Ladies and gentlemen, thank you for standing by. And welcome to the Graphic Packaging Holding Company’s Second Quarter of 2020 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today’s conference is being recorded. [Operator Instructions]. I would now like to hand the conference over to Melanie Skijus, Vice President of Investor Relations. Thank you, please go ahead ma’am.

Good morning and welcome to Graphic Packaging Holding Company’s conference call to discuss our second quarter 2020 results. Speaking on the call will be Mike Doss, the company’s President and CEO; and Steve Scherger, Executive Vice President and CFO. To help you follow along with today’s call we will be referencing our second quarter earnings presentation which can be accessed on the Investors section of our website at www.graphicpkg.com. I would like to remind everyone that statements of our expectations, plans, estimates and beliefs regarding future performance and events constitute forward-looking statements. Such statements are based on currently available information and are subject to various risks and uncertainties that could cause actual results to differ materially from the company’s present expectations. Information regarding these risks and uncertainties is contained in the company’s periodic filings with the Securities and Exchange Commission. Undue reliance should not be placed on forward-looking statements as such statements speak only as of the date on which they are made and the company undertakes no obligations to update such statements except as required by law. Mike, I will turn it over to you.

Thank you, Melanie. Good morning and thank you for joining us on the call today. I'm pleased to be with you to discuss our excellent results we delivered in the second quarter of 2020. Before we focus on financial results, I'd like to take a few moments to update you on the initiatives to keep employees and partners safe while continuing our essential operations supporting the food, beverage, consumer, and food service markets globally. Employees come first to Graphic Packaging. We continue to invest in added safety protocols, including Plexiglas barriers on production lines, facemasks for employees, temperature scanners, and enhanced cleaning and sanitation protocols designed specifically to prevent the spread of viruses, including influenza and COVID-19. While we've established and implemented safety protocols for frontline employees, we've also executed technology solutions to enable our non-production employees to conduct their roles effectively from home. Workforce productivity and collaboration across our organization during these challenging times has exceeded my expectations. We have managed through the COVID-19 environment exceptionally well to date and have remained agile approaching every day with can do attitude. Over the course of the last few months we have often been recognized by customers for our flexibility, best in class service, and support through these volatile times. We attribute the exemplary customer service our teams provide directly to the focus we place on the well-being of our employees. Our teams have continued to perform for our customers and have gone above and beyond to provide continuity of supply. I thank everyone at the Graphic Packaging for their ongoing and tireless efforts. I would also like to take a moment to discuss a very important topic at Graphic Packaging, diversity and inclusion. We believe a diverse and inclusive working environment encourages creativity, innovation, and collaboration that enhances our ability…

Thanks, Mike and good morning. Turning to Slide 9 in our sales performance waterfall. Net sales in the second quarter increased 4% from the prior year to $1.6 billion driven by acquisitions, net organic sales growth, and continued flow through of positive pricing. Reported earnings for the quarter were $0.19 per diluted share, compared to $0.22 in the second quarter of 2019. Second quarter 2020 net income was negatively impacted by a net $21 million as special charges nearly half of which was a one-time settlement accrual for a multiemployer pension plan. When adjusting for these charges, adjusted net income for the second quarter was $72 million or $0.26 per diluted share, an increase of 8%, compared to $0.24 per diluted share in the second quarter of 2019. Turning to Slide 10, focused on our EBITDA waterfall. Second quarter 2020 adjusted EBITDA was $260 million. Adjusted EBITDA was positively impacted by $5 million of higher pricing, $15 million of net productivity improvement, $10 million in commodity input cost deflation, and $2 million of favorable foreign exchange. These benefits were offset by $2 million in unfavorable volume mix, $13 million in other inflation, primarily labor and benefits, and $25 million in planned maintenance outage expense incurred during the quarter. Turning to commodity input costs. We experienced a benign inflationary environment across most commodity categories, with the exception of secondary fiber. OCC costs saw a dramatic move higher in the month of February through May and reported lower in the month of June-July. As Mike mentioned, we are committed to price offsetting commodity input costs over time and we will continue to actively monitor inflationary environment. On Slide 11, you will see the decisive actions we are taking to position our business for success both the current and long-term business environment. We…

In closing, the first half of 2020 we've met the increased demand needs of our customers and have successfully overcome challenges presented by the global pandemic. Net sales and adjusted EBITDA are both up 5% in the first half of the year versus the same period one year ago. We are operating the business from a position of financial strength and flexibility, with a keen focus on customer service, carefree employees, and return for stakeholder. We have reinstated our annual guidance that includes adjusted EBITDA growth and healthy cash flow for the year, maintained our dividend and share repurchase programs all while continuing to invest for the long-term growth and achievement of our Vision 2025 goals. Thank you again for your interest in Graphic Packaging, and I'll now turn the call back over to the operator to begin Q&A.

