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Hello, and welcome to the Magnera Q1 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. It is now my pleasure to introduce EVP, Investor Relations, Robert Weilminster.

Thank you, operator, and thank you, everyone, for joining Magnera's First Quarter 2026 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. 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. 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. Lastly, we filed our annual report and proxy statements with the SEC, which can be found on our website under Investor Relations and Financials. 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, Curtis Begle.

Thank you, Robert. Good morning, and thank you for joining our call. I'm pleased to present our first quarter results and highlight the momentum that we've carried into 2026. For today's update, I'll focus on our financial performance, highlight key innovation efforts to improve our differentiated portfolio mix and update you on how our business excellence journey is aligned with emerging macro trends. First, our sequential earnings improvement over Q4 was in line with our expectations and reinforces our 2026 adjusted EBITDA guidance of 9% growth with our synergy realization and Project CORE transformation programs tracking as planned. It is noteworthy to mention that despite consumer spending concerns related to inflation, our customers are indicating resiliency and demand for the essential products we provide. Magnera's improved earnings for our Rest of World segment is a result of the intense focus on addressing our cost structure in competitive end markets while increasing our consumer solution mix in our portfolio. Our organic volume growth in North America helped offset the expected year-over-year volume decline in South America due to competitive import pressure from Asia. There are open inquiries in several countries connected to antidumping concerns and potential countermeasures. We expect earnings stability in South America in the coming quarters as we lap the prior year comparison in the third quarter. The improved mix in our personal care businesses is a result of addressing the demands of the largest consumer products companies and expanding our premium product lines in private label applications. The continued strength in our consumer solutions is a result of ongoing sustainability infrastructure investments in Europe and Asia. The benefit of our global scale anchors our ability to better manage energy efficiency through increased productivity. I've tasked our Americas team to increase operational progress in North America through targeted investments and operational excellence to enable growth opportunities in oversold platforms. As predicted, the South American markets are stabilizing, reflected by the supply chain alignment we have with our customers. Pivoting now to innovation on Slide 7. I will highlight the positive impact our efforts will have on our business mix in 2026 and beyond. Shortly after we launched Magnera, our resources were intentionally deployed to programs that were part of our broader strategy to be a cost-competitive product leader in our chosen markets. We thrive on being the trusted solutions partner to meet the most challenging consumer needs. The presentation materials provided highlight a small sample of our key leading innovations in 2 categories, with the first being transformational by design. Although these innovations take longer to realize full potential, they address key end market needs. We identified a second category as incremental improvements to current products or introducing an existing innovation to a new market. Last quarter, we launched a transformational breakthrough in barrier protection for health care applications. This proprietary innovation delivers fluent repellency requirements for health care professionals while ending the need for PFAS chemicals. This innovation not only solves end-of-life material concerns, it provides the mission-critical performance demanded by the end user. Another exciting development is the progress that we have made with an advanced materials solution that extends battery life and accelerates charging times. As lithium-ion batteries grow with vehicle electrification and growing defense needs, we developed a product that is a candidate for a government grant supporting regional supply chain priorities in critical national security programs. Next, I'll speak to innovations enabled by Magnera's existing intellectual property and platform capabilities to improve existing products. Our Kamisoft platform is a step improvement in softness while maintaining barrier and tensile strength. We launched this product in North America and have taken that platform to the remaining regions. Last year, we had $15 million in sales, and we're seeing growth in mid-single digits as we go into 2026. The benefits to consumers are common in branded and private label personal care products. Before completing my opening comments, I want to clarify how we are winning in the market. In the first quarter, our premium hard surface disinfectant wipes technology proved its value in the face of an elevated flu season. Our ability to meet our customers' dynamic supply requirements demonstrated our flexibility and localized supply chain value, resulting in strong growth in our Americas region. In addition, we were able to support the growing needs for premium private label baby, consumer and dispersible wipes. A second bright spot was growth in European infrastructure enabled by our strong position in essential utility investments and maintenance projects. As Europe has prioritized infrastructure to provide continuity for critical utilities and data cables, we have made operational improvements to increase efficiencies and meet the growing demand. Lastly, our branded Geca Tape, which provided required protection against corrosive environmental elements found above ground and undersea for high-voltage cable applications and wind and solar energy expansions, also provided nice gains in the quarter. Turning to Slide 10. Our strategic priorities are clear, disciplined and intentionally designed to position the company for sustained long-term success. At the foundation of our strategy is a commitment to strengthening our global cost structure, ensuring we operate with efficiency, scale and competitiveness required to earn the right to win in the markets we serve. Equally important, we are focused on delivering product leadership by fostering thoughtful, collaborative innovation across the organization and with our customers. By aligning deep market insight with technical excellence, we aim to develop differentiated solutions that create enduring value and reinforce our leadership positions. Finally, we are advancing a comprehensive set of commercial excellence initiatives to ensure we fully realize the advantages of our portfolio, capabilities and market positions. Through disciplined execution, sharper focus on priority segments and stronger customer engagement, we will maximize our impact in the spaces where we choose to compete and grow. Our strategic direction was constructed to capitalize on established positions in key markets, as noted on Slide 11. By design, we continue to balance our product portfolio to ensure financial stability in all economic cycles. We remain confident in our ability to deliver on our full year financial guidance. Our optimization efforts are well underway, and we continue to cultivate an innovative culture aligned with our commitments to our customers while providing the stable financial results our investors expect. At this point, I will conclude my opening remarks and invite Jim to provide a detailed overview of our financial performance.

