Magnera Q2 2025 Earnings Report

Magnera EPS Results

• Actual EPS: -$1.15
• Consensus EPS: $0.20
• Beat/Miss: Missed by -$1.35
• One Year Ago EPS: N/A

Magnera Revenue Results

• Actual Revenue: $824.00 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: +47.70%

Magnera Announcement Details

• Quarter: Q2 2025
• Date: 5/7/2025
• Time: Before Market Opens
• Conference Call Date: Wednesday, May 7, 2025
• Conference Call Time: 10:00AM ET

Magnera (NYSE:MAGN)’s purpose is to better the world with new possibilities made real. By continuously co-creating and innovating with our partners, we develop original material solutions that make a brighter future possible. With a breadth of technologies and a passion for what we create, Magnera’s solutions propel our customers’ goals forward and solve end-users’ problems, every day.

Magnera Q2 2025 Earnings Call Transcript

Key Takeaways

• Magnera unveiled several innovative products, including Tipar branded clear acrylic flashing—winner of the 2025 International Builders’ Show innovation award—and ChemiSoft/UltraSoft premium incontinence materials offering twice the softness with reduced carbon footprint.
• In Q2, the company posted $824 M in sales and $89 M of adjusted EBITDA, with Americas revenues flat year-on-year while Rest of World profit fell due to higher energy and raw material costs.
• Magnera generated $42 M of post-merger free cash flow, exited the quarter with ~$570 M of liquidity and net debt at 3.9× pro forma EBITDA, targeting leverage near 3× through disciplined cash and debt management.
• The business continues to progress toward $55 M of net synergies over three years, as procurement and operations savings have largely offset standalone costs and are set to accelerate in H2 and beyond.
• Management trimmed FY25 adjusted EBITDA guidance to $360 M–$380 M amid macro uncertainty and inconsistent customer order patterns, while affirming $75 M–$95 M free cash flow and planning cost recovery via price pass-throughs and productivity actions.

Presentation

[Operator]

Good day, and thank you for standing by. Welcome to the McNaira Q2 twenty twenty five 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. To ask a question during the session, you will need to press 11 on your telephone.

[Operator]

You will then hear an automated message advising that your hand is raised. To withdraw your question, please press 11 again. 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.

[Operator]

Please go ahead.

[Robert Weilminster, Executive Vice President of Investor Relations at Magnera]

Thank you, operator, and thank you, everyone, for joining Magnera's second fiscal quarter twenty twenty five earnings call. Joining me, I have Magnera's Chief Executive Officer, Kurt Begley and Chief Financial Officer, Jim Tilt. Following our prepared remarks, we will have a question and answer session. To allow everyone the opportunity to participate, we ask that you limit yourself to one question with a brief follow-up, then fall back into the queue for any additional questions. A few things to note before handing over the call.

[Robert Weilminster, Executive Vice President of Investor Relations at Magnera]

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 Leverage Finance Conference, and Bank of America's Global Agriculture and Materials Conference. As referenced on Slide two 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.

[Robert Weilminster, Executive Vice President of Investor Relations at Magnera]

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.

[Robert Weilminster, Executive Vice President of Investor Relations at Magnera]

I will now turn the call over to Magneira's CEO, Curt Bingley.

[Curt Begle, CEO at Magnera]

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 five and six provide a reminder of Magneera'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.

[Curt Begle, CEO at Magnera]

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.

[Curt Begle, CEO at Magnera]

Slides seven through nine 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 twenty twenty five International Builders' Show. Our new Tipar 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 TiCAR 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's short housing position in The United States and Canada to be a future tailwind for organic growth.

[Curt Begle, CEO at Magnera]

The next product spotlight addresses a growing consumer preference of soft touch and feel for premium incontinence applications. Our new ChemiSoft 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 than 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.

[Curt Begle, CEO at Magnera]

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. 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.

[Curt Begle, CEO at Magnera]

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 historic 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.

[Curt Begle, CEO at Magnera]

We remain committed to our $55,000,000 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 and 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 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 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.

[Curt Begle, CEO at Magnera]

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.

[Curt Begle, CEO at Magnera]

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 Magneera's financial results.

[Curt Begle, CEO at Magnera]

Jim?