[Operator Instructions]. Your first question is from Mark Wilde of Bank of Montreal.

Good morning, Mike, good morning Steve.

Good morning Mark.

I wondered if you can just give us some sense of kind of activity levels in July by kind of business lines, what you're seeing in kind of food, beverage, consumer versus what you're seeing in kind of food service as we move through July here and also maybe a little more color on just the point between kind of organic sales and organic volume?

Okay, why don't I take the first part of this Stephen and you can handle the second. So Mark, the way I'd characterize it, if we look at the second quarter we would say that our food and beverage business was up roughly kind of 6%. You know, that again as you know is about 77% of our portfolio and the food service business was actually down about 20%. As we look at what we are seeing here in July and what we essentially expect for Q3, we see that range on the food and beverage probably being somewhere between 5% to 8% based on the various verticals that we operate in. And food service probably means somewhere in the neighborhood of 15% to 20%. So it's improved a little bit, but not materially as you'd expect given all of the information that's been out on the news around some of the challenges in some of these states and staggered restarting. So that's what we're seeing right now on the ground and I will let Steve cover the volume and sales.

Yeah, thanks, Mike. Good morning. Just with regards to organic sales growth 150 basis point of growth that we saw, that's the top line number and we felt that it was the right and actually conservative approach to how we look through our business given the mix change that we're experiencing. If you actually step back and look at it on a tons basis, our organic volume tonnage, our integrated tonnage was actually up 6% in the quarter so quite material. But there was a pretty significant mix change that's happening inside there, just to kind of put it into context our traditional food and beverage folding cartons like a beverage package would be $1500 plus per ton on average or as a food service on balance product a cup that includes the lid for example might be in the $4000 per ton range. So we wanted them to step back from the results and stare through the top line consistent with our Vision 2025 expectations and we are very pleased that the net result is a 1.5% growth in the quarter, 3% year-to-date on a top line organic sales basis. Integrated organic tons are actually higher than that. But it's like we are just saying as we see some return into the food service volume that kind of natural give and take of those two changes in mix we will start the level playing field over time. So we're very pleased with 1.5% and the 3% year-to-date in terms of the actual top line.

Okay. And then I wanted to just make sure I understand what you said about SBS downtime. I think I heard you say you took 14 days in July at Texarkana on one machine and that you're going to take another 14 days along with the maintenance outage in September is that correct?

You got that right, Mark. And so if you put that together, the incremental market your downtime is somewhere between 25,000 and 30,000 tons that will occur in Q3 and that's lining our supply with our demand, as we talked about. And that's on top of the planned outage where we're putting that new head box on that machine that was already planned. And that's all in the month of September.

Okay and is there any way Mike to just take some of that food service oriented SBS volume and just move it to other businesses, I mean, it would seem with that second quarter operating rate of 97% that you noted from the AF&PA that SBS supply would be pretty tight right now and then maybe you could just swing volume on that machine?

You know, that's an uncoated machine. The cup machine itself but you are in fact actually correct with what we've done in the second quarter as you heard in my prepared comments, we talk about 100,000 tons run rate of CUK business including SBS our teams did an exceptional job of being able to making that transition very, very fast in order to service customers and capture the growth that you're talking about. So in fact part of what you're seeing in terms of those strong operating rates on the base SBS businesses in fact we've made that shift and as you know, we're pretty uniquely positioned to be able to do that being the manufacturer of all three grades and that factors into our integration work that Steve also mentioned about going from 68% to 70% year-to-date. So it's all part of our strategy and it's working and it's being tested in a pretty big mix change, which I think shows our resiliency of the end markets that we participate in and our customers are performing through what most would consider a pretty big disruption.

Okay. Last one from me, I am just curious, are COVID related restrictions on things like travel like sending technicians over to install lines for Coke and other beverage companies in Europe is that slowing down sort of one element of your organic growth this year?