Thank you, Curt, and good morning, everyone. Turning to the financial highlights on Slide 12. As Curt referenced earlier, our quarterly earnings performance was in line with expectations. This performance reflects the continued discipline and execution of our global teams who delivered meaningful cost reductions, advanced productivity initiatives and further optimize our product mix across the organization. Importantly, during the quarter, we made substantial progress on Project CORE, positioning us to realize earnings benefits as we continue to optimize our global footprint and align our cost structure with long-term demand trends. For the quarter, sales were $792 million as strength across our consumer solutions categories was offset by weaker performance in Latin America as well as continued broad-based market softness in Europe. Despite these headwinds, our team remained focused on disciplined pricing, portfolio management and cost containment. Adjusted EBITDA for the quarter was $93 million, flat year-over-year on a constant currency basis as contributions from synergies and cost reduction initiatives offset the impact of softer demand in Europe and South America. Turning to our segment performance, beginning on Americas on Slide 13. The Americas division delivered 2% organic volume growth during the quarter, driven primarily by strong demand in our wipes and adult end markets. These gains reflect both resilience in our core categories and the effectiveness of our commercial execution. As we've discussed in previous calls, the performance in South America baby business was challenged by heightened competitive intensity, which began in the second quarter of fiscal 2025. In addition, reported revenues were impacted by contractual pass-through of lower raw material costs, which reduced revenues but did not have a material effect on profitability. Adjusted EBITDA in the Americas declined by $3 million compared to the prior year. This decline was largely attributed to volume and product mix pressures in South America. While we are not satisfied with this performance, we remain confident in our ability to improve results through the balance of the year. Our teams are actively executing on a range of targeted initiatives under Project CORE, which are focused on enhancing efficiency and optimizing the regional footprint. As we expect these initiatives, combined with continued synergy realization and strong emphasis on operational excellence will support margin recovery in the coming quarters. Turning now to the Rest of World division on Slide 14. We experienced year-over-year decline in revenues during the quarter as strength in our Asia healthcare business was more than offset by ongoing general market softness in Europe and the pass-through of lower raw material costs. While the top line conditions in Europe remains challenging, we are encouraged by the resilience in the earnings of the region. Adjusted EBITDA for the Rest of World division increased by an impressive 9% to $35 million. This improvement reflects the continued progress on our disciplined cost management and synergy realization as we focus on delivering differentiated products into end markets with attractive profitability. This performance of this division highlights the benefits of our strategic focus on operational efficiency and portfolio optimization. Turning now to our capital allocation priorities, which are outlined on Slide 15. Free cash flow over the last 4 quarters totaled $97 million, representing a free cash flow yield of approximately 18% based on market capitalizations at the end of the quarter. Our strong cash generation underscores the quality and resilience of our earnings and demonstrates our disciplined approach to capital deployment. At the end of the quarter, we had approximately $550 million of available liquidity. In the near term, our capital allocation priority remains strengthening our balance sheet as we've committed to deleveraging in line with our stated capital allocation framework as we work towards our targeted leverage ratio of 3x. This disciplined approach ensures that we maintain financial flexibility while positioning the company for long-term value creation. In support of this commitment, we repaid $27 million of outstanding debt during the quarter and expect to repay approximately $100 million over the course of the fiscal year as we deliver sustained and attractive returns to shareholders over time. This concludes my financial overview, and I'll turn it back over to Curt.

