notably inconsistent compared to last year's 6% quarter-to-quarter growth. For Q2, we experienced roughly a 2% volume increase from Q1, which typically tends to be higher. Looking into Q3 and Q4, we are a short-cycle business and are considering how these factors will influence the second half of the year.

Okay. Regarding the $10 million reduction in capital expenditures, Jim, is this offset by lower earnings and the working capital dropping to maintenance levels? Are there additional initiatives you would like to pursue, or does this limit any efforts? I understand you are working on achieving synergies more quickly. Were any of those synergies dependent on capital?

Gabe, thanks for the question. We view the current market uncertainty as a reason to provide a conservative estimate based on a flat sequential transition from the first half to the second half of the year. Given this uncertainty, we believe it's important to prioritize free cash flow and liquidity. We will not compromise on maintaining our equipment through capital expenditures. We are also not adjusting our previously identified synergies. So, to answer your question, we feel confident about our position. The only adjustment pertains to growth capital expenditures tied to our conservative estimates; we believe we can manage that to ensure we meet our cash flow guidance.

Gabe, going back to the growth CapEx, a couple of those programs that we peg every year are tied to capital required for some growth programs with customers. So as we've seen a couple of those stall with the conversations that we've had and customers figuring out what they want to do next and where the direction of their business is headed. The one thing that I want to emphasize is we have not taken our foot off the pedal on innovation within the existing platforms that we do have where it does not require CapEx. There is an innovation expense that comes along with that through material chemistry and working through that. A big part of our innovation bucket is not only the new features and benefits that we can have on the products we serve but the big efforts that we have on material qualifications to assist in our procurement efforts to make sure that we get again the best materials and the best cost possible.

Thank you. I will hand it over.

Thanks, Gabe.

Thank you. And our next question will be coming from Kevin McCarthy of Vertical Research Partners. Kevin, your line is open.

Yes, thank you, and good morning. With regard to your Rest of World segment, my impression is you inherited some challenging energy-related headwinds associated with the legacy Glatfelter platform. Can you talk about the trajectory of those as you move into the back half of the year and what you might be able to do to mitigate those headwinds? And then I guess, sticking with RoW, can you elaborate on the softer volumes that you mentioned in Personal Care and Food and Beverage and whether that's timing or more durable in nature? Thank you.

Thank you for the question. Regarding energy, you noted correctly that the main decline was in the legacy acquisition business. Energy was up about 50% compared to the same quarter last year. We implemented pricing actions and some pass-through mechanisms on energy, which we anticipate will turn around, allowing us to recover that in the third quarter. I would view this as a timing issue, which was expected. As for volume levels, the Home Food and Beverage segment showed a bit of weakness compared to the previous year. It’s somewhat mixed in terms of observations. Curt mentioned the changes in consumption we experienced in late March and heading into Q3, along with pricing strategies we are adjusting in some legacy businesses to identify our focus areas in the markets we want to serve. Ultimately, when excluding energy, the division was roughly flat year-over-year, with energy being mainly a timing factor.

Great. And then, Jim, can you provide an update on your synergy execution to date? What is in the rearview mirror accomplished at this point? And what sort of ramp trajectory are you targeting over the next few quarters?

The teams have done an excellent job, particularly the procurement team. We expected the realization of synergies this year to compensate for standalone costs, and I can assure you that this is well on track. The team has excelled in structuring SG&A and similar areas. On the procurement side, negotiations have gone very well in terms of pricing and working capital. In our free cash flow guidance, we are not only using CapEx to bridge gaps but also working capital, and we feel confident about this due to the team's progress thus far. Regarding the $55 million, we are sticking with that figure. We have always planned to realize some of these synergies, particularly through procurement, more towards the second half of the year, so we expect better results in Q4 than in Q2. The only caveat to the timing of these realizations is the volume aspect. As Curt mentioned, Glatfelter has had somewhat higher working capital levels due to the acquisition we are managing. As we negotiate these savings, we need to ensure they flow through appropriately. If we have 90 to 120 days of inventory and volumes are lower, it will take longer to see the benefits. The timing still depends on volumes for the latter half of the year. However, we remain very optimistic about the $55 million and appreciate all the hard work the teams have put in.

Great. Then the last one for me would be a rather general or broad question having to do with potential for a recession. It's been a long time since we've seen a garden variety economic recession in the U.S. But as you look back at prior cycles, what sorts of changes would you expect to see with regard to demand or inventory effects? It strikes me that you have a very resilient portfolio overall. But are there pockets where you may brace for impact if GDP were to go negative for a few quarters, for example?