It is, Mark. I mean, we've lost a quarter or two as we alluded to on our first call, and that continues to be the case. We've gotten pretty good at being able to do things via Zoom and Face Time and -- but there are some things that just has to be done by our technicians. And what I would point to and I had that in my prepared comments too is that we've got really our first line in Europe that will be operational here towards the end of Q3 and into Q4. We expect that to continue to accelerate as we go into 2021. The interest for that particular specification, Kio Clip continues to be incredibly strong. It's really an issue about getting the machines installed and operational and we expect we'll have this delay but there's no loss of interest. As a matter of fact, I would argue it's building.

Yeah, the market stable and the delays that Mike referenced are kind of timing delays. What we haven't seen is any change in the interest level with the number of placements. So it's a little bit of a delay, but there's no change in the actual number of installations consistent with our expectations.

Okay, that's helpful. I'll turn it over, guys.

Thank you.

Thanks, Mark.

Your next question is from Mark Connelly of Stephens.

Thank you. If we look at your Slide 7 and your recovery of price cost I am curious what has changed other than just the lag, if we were to experience that kind of inflation scenario that we saw in 2016 to 2018 to date how much different would the recovery period be, would it just be a third faster or is there more changing in just that lag?

Mark it is Steve. I think I will start and Mike can add on. I think you touched on one of the key components if we were to experience significant inflation on a go forward basis. Clearly the lags would be tighter and so that obviously is a critical part of our ability to recover. You have seen as you mentioned on Slide 7 we now have fully recovered to this location that we did experience which is important to see. I think overall though to Mike’s point the reality of the operating rates and the overall supply demand environment is of course critical relative to our view of that and that too would play into recovery going forward. And so the overall three substrates and the operating rates and backlogs of those is obviously relevant.

I think Mark I would add to Steve’s comment just again and you know this, we didn’t even own SBS not until January 1st of 2019. So now we have got all the substrates and our ability to balance those three substrates across the portfolio of business as we are doing right now if you think about what we're doing on SBS with a 100,000 tons, we moved out to CUK and that's a big deal for us. So that helps us balance our supply and our demand by being able to manufacture all three substrates, which is clearly different.

Right. And just a philosophical question, when you announced the CRB hike a while back, the trade reps recording customers who seemed upset that you wanted to avoid getting into the same mess that we're just talking about. Does that sort of reaction from customers is that pervasive and does it -- that this is a bad time for a price hike attitude, does that shift their preference or yours for how these contract terms work either, preferring the cost escalator or maybe the customers do prefer the price index?

I think and you know this I mean, really, no customers looking forward to a price increase. So the timing is what the timing is. I think, in terms of what our resolve is and you saw us do that when OCC was going up dramatically and we didn't know where it was going to go we were very aggressive on making sure that we are in front of recovering that because we want to avoid having to have another slide like the one that we just got done talking about. And so that's how we're looking at it at Graphic. I would say that the other part of that with customers that they want to be able to plan and so costs models give them probably a little bit more ability to plan where they kind of know in the last six months what's happened. And we can kind of keep them up to speed and they can build that into their forecasts up or down. Some of our customers find that helpful and that's obviously something that we offer them. And we'll continue to do so.

Okay, if I could just squeeze one small one in, in your strategic actions like you didn't highlight the two coders at West Monroe, is that still on track...?

Yes. Thank you for doing that. We probably should have had something in there. We do -- we are putting our curtain coater in in September on our West Monroe number 6 machine and so excuse me, on our number 7 machine and that'll be done in September. So we'll start getting the benefits of that in Q4. And then we're going to take about a year off. And then early 2022, we'll install the last and final one on the other machine. We want to get it up and running in West Monroe and really make sure that we understand the operating parameters around it and then come in behind it and finish the last one.

Very good, thank you.

Thanks Mark.

Your next question is from Brian Maguire of Goldman Sachs.

Hey, good morning guys. Just wanted to follow-up on the reporting metrics switch just from the net organic volumes you had talked about before to the net organic sales. And I guess last quarter you reported net organic volumes that were up about 4%, excluding COVID and Leap Year, I think 5% if including COVID but excluding the Leap Year. And so are you saying that that same number would have been up 6% in 2Q so it is actually a little bit better in 2Q and related to that, are you now sort of committing to even offsetting the negative mix impact that you might have going forward to get into the 100 to 200 basis point growth range on an organic sales basis in addition to organic volume basis?