Thank you, Jim. Now that Magnera has officially entered our second year of existence, I would like to thank our valued employees for their willingness to embrace challenges and execute on our demanding playbook. Despite a dynamic macroeconomic environment, we expanded margins through disciplined operational focus and delivered a strong financial quarter. We are committed to increasing value for our stakeholders through earnings growth and robust free cash flow generation. Our priorities are clear: operational excellence, balance sheet strength, disciplined capital allocation and strategic investment and growth opportunities. These actions position us to secure long-term shareholder value while maintaining flexibility in a competitive global environment. Operator, please open the line for questions.

[Operator Instructions] Our first question comes from the line of Gabe Hajde with Wells Fargo.

I wanted to start with, Curt, you kind of laid out some potential intervention antidumping and countermeasures that are being explored. Can you just talk about maybe timing of those? And I'm assuming most of that sits in South America. And again, like if you've seen any change in behavior on the competitive landscape front? And then sort of correlated to that, we've seen some of your customers merging or pursue some partnerships in the market. Has this changed conversations at all at this juncture?

Gabe, thanks for joining the call this morning and for the question. So just to start with the antidumping situation, there's some legislation and some proposals in Brazil, and we would expect the May time frame for those to be kind of coming to a conclusion. We're encouraged by some of the dialogue. There's recently been some antidumping measures as it related to polyolefin materials going into the region, and that's now been proposed and expanded to the nonwoven materials, again, that we manufacture and ship inside of the country. In terms of the customer dialogue, we talked about the stabilization of just the discussions we've had with our customers and the alignment that we have with supply chain. And so as we've pivoted some of the portfolio to what we've been encouraged by is some of the more premium applications in the region that are ramping up. But also the other thing as it relates to South America, we're seeing a ramp-up of adult incontinence adoption rates. And part of that's been driven by some government subsidies. And so those adoption rates are picking up. And now with the quality of the products that are being provided down in that region, it's having a similar effect that it's had in some of the countries like the U.S. and Europe, various countries throughout Europe. So we're encouraged by that, and we're already seeing a pivot in terms of the portfolio where we've primarily been baby in South America, as we've highlighted historically. That's now at 20% of the total portfolio just in South America. So we'll continue to see that mix change and mix improvement as it relates to our product lines. And I think your other question, Gabe, was -- I think it was related to some of the customer -- or some of our customer partnerships. Is that what you referred to? Can you clarify the question?

Yes. There's just been some merger activity or kind of cross-border partnerships that have been entered by some of your customers. And I'm just curious if that's enhanced, changed the dialogue with those customers and perhaps...

Yes. Look, I always view that as a pretty positive thing as it relates to our situation because of our global scale and because of the relationships we have with pretty much every customer that's in the spaces that we serve. And so if anything, we see that as an enhanced opportunity for further innovation and driving some supply chain efficiencies on their end. And so again, we stay very close to those customers. Obviously, there's dialogue that takes place. You're limited in terms of how much can be done prior to the actual conclusion of the 2 organizations. But we've had a couple of those customers more recently announced the intent to either combine, merge or acquire, and so we stay very close to them and also where they're growing, right, where they're putting some of their own investments as it relates to capacity additions or just recapitalization of their existing assets. So we stay pretty close to that as well. So we view it as a very positive thing historically. And now with the bandwidth that we have inside the organization and the diversity of the portfolio, it gives us a greater opportunity to have the seat at the table and really find ways to solve their needs. Look, they're all looking for cost innovation opportunities, but also the innovation portion of differentiation on the shelf. And that's really where we put a majority of our efforts as it relates to our innovation team and commercial excellence team to stay in front of them.