[Jim Till, CFO & Treasurer at Magnera]

Thank you, Kurt. As a reminder, when we compare our results to the

[Jim Till, CFO & Treasurer at Magnera]

prior year March, we've adjusted the prior year to present on a constant currency basis and include the Glatzelter merger. Reconciliations to our reported results can be found in the appendix. Turning now to our consolidated performance. March sales were $824,000,000 as strength in our America Consumer Solutions Asia's Personal Care categories were offset by weaker performance in South America and Europe. Adjusted EBITDA for the quarter was $89,000,000 as contributions from synergies, acquisitions and cost reduction efforts were partially offset by energy inflation in Europe, unfavorable product mix and standalone costs.

[Jim Till, CFO & Treasurer at Magnera]

Looking at our operating segments on slide 14, sales from the Americas division delivered consistent year over year revenue of $473,000,000 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 $3,000,000 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 $351,000,000 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 $5,000,000 compared to the prior year quarter, primarily from $6,000,000 of higher energy costs in Europe, as discussed earlier by Kurt.

[Jim Till, CFO & Treasurer at Magnera]

As a reminder, a combination of pricing actions and energy pass through mechanisms should result in a recovery of these costs in the June. During the quarter, the company generated $42,000,000 of post merger adjusted free cash flow as CapEx in the quarter was 23,000,000 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 $570,000,000 of available liquidity, which represents 14% improvement from the December. And our net debt to pro form a adjusted EBITDA was 3.9 times. 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.

[Jim Till, CFO & Treasurer at Magnera]

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 global supply chain. Despite these macro uncertainties and corresponding revision of our fiscal twenty twenty five adjusted EBITDA guidance to $360,000,000 to $380,000,000 we are reaffirming our post merger adjusted free cash flow guide of $75,000,000 to $95,000,000 driven by an intense focus on CapEx and working capital initiatives.

[Jim Till, CFO & Treasurer at Magnera]

This concludes my financial review, and I'll turn it back over to Kurt.

[Curt Begle, CEO at Magnera]

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 three times. We're proud to deliver our first full quarter as Magnera and have officially pivoted from post merger stabilization

[Curt Begle, CEO at Magnera]

to optimization. These efforts will

[Curt Begle, CEO at Magnera]

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 Carrafilly site in Wales, which recently celebrated ten 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.

[Curt Begle, CEO at Magnera]

We appreciate your interest in Magnera. Jim and I are happy to address any questions you may have. Operator, please open the question queue.

[Operator]

Thank you. At this time, we will conduct a question and answer session. And one moment for our first question comes from Gabe Hajj of Wells Fargo. Gabe, your line is open.

[Gabe Hajde, Analyst at Wells Fargo]

Kurt, Jim, good morning.

[Curt Begle, CEO at Magnera]

Morning.

[Jim Till, CFO & Treasurer at Magnera]

Morning.

[Gabe Hajde, Analyst at Wells Fargo]

Wanted to ask if you can put a finer point on some of the tariff impacts, maybe to the extent that products are moving into The US maybe as a percent of revenue. And Kurt, I think in your prepared remarks, you talked about some raw material movements. I go to kind of cellulose fibers here out of The US. I know that stuff gets exported, there was some pretty good price momentum, seems like things may be taking a breather and heading the other way, but maybe as a percent of COGS, what could be moving around on you, again resin seems like it's for the most part behaving, So and then maybe a magnitude of impact that you're thinking about for the second half.

[Curt Begle, CEO at Magnera]

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.

[Curt Begle, CEO at Magnera]

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 raws coming exported, imported into various countries, as we mentioned, we're pretty well established from 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.

[Curt Begle, CEO at Magnera]

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's puts and takes. The big thing for us that we're keeping a very close eye on really is just inconsistent order patterns. And we saw a lot of that in the 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.

[Curt Begle, CEO at Magnera]

They're unsure on 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. And when that happens, historically, you'll start to see them ramping down some of their inventories. And so 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, Q4 being the strongest quarters followed by Q2 and then rounded out by our fiscal Q4. So 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.

[Curt Begle, CEO at Magnera]

So we're keeping a close eye on it. So as we've we have a large position in North America, where we see the potential benefits there. As we've received a number of calls and dialogue with customers as they're trying to sort out their own supply chain initiatives, whatever benefits that we may receive here in North America, we've been very cautious in terms of what that offset might be in different parts of the world. So again, managing that on a day by day basis. I think the one thing that we feel very comfortable about is the fact that we are we do have stickiness with our customers in terms of providing value and service levels from a local standpoint, where a good part of the position and the portion of our portfolio that truly is the value add value service helps kind of protect long term the enterprise.