Yeah. Brian, thank you for that. The answer is yes. The 4 and 5 percentage you referenced last quarter, this quarter was 6. So overall, year-to-date organic volume growth is up pretty materially as we mentioned, driven by very strong demand for our traditional core food and beverage business, particularly beverage as Mike mentioned, that also created these new opportunity to pivot volume from the CUK to SBS to service primarily food based customers, moving them into that product category. Yes, we would expect overtime that both volume and sales growth would both be in that 100 to 200 basis points of organic growth over time. So no change whatsoever. We just felt that here as you look at it today, because of this pretty significant change in the mix of our products that we actually didn't want to kind of, if you will, what we believe over the long term might be a temporary over statement that we actually stepped back and said, let's look at this through the sales lens. But very specifically, volume is up materially through the first half, driven by the 77% of the business where we're seeing the at home consumption patterns stay very heavy and positive relative to volume.

If you think about it, Brian, what we're trying to do is make sure that you've got more of a look-through to actually trying to run this for Vision 2025 as opposed to one quarter, which was exceptional from a tonnage standpoint. But we do expect over time and we don't know what that timeframe is, that we see that cup business come back. And that's the value per ton that Steve talked about being $4000 a ton versus $1500 a ton. It is a big shift and so we are just trying to give you a better look through on the narrative, some would call that a bit conservative [Technical Difficulty].

That makes sense. I would just ask that you would take some of the pricing out of it as your duty to recover cost inflation and pricing will move up and down. But, kind of a volume mix blended number, makes total sense. Just to switch gears a little bit…

Brian, let me for clarity, just so that on that -- that sales definition did exclude price and FX, so it's in the same definition if you will of the volume mix category. So it is the sales associated with that. So we did remove price, we did remove FX so that again it's very apples to apples and the way to look through the company relative to the role that the volume of our business as measured in sales rolls forward.

Okay, yeah, I think that's a very good metric. Then just to switch gears to SBS, and the slide looks like you talk about the operating rate for the industry improved a little bit to 97% from I think 95% in 1Q and the backlog I think you talked about four weeks. I think last quarter slide, it was kind of more three to four. And, recognizing a lot of things have changed in the food service side. But it sounds like some of the industry data has somewhat improved. But then, on your own converting operations you're having to take some downtime and I think that's going to -- I think you said 20,000 to 30,000 tons of board sort of impact. So, yeah, it seems like some inconsistencies between some of the industry data and the backlog improving, yet the need to take some downtime. So I think it kind of reconcile those and talk about whether you think the industry needs to take some capacity out in SBS, whether there's a need for some of the upstream storage capacity to come out?

So, Brian I'll take that one. Let me just tell you what we're doing at Graphic. So at Graphic what we are doing is we move on the equivalency of about a 100,000 tons I mentioned earlier of CUK -- predominantly CUK business into our general SBS, so coated SBS business and those conversions occurred in the second quarter. They're all done now. And we're using that to balance out our multi mill system. Specifically where we have the weakness is on that uncoated cup machine because demand profile of food service came down at 15% to 20% that I referenced to a previous question. So what we are doing about that in additional to having a normal planned maintenance pretty significant maintenance outage to take care of that your head box that we are putting on that machine. It is taking an additional, think about this way, 28 days of downtime in Q3 to balance our supply and our demand. And so that's how we're looking at solving for the general SBS market for us that we're participating in is strong and it is evidenced by the fact those operating rates year-to-date, you know, AF&PA number 95.3 versus 91.7 last year and that reflects the closure of one of our competitors taking a mill out and we incurred obviously the bump on that. So within those numbers, the weakness is the food service grade that we make. It's about 4000 of our 1.2 million tons. And we're managing our supply and our demand by taking some economic downtime that I just outlined that for you. So I'd ask you to think about it that way.

Okay, that makes sense. And just last one from me, it might be a little unfair to compare the EBITDA guidance components, the line items to the original guidance, but just looking at it, it looks like rice is a $25 million unfavorable and commodity cost deflation is a $45 million favorable swing. So just wondering if you could kind of talk about it versus the original plan for the year, why price is a little bit weaker and what's driving the commodity cost to be quite a bit more favorable?