Understood. So more of an opportunity. Just a point of clarification, you said adult incontinence approaching 20% of the portfolio down specifically in South America?

Correct. If you recall in some of the historical information that we provided, it's roughly in our Personal Care segment, which is 47% of our total enterprise, Personal Care is made up of adult, fem, baby and then healthcare. And it's been pretty much a 50-50 split globally for us between adult and baby, which has ticked up significantly over the past 5 years from an adult position standpoint. The lagger has been -- for us has been South America, where it's been primarily baby and there's been less adoption rates as it relates to adult inco. And so now having that portfolio in South America creep up to 20%, I would expect over the course of the next 3 years to 5 years to see a very similar 50-50 split. And then with the Rest of the World in some of our more mature markets, whether it be North America, Europe, I would expect that split to go from 50-50 more to 60-40. It takes 3 to 4 baby diapers to make up the amount of material it takes to make an adult incontinence product. And so we continue to leverage our platforms because of the same platforms, same materials, same demands as it relates to discretion, form fit and function. And not to mention, again, heavy efforts on ensuring we can continue to provide our customers with the right fem care application products to grow that segment as well. So encouraged by what we're seeing, again, in South America and really maybe more accelerated than I would have anticipated a couple of years ago.

Got it. I wanted to ask a couple of our companies thus far have mentioned weather I know a decent amount of your plants kind of sit in the corridor where some of these storms came through. So any impact, this is more of a near-term question, but just any impact from that and how we should think about it?

Yes. It's been an interesting winter to say the least. I think this is the first time we had the number of sites that were really impacted by the storm. And coupled with that, our customers were impacted as well. So in terms of long-term demand dynamics, there's no change to what we would expect through to the balance of the year. But fortunately, for us, our teams did a nice job of preplanning, do the appropriate shutdowns, all of our safety being our #1 priority and in terms of our employee base and what our core values are, it was simply call-offs as it related to our employees. So pretty much every one of our facilities in North America were impacted in the first wave of storm. The best way we've calculated that is it impacts roughly 10% of our shipping days in North America. We would expect over the course of the balance of this quarter and into the next quarter that there will be some catch-up, but we would expect a little bit of impact as it relates to just shipments and timing, but we would get the overhead absorption back as we have ramped back up. And then the most recent storm hitting North Carolina, as you know, as you look at the map and look at our sites, we have quite a bit of concentration in North America. Also, we have quite a few customers in that area as well. But fortunately, I'm proud of what the team has been able to accomplish of getting the lines fired back up and getting product out the door. I think -- and we've not heard from our -- any major disruptions as it relates to supply chain logistics. But I would imagine as store shelves continue to get replenished and some of our customers ramp back up some of their inventory, we'll continue to monitor and manage just overall freight availability and logistics. Fortunately, for us, many of our customers are pickup. So we're working with them on identifying the best routes and getting those products to them. But again, this is a case where we were not in a position where we were disappointing customers because we couldn't supply product to them. It's going to be a matter of just managing their inventory, store shelves, et cetera, and continue to take care of them the way we always have.

And our next question comes from the line of Kevin McCarthy with Vertical Research.

Curt, on Wall Street, I think some investors have gotten excited about the uptick in PMI in January. And I'm curious, as you look across your portfolio, are you seeing much evidence of either improved underlying demand and/or some restocking activity as the calendar page flipped from December into January?