Yes, Kevin, good to be with you today, and thanks for the questions. First of all, you've had a chance to familiarize yourself a little bit with our portfolio. I think you can agree, we do have a resilient kind of product line and customer base as it relates to products that are everyday use. Obviously, there are certain parts of the portfolio that can be impacted a little bit more just in terms of consumer spending, whether that be in infrastructure, wall covering, etc. So those are the types of things that I would say that in terms of the total portfolio are not as impactful. The big focus for us really is to continue to look at what happens with market dynamics during times of recession. Historically, these types of businesses and our business do very well. You have two things that potentially be in your favor. First of all, if there's deflation in your costs, you get the benefit of some of that lag. Again, just having the right kind of footprint and product portfolio to stay close with our customers and ensure, again, that they're winning on the shelf. But just going back to the fact that we don't rely on one industry, one customer, one product line, one geography, we're very diverse and balanced, and again, made up of products that are essential for everyday use.

Very helpful, thank you.

Thank you. Our next question will be coming from Edlain Rodriguez of Mizuho Securities. Your line is open.

Good morning. Thank you. Curt, I wanted to ask you about your new products. Can you discuss what new products you have coming, their impact, and their significance to the portfolio? Additionally, if we face a downturn, do you expect the pace of innovation to slow down?

Edlain, thanks for the question. First of all, as I mentioned on the TYPAR product line, we have a number of different features and benefits that come out every day that the team works on. Some of them are tied directly to a particular customer, while some are more general in nature and have a global offering that the team works on to provide not only differentiation but the protection of the enterprise. So if you think about our brand like TYPAR, it's a very important business for us across the board, and having that continued innovation not only creates total solutions and stickiness with our customers, but we are providing just one component. For instance, complementing our house wrap with other building material products, staying ahead of the game to be able to enjoy the market growth and then gain new customers is extremely important to us. As it relates to the KamiSoft and UltraSoft product lines, there are two ways that this can benefit us. One, it's to protect the existing business that we have. As customers make some of those choices to displace products that are less than with newer products and focus on the premiumization of those product lines that helps maintain our position with those customers but also gives us the opportunity to further differentiate and gain share in the more attractive areas of some of the non-commoditized parts of the portfolio. We can talk about some of the wipes innovation we have offline from the institutional market. That's a very large space, and we have a good position in that market but a ton of headroom for us to grow. We see wipes as across the enterprise as being a nice growth historically, strong CAGRs in that space, but also having the full portfolio of products, continuing to innovate and find ways to protect share but also go out and gain new share. Regarding innovation, we don't take our foot off the pedal. I think there are two types of innovation that we look at. First, it's cost innovation. This has been a big focus for a good part of that team over the past seven months, working with our procurement group, working with the sites and finding that time on the line to qualify materials while working with suppliers and our customers to get those qualifications for long-term benefits. What that comes along with is more competitive price offerings for us to be able to go out and get the right cost of goods sold. More importantly, we try to find efficiencies on the line, where if we're running a material that runs a little bit better, providing a little bit more quality item for our customers. That's a big part of that innovation side. Then we have, of course, the new product innovation, features and benefit innovation that we've been successful historically and will continue to be in collaborating with customers. They know their consumer better than we do. What is the feature and benefit that a consumer is looking for to get that consumer to choose their product and rebuy that product over time? As they're fighting for share on the shelf, it's how do they differentiate and get the value for products that they're putting in the market. We do not intend to slow down there at all. For us, it's a big part of the future portfolio shift of the organization as we work through optimization programs on some parts of the portfolio that may not be generating the type of profit that we're looking for through both price, productivity, and cost.

Okay, great. That is all I have. Thank you.

Thanks, Edlain.

And our next question will be coming from Roger Spitz of Bank of America. Your line is open, Roger.

Yes, thank you and good morning. First, on the volumes for the quarter. Are you saying this is customer destocking, or is the ultimate consumer demand less? Or is it a mix of both what you're trying to say?

Well, yes. So the one thing, Roger, I think we got to be careful of is trying to pontificate what our customers are doing. Historically, you might see them pull back a little bit in terms of what their inventory positions are, as they see softer demand and greater focus on their own working capital. We put in a level of conservatism of what we historically may have experienced for a short period. Again, you're in a 90-day window where it's a bit of a wait and see. But again, we're looking more from an overall demand consumption standpoint. If our customers are anticipating a call down in terms of their sales, then we typically would see that a quarter or even two quarters ahead of what that impact might be realized. We started to see, again in the second half of March, really some of those inconsistent order patterns leading up to Liberation Day and trying to understand what the landscape looks like for them. There's quite a bit of activity going back and forth for us. It's finding appropriate ways to load our lines and take appropriate measures related to idling of capacity, which can have a short-term impact on your overall fixed cost leverage inside of the facilities. If we don't anticipate this being kind of a permanent move because, quite frankly, it's not a situation where we're losing massive amounts of share. It’s a matter of what will the consumer do, what will our customers pull, and do we have the right demand for not only ourselves but for the market itself.