Yeah, Brian, Steve, from the original guide that we provided when we announced Q4 earnings we had modest movement down, that was on the CRB and SBS, which we took in to consideration. And then it's been obviously in this deflationary environment some of our cost models. So that's why we have the new range of price in the $0 to $20 million range. When we originally guided, we do what we felt was a pretty modest inflation for the year of 1%, roughly on the $2.5 billion spend. We actually are now guiding to some modest deflation in the $10 million to $30 million range. Obviously we are in a recessionary environment, we are experiencing some actual deflation, and most of the net of that is occurring in the areas of fiber related costs. Just OCC cost have moved up and have now moved down, but as we talked quite a bit last year, wood was a major inflationary item for us last year, wood has normalized in the south back to more historic levels. And that's creating deflation year-over-year on the wood basket. The rest of the infrastructure of cost, logistics, chemicals, resins, etc., pretty neutral. Overall, the deflation net is generally fiber based with wood being the predominant reason for that.

Okay, thanks very much. Take care.

Your next question is from George Staphos of Bank of America.

Hi everyone, good morning. Thanks for taking my questions. Hope you guys are doing well. Thanks for the details. I guess I have three questions, we'll go from sort of process and operations to kind of a bigger picture one. So, I guess first of all when we look at PaperSeal and we also look at in somewhat a related way, the shift of the CUK tons to SBS. What kind of changes and vulnerability are you seeing at other European loading locations or in the case of PaperSeal we had customers. Can the customers use that paper tray with existing equipment that they have or would they have to make modifications in your converting areas, are you seeing any change at all, any tweaks, any loss of throughput doesn't seem that way by the way in moving from CUK to bleach board?

Okay, thanks George. I will take that. In terms of PaperSeal that is a new line that the customer would actually purchase and our interest there is supplying the tray, the paper tray that goes in there. Predominately, as you know, and a lot of those had been polystyrene foam. So replacing polystyrene foam with paper fiber based packaging, which is what we do. So that's our interest there. And we're working with a number of different people that actually sell those lines. And we're seeing a lot of traction on that in Europe and Australia as we reference this. It is pretty big addressable market so we find that interesting for us and our ability to manufacture that is pretty straightforward with the existing equipment that we've got and really all of our converting plants. In regards to the CUK to SBS shift, we run all three of those substrates all the time in our facilities. So we know how to convert them. The vast majority of what we moved into SBS onto CUK came from there. And so it started, some frozen pizza and there's some other things in there that used to be on SBS and then we moved it to CUK and now we've moved it back in order to balance out our demand. We work with those customers to make sure we can meet their heightened demand levels and they've worked with us on that. So it performs well under lines. It doesn't require material adjustments to be able to do that. So, all in all the overall execution on that has been pretty seamless, as you referenced.

Thanks, Mike. As far as Kalamazoo goes, I know one of the intents at least what I recall one of the intentions with that machine was to have greater fiber flexibility given the variability having seen the different grades of recovered fiber with graphic paper demand being down so much and implicitly there being longer term more inflation in sort of office papers, does that change at all probably not but does that change at all any of the return assumption that you have for new Kalamazoo machine and more broadly with this machine coming on are you seeing any increased interest from your customers recognizing you're going basically just replacing older capacity and using more CRB in their business mix from what had been previously the case?

Yes, thanks for the question on Kalamazoo, I was there two weeks ago, I have to tell you our team there is doing an outstanding as we referenced in the materials. We are on plan both in terms of the timeline as well as the budget for that project. So I appreciate the question. And in regards to the actual input costs of paper that we would use, we're going to have a lot of flexibility there. That machine like our K1 machine is going to have curtain coder on it. So the amount of white paper that we have to use close to the surface, balancing off the coating if you will is going to be materially better than anybody else in the space. We will have a lot more flexibility to be able to do it. We've anticipated that. That's how we built the machine. So yes, the down -- the smaller market size of the printing and writing paper. Well, certainly something we watch is not a material impact to the overall economics in terms of what we put on the project. As a matter of fact, it hasn't impacted it at all. We'll be able to deal with those kind of disruptions and dislocations much better than anybody else in the space. And that's part of why we're doing the project in addition to the fact that we were taking a lot of older capacities we talked about. In regards to how customers are feeling about it, look, you see all the sustainability goals and targets our customers have put out there. So when you look at what that machine's going to do, as a reference to few times, I mean, we're going to use 300 million gallons less water a year. We're going to buy, 20% less electricity. We're going to generate 18% less greenhouse gases across our CRB platform. And these are real material numbers that will help our customers actually accomplish their sustainability goals. So when people are looking to find a solution to meet those targets, we've got an answer and it's a different answer really, than anybody else has. So in addition to having the lowest cost, highest quality material, we've got a great sustainability story there and they like that.