Kevin, thanks for joining the call. Good to hear from you. I think you and I have had some dialogue about destocking, restocking, and I try to avoid those topics because from our standpoint, we try to be on a short cycle with our customers. But in general, we've experienced some of the same demand trends that you would expect in North America in particular. So as we mentioned on the call, we have experienced a growth in North America. We would expect that to continue on. And we forecasted that for the guide. Europe continues to be a little bit of a concern just as it relates to overall demand dynamics, but we had also put our guide toward minus 3% in the region. I think it was minus 5% out of the first quarter. We'll continue to monitor that and take the appropriate actions. But I'm not ready to wave the flag and say, hey, demand is just going to be tremendously robust. However, we're seeing or experiencing the same signals that maybe some of the consumer products companies are sharing as well, which would be a positive thing. But for us, it's just to remain disciplined close to our customers and be ready to take them on when they need the additional product. So we'll continue to monitor it. But optimistic for sure, but we're not putting that anywhere in our outlook at this point.

Understood. And then secondly, I was wondering if you could provide an update on Project CORE, maybe review what you've done so far and talk through the next steps or mileposts we should be thinking about there?

No, thanks for that question. Yes, so Project CORE, we mentioned a little bit on the call, I've been very pleased with the execution from our teams globally. As we mentioned before, it was impacting all regions, and we really targeted those areas where it was the longer supply-demand dynamics related to the platforms that we are serving. So just as a reminder, some of the spun bond technologies that we have inside of the system, we focused on prioritizing investments on those lines to more premium applications, but also taking the appropriate measures to remove some of the capacity from our system that, again, will help inorganically kind of shape up what we would expect to have better utilization rates globally. We had a slight benefit in the first quarter as we expected, and we'll see that continue to ramp up throughout the balance of the year, quite a few actions in this quarter that will start to reap some of those benefits and then blended in over the course of the next 2 quarters. So still very much in line with what we had anticipated in the range of $15 million to $20 million of benefit. We had certain executions that have already taken place on time, on schedule, slight delay on a couple of others, but nothing materially different than what we've already put a guide toward. But again, for us, there are certain areas and certain platforms inside of our network where I'm pushing our teams to be able to drive more productivity because we're getting much tighter utilization rates than historically we've experienced. And so we'll continue to monitor that. But just in terms of the overall Project CORE-related programs, well on schedule and well within what we provided in our guide.

Very good. And then last one for me, if I may. If I look at your Slide 11, you have a nice snapshot of the portfolio. And you have 6 categories there essentially. I was wondering if you could speak to the outliers, maybe help us understand where you're seeing the strongest positive growth and on the other end of the spectrum, if there are any pieces that you think are running subpar at the moment or opportunity for improvement as the year progresses? I'm guessing adult might be in the positive category based on your prior comments. But any additional color along that framework would be helpful.

Yes. Look, and I think it's important to look at it by segment or region as well. So particularly in North America, we are seeing some positive implications as it relates to the innovation that we've had on the baby front. And if you look at store sales data in the U.S. markets, baby has ticked up slightly. So it's very low single-digit growth, but adult continues to gain momentum. Wipes, as we've talked about, is an excellent enterprise or franchise for us inside of the portfolio, particularly as you look at some of the proprietary technology, and Kevin, you had a chance to see it in our [ Mooresville ] site during one of your visits that Spinlace technology and that proprietary technology has really certainly gained up momentum, and we've been able to grow with the market and support our customers as they've grown in those areas. From an infrastructure standpoint, we highlighted Europe on this call. That's an area where it's a nice mix of business. It's a nice niche application for us. But when we look at North America, we also have a strong TYPAR brand, and we continue to find ways to evolve that portfolio by having some additive products within that space. What I would say is on the home food and bev side, this is a very strong position that the historical Glatfelter business had had. And so a big focus we've had there, as we've talked about before, the qualification of other materials, finding ways for compostable solutions for our customers and the benefits we can provide them as well. And so that business, I would consider stable. The team has done a nice job of securing the right contracts, the right mix of business that we want to run. And we all root for cold season, so people drink more tea and coffee. But in general, that business is very stable, I would say, because a big concentration in Europe, it's not necessarily down negatively in a big way, but it's more tempered than what we'd see in other parts of the world. And then lastly, healthcare being relatively small in terms of the total portfolio is where we've had a recent launch for our gowns and drapes and elimination of PFAS materials. We think that there's not only an ability to protect the business that we currently have in that market, but potentially expand through whether it be market share gains or further demands from end users on better solutions for PFAS-free materials. And then again, there's some outliers within each of the regions that I would say are a little bit more tempered in general. We talked about baby in South America and the competitive pressures that we've had from Asia and other imports. Regardless of what happens with the antidumping measures, I think for us, we've certainly found stability in the region and the conversations with customers and our ability to have that local supply and the responsive rate has helped at least shore up some of the dialogue that we've had with them. But more importantly, it's the discussion on how we pivot more towards some innovative products that historically haven't been as prevalent in that region than we've experienced in other places. And our team in Asia continues to do a nice job of securing the right businesses for those lines, albeit relatively small in terms of our total business, profitable business, and the team does a really nice job of also supporting other regions, not only with innovative products, but best practices across the system. So again, without getting too deep into some of the outliers within the product mix, in general, we feel good about the majority of where we sit from the portfolio. I can get into certain applications that are relatively small and immaterial that we continue to evaluate from a portfolio standpoint. But in general, hopefully, that provides you a little bit of flavor. But Europe still continues to be soft, as you heard from other major players. U.S. showing nice green sprouts, South America stabilizing and Asia Pacific continue to be stable.