[Curt Begle, CEO at Magnera]

And so there's always going to be a transactional part of the business. The team works very diligently, and we're working very hard on truly understanding the total portfolio from a strategic long term objective, where we're going to play, where we're to lean in, where we have the right to win. A big part of that, Gabe, that we've been communicating and working on is finding ways to make sure that we have the lowest cost position. And a big part of that is getting the synergy realizations from procurement as we've worked really well with suppliers, new suppliers in some cases, and then there's a qualification ramp up. And then of course, you have the inventory that you need to work through in different parts of the segment.

[Curt Begle, CEO at Magnera]

So we have certain parts of the portfolio that we get through very quickly in terms of the inventory and then some of the other positions that we have in the portfolio that have a little bit longer kind of flow through of those materials, both from a customer inventory standpoint and our inventory standpoint. So again, for us, the fundamentals remain very strong for the business. We see this as being temporary uncertainty. I think everybody's throwing those words out there. Customers are we've had a lot of dialogue with customers and they're trying to understand where they can do some moves and what the ultimate consumption is going to be.

[Curt Begle, CEO at Magnera]

But we rest easy at night knowing that we make products that people use every day, Whether they decide to do 3.5 loads of laundry versus five loads of laundry in a week for a period of time, we don't see that being long standing. We've experienced things like that in the past. But for us, we'll continue to monitor it. And then we'll make the appropriate operational actions if we see this being a more permanent situation long term.

[Gabe Hajde, Analyst at Wells Fargo]

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 and South America down, rest of world down 3%.

[Gabe Hajde, Analyst at Wells Fargo]

That doesn't seem like awful. So maybe what you've seen thus far through April, early May and pick the midpoint of three seventy 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?

[Curt Begle, CEO at Magnera]

Yes. And apologies if I didn't answer the question earlier, the way you were looking for it. So you're correct. North America was stronger. We did continue to see some of the supply demand challenges coming out of Asia and South America through the quarter.

[Curt Begle, CEO at Magnera]

So that offset some of the growth that we did experience in The U. S. As you recall, we have a relatively small position in China today. It's 5% of our revenue overall revenue. That business is actually very stable.

[Curt Begle, CEO at Magnera]

For Europe, it has been more of are we seeing more competitive threats or is it really consumption? And I think the caution that we throw out there for ourselves and what we feel is prudent for the market and what we're communicating and what we're prepared to do internally is the anticipation of a potential reduction in overall consumption at our customer level and what impacts that may have to orders. And as we mentioned, getting in the back half of the last couple of weeks of March is where we really started to see choppiness and inconsistent order patterns than what we've historically experienced. And a big part of that obviously was leading up to Liberation Day. And then we again started to see that through the quarter.

[Curt Begle, CEO at Magnera]

So we just felt that going into this April period, we wanted to make sure again that we were being prudent, transparent and really being prepared to pull the levers appropriate should this be a situation where it's going be a longer term impact. But your assumption is right. We've conservatively forecasted flat quarter over first half over second half, which is extremely inconsistent. I think we were 6% up last year quarter to quarter. For Q2, we were sequentially 2% better roughly on volumes from Q1, which normally is a little bit is higher than that.

[Curt Begle, CEO at Magnera]

So as we look at Q3, Q4, we're short cycle business. So we're looking at the next few months and we're kind of factoring in what will that have an impact through the full quarter for full second half of the year.

[Gabe Hajde, Analyst at Wells Fargo]

Okay.

[Gabe Hajde, Analyst at Wells Fargo]

And then I guess the $10,000,000 reduction in CapEx, Jim, the offset also, I guess, from lower earnings, working capital. Going down to maintenance levels, things that you would like to do or does this prohibit any sort of I know you guys are trying to balance getting after synergies faster, I guess maybe were any of those synergies capital contingent?

[Jim Till, CFO & Treasurer at Magnera]

Gabe, thanks for the question. No, we don't look, we just view it as we view that given the market uncertainty that it was appropriate to give sort of a conservative estimate based off as Kurt highlighted, flat sequential first half, second half to first half, right. So, in that situation, given the uncertainty, we think it's pretty important to focus on free cash flow and liquidity. We won't sacrifice anything from a CapEx standpoint in terms of maintaining the equipment and from that nature. And then we're not really moving off of any of the synergies that we previously highlighted.