Thanks, Mike. My last question and I'll turn it over and Brian touched on this in one way in terms of your guidance. It's in some ways that we step back it's remarkable what we've seen over the last quarter. You're more or less back to your prior guidance, both on EBITDA and on free cash flow. Yet there has been this tremendous amount of volatility in demand and the economy. And, ultimately yet not with a lot of -- without a lot of effort I'm sure you skated through it. So when you think about how ultimately Graphics Packaging, maybe this isn't the term you'd use, fill the holes and kept guidance and get to reform where it needs to be, where it had been, what was the biggest driver, is it that we've gone through this period and the consumer now has a greater appreciation for paperboard and you see -- we've seen a sustainable increase in demand from here? If it's just a one off where there's a lot of pantry loading and yes, we got through this year but next year there is going to be a chicken come home to roost effect on volume, how do you think you got through this and the sustainability of that improvement into 2021 and 2022 and beyond? Thank you, guys. Good luck in the quarter.

Thanks, George appreciate the question. I think I’d have you look at our market participation strategies and how we have over the last decade really built this business. And if you look at our big food business and you look at our beverage business and you look at our consumer products business and all that comprises about 77% of the company. We add food service under it. Yes, food service is down now. But look, what's up. We've got the food and beverage up because people are eating and provisioning more at home to your point. So will food service come back? We believe it will come back. To what level we don't know for sure. And we don't know what period of time. But I'd ask you to think about that as a little bit of a teeter totter. As food service comes up, you'll see a little bit of kind of the food and beverage go down, but the net impact of that balances out for Graphic and what we're able to do then is use our new product innovation and our low cost investments that we've made to continue to grow the business. And that's what gives us confidence in that 100 to 200 basis points of growth. And so, this year has been exceptional in terms of how that is all performed and we've netted it out well. I appreciate the comment and as I referenced, I think our team has done an excellent job of executing through a pretty challenging economic backdrop. But it shows the resiliency of our customer portfolio and the operating model that we've got in place.

And George just to add to that, because it was an exceptional effort across the entire organization to manage significant increases in demand as well as, obviously, the areas of weakness and one of the things that hasn't been touched on, but I'll touch on is on volume mix that resulted in a modest headwind on volume mix because we were scrambling in a significant way to obviously take out capacity in our cup making business appropriately to match the needs of making actual cups. But more importantly, moving that SBS from CUK, moving production into facilities that maybe haven't made a beverage carton, but now are shifting the actual portfolio in a pretty material way, which cost a little bit on the volume mix but we now achieved that and as we continue to roll forward, we can optimize from there. So our overall, I think it's critical to what I am saying our overall belief relative to the organic growth profile of the business kind of seen through that 100 to 200 basis points, remains intact with a different mix and some phenomenal work being done across the organization to manage both the ups and the downs through this environment of people needing to eat and drink.

Thank you very much.

[Operator Instructions]. Our next question is from Phil Ng of Jefferies.

Hey, good morning everyone. Congrats on a really solid quarter in a tough environment. Appreciate your taking the down time to kind of balance supply and demand but curious how's the pricing environment and competitive landscape for your cups business and food service business?

Phil, welcome back. In terms of our -- customer were you referring to our customers?

We're just trying to get a better sense of how the competitive landscape is in terms of who you compete with on the cup side. Is that when behaving nicely the pricing environment in terms of what you're selling your products, I am trying to gauge if the demand is obviously down quite a bit?

Hey Phil, it is Mike. And again welcome back. We are not going to talk about the competitive rivalry out in the market. I mean, what I want you to know is what we are doing to actually compete in that space and meet those requirements. And if you heard Steve, when he just got done talking about we've right sized our converting platform in terms of the amount of people and the amount of lines that we're running to match up with the actual demand we have and then in Q3 here excuse me, we're taking a fair amount of market related downtime on our cup machine to balance that out. And that's all reflected in the AF&PA numbers year-to-date so it's pretty healthy operating rate. So I think I'd point to that as reflected in my guide as well.