And our next question comes from the line of Roger Spitz with Bank of America.

For fiscal 2026, is your volume growth assumption still flat? And how do you think about 2027 volumes if you have some thoughts there?

Roger, thanks for joining the call. Good to hear your voice. We're not going to comment on '27. I think we can look at longer-term growth dynamics. And as we get to our guide throughout the year, we'll maybe provide some more color there. But I don't know, Jim, if you want to -- we have come into the year with flattish volumes, and we expected Europe to be slightly down, as I mentioned, roughly 3%, North America being slightly positive to help offset that. And then what we would experience toward the back half or the second -- last 2 quarters of our fiscal year will enter into a little bit more normalized comps for South America. So we still are anticipating flattish volumes overall. And keep in mind, we've made some intentional efforts, Roger, on where we want to play, where we're leaning in, in terms of our commercial excellence programs. And there's businesses that may not fit within our portfolio long term that whether it be not a path to having us be the right competitive set, but more importantly, have the right growth dynamics for us long term. So again, we're being selective in making sure that, again, we're getting the value for the products that we supply and that we serve our customers with, but that will have an impact as some of the actions that we've taken on CORE.

And then for the fiscal 2026 EBITDA guide up from pro forma fiscal 2025, including Glatfelter, is therefore the main drivers of the growth cost savings and merger synergies? Or are there other items that might be driving that improvement?

Yes. I'll touch on just from a mix standpoint, obviously, that's been a focus of ours. And I'll let -- I've been talking so much here. Jim, I'm going to let you jump in here as it relates to synergies.

Yes. Thanks, Roger. Yes, yes, the primary driver for growth, as we highlighted, we're sort of assuming flat volumes for your last question. So the main driver of growth in 2026 is going to be both the synergy realization as well as the Project CORE initiatives as we sort of highlighted on the last call.

Got it. And then lastly, I don't know if you want to give further detail on the other items in fiscal 2026 free cash flow, for instance, working capital inflow/outflow, I think you were kind of neutral last time, cash taxes or any other items?

Yes, yes. The -- we target -- we always target flat working capital. So if you're thinking about your free cash flow walk, we're at the $395 million midpoint, $135 million for cash taxes -- I'm sorry, for interest, $80 million for integration costs and taxes, and then you have CapEx of $80 million as well. We will get you to the midpoint of roughly $100 million.

And our next question comes from the line of Edward Brucker with Barclays.

To build on some of the innovation points you made, are you able to provide maybe directionally the margin profile for these innovative products and if they are proprietary products more commoditized? And then would these innovative products cannibalize any other products in the portfolio?