[Jim Till, CFO & Treasurer at Magnera]

So, guess the answer is no, we feel good about where we're at. It was really just the growth CapEx that was layered into that number. If we see the levels, the conservative estimate levels that we have. We just don't we think we can pull that lever to make sure that we had the cash flow guidance that we've provided previously. Gabe, going back to the

[Curt Begle, CEO at Magnera]

growth CapEx, a couple of those programs that we peg every year 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 a innovation expense that comes along with that through material chemistry and working through that. 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.

[Gabe Hajde, Analyst at Wells Fargo]

Thank you. I'll hand it over.

[Curt Begle, CEO at Magnera]

Thanks, Gabe.

[Operator]

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

[Kevin McCarthy, Partner at Vertical Research Partners]

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, 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.

[Jim Till, CFO & Treasurer at Magnera]

So, thank you for the question. So, on the energy, yes, you did pick it up. So, the primary decline was in the legacy acquisition business. It had energy was up roughly 50% versus prior year quarter. And we took pricing actions as well as some pass throughs mechanisms on energy that's ultimately going to flip and we'll recover that in the third quarter.

[Jim Till, CFO & Treasurer at Magnera]

So, I would kind of put that as timing. Again, was a known item and it was just timing of the period. Regarding the volume levels, it's really the home food and beverage is where I would say it was a little bit weaker than it was in previous year. And it's a little bit of a mixed bag in terms of what we're seeing. So Kurt highlighted the consumption movements that we saw at the March as well as going into Q3, as well as the pricing actions that we're taking on some of the legacy business to figure out places that we want to play and markets that we want to serve.

[Jim Till, CFO & Treasurer at Magnera]

So was really kind of the combining factor. So again, it's one of those where multiple factors are sort of driving the overall volumes right now. Overall, the division, was roughly flat year over year after you exclude the energy, which again is primarily a timing item.

[Kevin McCarthy, Partner at Vertical Research Partners]

Great. And then, 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?

[Jim Till, CFO & Treasurer at Magnera]

Sure, sure. The team, first off the team, the procurement team the overall teams, right, have done an awesome job. Right? So originally, our expectation was synergy realization during the year to offset standalone costs. And I would tell you that's well on hand.

[Jim Till, CFO & Treasurer at Magnera]

Like the team has done a great job from that standpoint in terms of the SG and A structuring and things of that nature. And then on the procurement front, the teams have done a really nice job in terms of those negotiations, is what I would say, from pricing actions as well as working capital. So, in our free cash flow guide, one of the items that we're not just bridging it with CapEx, we're also bridging it with working capital. And we feel good about that based off the progress that the team has made to date, to be able to hold that. As we think about the 55, we're not moving off of that number.

[Jim Till, CFO & Treasurer at Magnera]

And we've always anticipated pulling the majority to the extent that we were able to pull the synergies forward, the 55 into the back half through the procurement. It was always going to be more back end loaded. So Q2 more wholesome in Q4. And the one pause that we have on in terms of timing realization of all the great work that the procurement team has done is just really the volume, right? So, Kurt highlighted the flow through of work.

[Jim Till, CFO & Treasurer at Magnera]

Glassfeltzer had a little bit higher working capital levels through the acquisition that we've been working on. But also, as we negotiate those savings, we got to get those through the pipe a little bit. So if you have ninety, one hundred and twenty days of inventory to the extent volumes are a little bit lighter, it takes a little bit longer, right? So that is somewhat predicated on the volumes in terms of what we see through the back half of the year. But we feel really good about the 55 and all the work and the progress that the teams have made.

[Kevin McCarthy, Partner at Vertical Research Partners]

Great. And 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 US, 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 be braced for impact if GDP were to go negative for a few quarters, for example?

[Curt Begle, CEO at Magnera]

Yes, Kevin. Hey, good to be with you today and thanks for the questions. First of all, you've had a chance to be familiarize yourself a little bit with our portfolio. I think you can agree, we have we do have a resilient kind of product line and customer base as it relates to products that our 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, wallcovering, etcetera.

[Curt Begle, CEO at Magnera]

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 recessions, historically, types of businesses and our business does very well. So 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.

[Curt Begle, CEO at Magnera]

And then 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, very balanced and again, made up of products that are essential for everyday use.

[Kevin McCarthy, Partner at Vertical Research Partners]

Very helpful. Thank you.

[Operator]

Thank you. And one moment for our next question. Our next question will be coming from Edlain Rodriguez of Mizuho Securities. Your line is open.