Got it, that’s really helpful and appreciating, if you choose to use GPK stock, it's not that dilutive at all. But the potential incremental to 250 million stake from IP potentially becoming available on the back half, are you comfortable using utilizing your cash flow on balance sheet, certainly you have a lot of liquidity?

Yeah, thanks Phil and I think what we were trying to do on Page 12 is to just remind us that we do have incredible flexibility on how we monetize an IP stake. Obviously, they began that process in the first half and the next opportunity to begin to do so is tomorrow actually in terms of the next potential for them to begin to potentially monetize. And what we were conveying was just that, we've got a great balance sheet, excellent flexibility reminding you know this, we actually bought back $157 million of the company year-to-date. Now price is in the mid 12's. We've got line of sight to leverage that's in that 2.5 to 3 times range. Our original guidance indicated that we could acquire back the second $250 million and still be at the high end of our 2.5 to 3 times. That's only modestly changed, mostly because we've acquired back the business in acquiring our GPK shares. So we really continue to like the flexibility we have in the context of our capital allocation strategies, in the context of the value of our currency. That means GPK shares so excellent flexibility depending upon how they choose to continue with their monetization, assuming they choose to do so.

Okay, that will help. Thanks guys, I will be looking forward.

Your next question is from Debbie Jones of Deutsche Bank.

Hi, good morning. My first question is I was wondering just because your free cash flow, ranged a little wider than your EBITDA range. What has to happen for you to hit kind of the high end of your targeted free cash flow range?

Hey Debbie, it is Steve. I think the high end if you kind of look at the variability we will be around working capital. I think overall that would be in terms of the cash flow. We've got very good plans for inventory coming out of the business in the second half of the year. We have materially more natural planned market related downtime in the second half in addition or excuse me, planned natural maintenance downtime. And then, as Mike mentioned, the incremental market related downtime. So driving inventory out of the business, the first half to second half will be a key indicator for being at the higher end of the range, assuming that kind of, if you will, that kind of a natural midpoint on the adjusted EBITDA. I think that's really the, for the most part our interest expense and taxes and pension will be in line with the midpoint of the range, roughly that we have for you.

Okay, thanks that’s helpful. And then second question Mike, you mentioned helping your customers get their sustainability goals. Can you help us understand what percentage or ballpark of your customer base is leaning on you to help improve kind of their value chain metrics? And then what beyond the new mill that you can do to help them with that?

You know, Debbie I'd say over 90%, I mean, to be really the most the smallest customers that we have, maybe perhaps some of them aren't as aggressive on some of those goals. But if you look at our top 25 accounts for sure, every one of them is getting very ambitious goal for cost takeout. Well, not just strong pickup but carbon take out if you think about it over that period of time in terms of what they want on greenhouse gases and electricity and water and those types of things. And so it's very important that we have answers that move the needle. That's part of how we're making those investments and really looking back into it. So I'd say it's the majority of them.

Okay, thanks, I will turn it over.

Thanks, Debbie.

Your next question is from Mark Weintraub of Seaport Global.

Thank you. You had mentioned the teeter totter between cartons and food service and hopefully that's going to teeter back the other way. Is food service more profitable, is that one of the issues on the on the impact to mix as well? And so does that become a favorable if it does go back the other way?

Mark, it is Steve. No, I wouldn't necessarily go down that path. Overall, as you know, our economics, the big platforms have some commonality to them. We've been improving the overall economics of the SBS platform and the cup business since acquiring that business two and a half years ago. So I don't think you'll see material movements in terms of that impacting volume mix. It really goes back to what we talked about a moment ago. We had a lot of activity here in the quarter adjusting to both the ins and the outs. But overall, we still we would expect over time to earn volume mix positive across the portfolio of products as we look out over the next several years. So I wouldn't characterize it as a difference in profitability. It's more a difference in the kind of the top line mix and the tons that are utilized to support that business.

Hey Mark, the only thing I'd add, of course we're going to spend $12 million. We expect to spend $12 million in the quarter in terms of that market economic downtime. So obviously that would go away, food service come back. But that isn’t our guide.