Yes, that's a very good question. So there's 2 different types of things that we do with our customers. First of all, it's protecting some of the existing business through the innovation and finding ways to not only benefit our customer from potentially cost savings opportunity, but a margin up opportunity from our side. The other thing that we look at is, is this a new feature or benefit within a particular product. And so we've been able to launch some of those as well. And historically, Edward, we would -- we expect obviously a higher than our average margin. So that can range anywhere between the mid-teens to 20-plus depending on how unique the application is, what materials are available and used in the product itself, but more importantly, the collaboration that we have with our customers. So again, we'll continue to find ways to help our customers drive efficiencies through cost competitive applications and sharing in those savings. But for us, we expect innovation to be well above our average of 11%.

Got it. Second one on the debt reduction goal for the year of $100 million. First, is that gross debt reduction? And then second, if it is, where are you targeting that debt reduction? Is it through the term loan or maybe taking some discount within the bonds?

Yes. No, as you saw -- thank you for the question, by the way. Yes. So as you saw in the quarter, we did take advantage of both buying back bonds and term loan in the open market. So we will go after the yield, which is sort of the best use of money in terms of -- and we do buy in the open market. So that's how we would approach it. It will just be on which has the best return at the given point in time as we pay down throughout the year.

And our next question comes from the line of Gabe Hajde with Wells Fargo.

Two hopefully quick follow-ups here. Curt, you mentioned in your prepared remarks, improved operations and oversold platforms. I'm just curious what specifically your referenced there, if it's somewhere you're capacity constrained or something like that in North America?

Yes. As we mentioned -- as I mentioned earlier on the call, so anytime there's an elevated -- for instance, elevated flu season, you may be smacked with a great deal of orders in a short period of time where you're going to be maxing out certain levels of capacity if you're close to that 90% utilization. And so we're really focused on some of those platforms within our system where the market isn't quite as long in terms of supply-demand dynamics, and that can vary by region, Gabe. But ideally, it's finding ways to produce more product off the existing assets that we have. And that comes through both just operational excellence productivity measures, supply chain is tied into that as well. So it's working with our customers, identifying the best running SKUs, how we can maximize that. But also the work that the team has done on material science and material innovation that's actually been an enabler as we've looked to qualify other raw materials and finding more efficient material streams to run through our lines. And it could be as simple -- when we think about some of our production lines Gabe, it could be as simple as an upgrade to an existing winder to be able to have the extrusion and the overall makeup of running our lines faster with the same level of quality and service that their customers expect to be able to get more throughput on those lines by having the right technology at the end of the line to improve the overall throughput of the machines.

Got it. Okay. So relatively capital light, it sounds like. Two last unrelated questions. One is just seasonality. We don't have a whole lot of history here, obviously, with the combined entity. But at the midpoint of kind of the guidance range, I think you've talked about before maybe low 40%-ish in the first half and the remainder in the second half. Can you help maybe Jim or Curt parse that out for us? And then putting a little bit finer point on the synergy realization. I think the ultimate target was $55 million. Last year, you were somewhere in the mid-teens in terms of absolute realization. What's the target for '26? And then kind of what does that leave in the '27 for us to get after?

Thanks, Gabe. So I think just maybe on the second question, we have put $25 million of realized synergies for 2026 with the balance then working through in '27. And we can follow up on that or Jim, you can highlight that. And then the initial question, just as it relates to demand by quarter, again, every region is a little bit different in terms of summer months and holidays, et cetera. But in general, Q3, Q2, Q4, Q1 would be the kind of the demand outlooks for us. So Q4 being a little bit softer because of the European shutdowns and excuse me, our fiscal Q4, Gabe, and then Q1 being one of the softer ones because of the holidays that we have, both at Christmas, New Year's, Thanksgiving, et cetera, in North America. So Q3, Q2, Q4, Q1.

I'll now hand the call back over to CEO, Curt Begle, for any closing remarks.

Thank you, operator, and thanks, everyone, for joining the call, your interest in Magnera. We look forward to following up with many of you here over the course of the next few days and look forward to the next earnings call for Q3 or Q2 results. So thanks for joining. Have a great day.