[Edlain Rodriguez, Equity Analyst at Mizuho Securities]

Good morning. Thanks, guys. I mean, Kurt, just wanted to ask you a quick question on your new products. I mean, can you talk about the new products you have, like what's coming, like the impact and the importance to the portfolio? And also, if we enter a downturn, like would you see do you anticipate the pace of innovation to slow down a little bit?

[Curt Begle, CEO at Magnera]

Adeline, thanks for the question. First of all, as I mentioned on the Type R 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. 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 Tiepar, it's a very important business for us across the board.

[Curt Begle, CEO at Magnera]

And having that continued innovation not only creates the total solutions and stickiness with our customers, we aren't providing just one component, for instance, complementing our house wrap with other billing material products because 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 CAMI Soft, Ultra Soft product lines, there's two ways that, that can benefit us. One, it's to protect the existing business that we have. So as customers make some of those choices to displace products that are less than with newer products and the 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.

[Curt Begle, CEO at Magnera]

Those two in particular, I think, really exciting. We can talk about some of the wipes innovation that we have offline from the institutional market. That's a very large space. 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.

[Curt Begle, CEO at Magnera]

Historically, strong CAGRs in that space, but also now having the full portfolio of products, continue to innovate and find ways to again protect share, but also go out and gain new share. And then the other question that you have, you talked about innovation. From an innovation standpoint, look, we don't take our foot off the pedal there. I think there's two types of innovation that we look at. First of all, it's cost innovation.

[Curt Begle, CEO at Magnera]

And that's been a big focus of a good part of that team over the past seven months, working with our procurement group, working with the sites, finding that time on the line to be able to qualify materials and then working with ultimately our suppliers and our customers to get those qualifications for the long term benefits. What comes along with is more competitive price offerings for us to be able to go out and get the right cost of goods sold. But more importantly, we try to find efficiencies on the line where if we're running a material that runs a little bit better, provides a little bit more quality item for our customers. That's a big part of that innovation side. And then we have, of course, the new product innovation, features and benefited innovation that we've been successful historically and will continue to be in collaborating with customers of they know their consumer better than we do.

[Curt Begle, CEO at Magnera]

So what is the feature and benefit that a consumer is looking for to then get that consumer to choose their product and rebuy that product over time. So as they're fighting for share on the shelf, it's how do they differentiate and get the value for the products that they're putting in the market. And so 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.

[Edlain Rodriguez, Equity Analyst at Mizuho Securities]

Okay, great. That's all I have. Thank you.

[Curt Begle, CEO at Magnera]

Thanks, Evelyn.

[Operator]

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

[Roger Spitz, Analyst at Bank of America]

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

[Curt Begle, CEO at Magnera]

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 if they see a softer demand and a greater focus on their own working capital. So for us, it's a we put in a level of conservatism of what we historically may have experienced for a short period of time. Again, you're in a ninety day window where it's a bit of a wait and see.

[Curt Begle, CEO at Magnera]

But again, we're looking more from a just overall demand consumption standpoint. And so 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. And we started to see, again, in the 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.

[Curt Begle, CEO at Magnera]

If we don't anticipate this being kind of a permanent move because quite frankly, it's not a situation where we're losing mass amounts of share. It's a matter of what will the consumer do, what will our customers pull and do we have the right capacity, do we have the right demand for the not only ourselves, but for the market itself.

[Roger Spitz, Analyst at Bank of America]

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

[Jim Till, CFO & Treasurer at Magnera]

Yeah. Thanks, Roger. Yeah. So our maintenance CapEx is the number that we pulled it down to, call it the 75,000,000 And again, we have levers in our free cash flow that we can sort of hit that and Kurt highlighted in terms of what we're doing there on the CapEx piece. And then in terms of the minimums, I don't think that we've given that publicly.

[Jim Till, CFO & Treasurer at Magnera]

What I would say is I feel good about where we are from a liquidity standpoint in terms of I think we ended the quarter at $5.70, 5 80 of liquidity, which was a nice bump from where we were last quarter. And we continue to given where we're at with the market uncertainty, we'll continue to preserve that liquidity and continue to focus on cash flows for the remainder of the year.

[Roger Spitz, Analyst at Bank of America]

Got it. And just to sneak one in, the new EBITDA guidance, that does include, like it did last quarter, the 8,000,000 pro form a for the $8,000,000 for Glatzelter the pre acquisition.

[Operator]

One moment for our next question. It's a follow-up from Gabe Hodge of Wells Fargo. Gabe, your line is open.