Got it. Thank you. And then can you provide now that you've owned Glatfelter for a bit, what your minimum maintenance CapEx is and your minimum cash and/or your minimum liquidity that you'd like to see?

Our maintenance CapEx has been adjusted to approximately $75 million. We have methods to achieve that through our free cash flow. Curt mentioned our actions regarding CapEx. I don't believe we've publicly disclosed the minimums, but I feel positive about our liquidity situation. We finished the quarter with around $570 million to $580 million in liquidity, which is an improvement from the previous quarter. Given the current market uncertainties, we will continue to maintain that liquidity and prioritize cash flows for the rest of the year.

Got it. The new EBITDA guidance includes the $8 million pro forma for Glatfelter, similar to last quarter, considering the pre-acquisition.

Correct, correct.

Thank you. I will pass it on.

And one moment for our next question, is a follow-up from Gabe Hajde of Wells Fargo. Gabe, your line is open.

Thank you. One on utilization rates. I don't suspect you want to comment necessarily on your regional utilization rates, but if you will, that would be great. But just maybe more in the context of industry operates, again to the extent that you've got visibility into those. When competitive behavior tends to increase in a particular market, how long based on history does that take to manifest? Is that normally like a two-quarter phenomenon? Or we got to wait for volumes to come back? I'm sure it's a combination of a lot of things. Just trying to understand the patterns. If you can speak to it by geography, that would be helpful. Thank you.

Let me just do utilization rates just real quick. I mean, Gabe, we were down 1% versus prior year. Utilization rates in the quarter were basically consistent with the March quarter, right? So no material move there from what we previously reported.

Yes. Look, for our business and for kind of the outlook and the customers, we take appropriate measures within the regions that in certain cases, you may have less demand. We've highlighted some of that. As demand softens in those areas, we've taken appropriate measures. As Jim talked about, as we look at inventory levels and working capital targets for ourselves, really being mindful and disciplined from a cash standpoint. There are certain facilities within the enterprise that may have had what we would say is a little bit higher working capital, a little bit higher inventory levels than historically what we would want to see for our business or what we want to see moving forward. We've taken the appropriate actions to align that up with what our customer demand is. If you think about the transactional business as part of the portfolio versus the contractual business that we have that we set out and negotiate and get customer commitments for a year, plus or minus 10% on a capacity demand ratio. In times like this, again, we’re putting a conservative view on where we would normally see the lift in Q3, Q4, only having six months left in this year. Again over time, it works its way out. But if our customers are pulling less than what they had targeted to pull from us versus the contract, they have the ability to go 10% below or 10% above at the prices we've established.

Thank you.

And we do have a follow-up question from the line of Roger Spitz, Bank of America. Your line is open, Roger.

Thank you for the follow-up. I know you run a lot of different products, et cetera, and I don't know how you can think about it. But can you give us a general view of where your operating rates are or were in fiscal Q2 and perhaps where they were in fiscal Q1 on a pro forma basis?

Yes, as Curt mentioned, our volumes increased sequentially, which is usual. Typically, Q2 shows stronger performance than Q1. We saw an increase of about 2% compared to Q1 overall, so I would describe it as slightly higher. Nothing unusual can be noted in the first half when looking at our historical data, Roger.

Got it. I mean I know this is sort of asked before, but your volumes were up. I mean, was this all about Glatfelter European energy? Was the big thing that was going on in this quarter?

For the quarter, it was fairly straightforward. The Rest of World segment saw a slight decline compared to the previous year, primarily due to timing issues related to energy from the Glatfelter transaction, which we expect to recover in Q3. So we are looking at a headwind in Q2 but a tailwind in Q3, which is easy to clarify. In the Americas, there was some variation in earnings due to a mix of price and cost. In Latin America, we experienced pressure in South America due to imports from Asia, while North America showed slightly stronger performance. All of this was adjusted for foreign exchange impacts, and I tend to normalize these factors when discussing the details.

Got it. Thank you for that. And my other is, are you still looking for working capital to be flattish for the fiscal year?

No, no. Based off of where we're walking, one of the reasons we felt good about reiterating the free cash flow guide despite the EBITDA call down is, one, the movement in the CapEx that Gabe asked about earlier, as well as benefits in working capital in the $10 million to $15 million range that we see through the good work of the procurement teams and operational folks.

Thank you very much.

Thanks, Roger.

And I'm showing no further questions at this time. I'd like to turn the call back to Curt Begle for closing remarks.

Thank you again for joining us today. We look forward to speaking to many of you at the upcoming investor conferences or our next earnings call in August. Thanks for your interest in Magnera, and have a great day.

And thank you for your participation in today's conference. This does conclude the program. You may now disconnect.