[Gabe Hajde, Analyst at Wells Fargo]

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'd be great. But just maybe more in the context of industry operates again to the extent that you've got visibility into those. And when competitive behavior tends to increase in a particular market, how long based on history does that take to manifest?

[Gabe Hajde, Analyst at Wells Fargo]

And 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. And if you can speak to it by geography, that would be helpful. Thank you.

[Jim Till, CFO & Treasurer at Magnera]

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

[Curt Begle, CEO at Magnera]

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. And during those times, look to idle capacity or again, for us, it's a matter of do we make the decisions as we did in sites recently of permanently shuttering those overall kind of footprint capacity standpoint. So we have some parts of the business that are very robust and run well.

[Curt Begle, CEO at Magnera]

So those sites are, again, pumping out the type of cash and the profitability that you'd expect. So for us, as you can as we've kind of highlighted where we see, softer demand in certain areas, that's where we're having to take some appropriate measures. And as Jim talked about, as we look at inventory levels and working capital targets for ourselves, 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, little bit higher inventory levels than historically what we would want to see for our business, what we want to see moving forward. So 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.

[Curt Begle, CEO at Magnera]

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 that we've established. So it really is driven by the consumer kind of their own kind of consumer demand and their order patterns with us. Again, it's uncharacteristic for us not to see a natural lift in Q3, Q4 versus the first half.

[Curt Begle, CEO at Magnera]

But based on kind of what we're hearing, what we're seeing, and what we started to see at the March, that's why we put that kind of conservative outlook on, flattish volume quarter or half over half.

[Roger Spitz, Analyst at Bank of America]

Thank you.

[Operator]

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

[Roger Spitz, Analyst at Bank of America]

Yes, that's me. Thank you for the follow-up. I know you run a lot of different products, etcetera, and I don't know how you can think about it, but can you give us a general view of where your operating work rates are or were in fiscal Q2 and perhaps where they were in fiscal Q1 on a pro form a basis?

[Jim Till, CFO & Treasurer at Magnera]

Yes. Just real quick, We were as Curt highlighted, volumes were up sequentially, which was typical, right? So typically Q2 is stronger than Q1. So we were up roughly 2% versus Q1 in terms of overall, so slightly higher is what I would say. So nothing abnormal, I think, through the first half versus what we've seen historically, Roger.

[Roger Spitz, Analyst at Bank of America]

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

[Jim Till, CFO & Treasurer at Magnera]

Yeah. Me yeah, let me like big picture for the quarter, right? Because there's been a lot of questions on the forward, which is sort of a different Curtis highlighted those, why we did what we did in terms of the guide. For the quarter, yeah, it was pretty simple. At the end of the day, the rest of world was down slightly versus prior year and primarily related to the energy sort of timing through the Gladfelt that we inherited through the Gladfelt transaction, which ultimately will be recovered in Q3, right?

[Jim Till, CFO & Treasurer at Magnera]

So, headwind in Q2, or tailwind in Q3. So that one's easy to understand. And then when you think about the Americas business, really there was a little bit of a mix in terms of the earnings, There was a mix price cost. When you think about the Latin America, the pressure that we have in South America related to the imports, with North America being a little bit stronger. So and obviously, that's adjusted for FX and all those things.

[Jim Till, CFO & Treasurer at Magnera]

Sort of normalize that when I walks.

[Roger Spitz, Analyst at Bank of America]

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

[Jim Till, CFO & Treasurer at Magnera]

No, no. So based off of where we're walking and one of 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 10,000,000 to $15,000,000 range, that we see through the good work of the procurement teams, and operational folks.

[Roger Spitz, Analyst at Bank of America]

Thank you very much.

[Curt Begle, CEO at Magnera]

Thanks, Roger.

[Operator]

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

[Curt Begle, CEO at Magnera]

Thank you again for joining us today. We look forward to speaking to many of you

[Curt Begle, CEO at Magnera]

at the upcoming investor conferences or our next earnings call in August. Thanks for

[Curt Begle, CEO at Magnera]

your interest in Magnero, and have a great day.

[Operator]

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

Participants

Executives

• Robert Weilminster, Executive Vice President of Investor Relations
• Curt Begle, CEO
• Jim Till, CFO & Treasurer

Analysts

• Gabe Hajde, Analyst at Wells Fargo
• Kevin McCarthy, Partner at Vertical Research Partners
• Edlain Rodriguez, Equity Analyst at Mizuho Securities
• Roger Spitz, Analyst at Bank of America