Okay and two other real quick ones. One, you had a couple of acquisitions which presumably wouldn’t have been in your original EBITDA. Of course, you didn't have FX as a negative either, but order of magnitude on the acquisition how much might that be contributing to the 2020 numbers?

Consistent with what we originally guided Mark, overall in terms of what we acquired and committed to we are on the trajectory, so its -- that’s favorable EBITDA within in our kind of early guidance if you will based as we put those out there, I think announced after Q1. So we're really pleased, as I mentioned in the commentary with the synergy capture. We're consolidating some facilities into lower cost facilities, we are capturing logistics improvements across the CRB platforms. So overall, we're in line with the commitments for both the Grief’s business and the Quad businesses that we acquired to meet the couple year expectations we had for EBITDA and synergy capture.

Okay, great. So Quad was in the original guide back in January. I understood it, I didn't realize that. And then -- thanks. And then lastly, so with the commodity input costs having been a favorable, are there contractual give backs or is wood treated differently somehow perhaps than some of the other input items, or is that something that you'll work to offset in other ways but how should we think about that?

You know, the vast majority of our contracts would use virgin wood are Arkan based. So it is not impacted by any reduction there nor if it runs like it did last year it has recovered Mark. So I ask you to think about it that way. Those kind of contracts are more on our recycled business or our CRB business across lines.

Super, thank you.

Your next question is from Anthony Pettinari of Citi.

Good morning. There has been some commentary in the trade press about slightly more pressure on SBS than CRB. It sounds like most of your SBS markets are strong and you're taking adjustments where you need to. Just wondering if you had any thoughts on influence or whether that is something that you are sort of basically coming up against?

Yeah. Thanks a lot, Anthony for the question. It looks great down really into all three substrates in terms of working off the census data, which is the best we have in terms of imports. And if you start with CRB in the beginning when you look at CRB, most of the CRB historically has come from either Canada or Korea, a little bit from China, but not much of in recent time. And actually those numbers are down year-to-date on the CRB in terms of imports into the U.S. So, on that one, that would be case. Of course we operate one of those mills in Canada that makes CRB so some of that could be just a shift in our business around over time. If we look at our CUK or CEK equivalents specifically from South America the combined production and imports last year were roughly 50,000 tons. And you could date up to 2000 tons. So pretty small. I mean less than 2% of the overall market if you think about it that way. In regards to FBB, that's been the biggest one as you know, principally coming out of Europe, you got Sweden year-to-date. Best we can tell are up about 30,000 tons that's consistent with, really what our expectations would have been. But that's been partially offset by a pretty significant drop off in ivory board from China. So, the net-net of all that is it's very deminimus in terms of imports.

Okay, that’s extremely helpful detail. And then just following up maybe on George’s earlier question, I mean in your view is any of the food and beverage demand that you saw in 2Q seem to be strong, was any of that sort of pantry loading or stockpiling or channel fail that doesn't show up in 3Q or do you think I mean, roughly that rate of demand should be fairly processed into 3Q?

You know it's a great question and I don't know if we have a perfect answer. But what we can tell you is we're seeing a similar trend here in July to what we saw in Q2. So I'd answer it that way. I mean, best we know, it's holding up about the same. People have worked through that stuff at home I would think. And there is just more meals being eaten at home right now and less meals being eaten out. And it shows in our numbers. But the great thing about the resiliency of our portfolio is that, that balances out in a way that we are still able to generate economic value gift for our shareholders.

Yeah, I think Anthony it is tough to argue a pantry load five to six months into a pandemic. I think things do turn over pretty naturally.

Great, that's very helpful. I'll turn it over.

Your next question is from Ghansham Panjabi of Baird.

Hey guys, good morning. I guess as just as a follow to the last question, a lot of food companies have been talking about just purely matching point of sale, just given elevated sales at the retail level and inventories are pretty low as it is. I guess on the flip side of what you just said, are we setting up for a period where the 77 percentage portfolio that is non-food service continues to outgrow their legacy baseline even as food service normalizes. I mean, what's your sense just talking to customers?

Yeah, Ghansham it is Steve. I think as we were just talking, Mike and I were just talking with you and others here earlier, I think yes, there'll be some natural normalization of volumes as people turn eventually out into a work base and away from home environment. But that being said, the organic volume growth commitments we have through sustainability related conversions. So beverage growth on a global basis, cup conversions, bowl conversions. That really was the catalyst for our Vision 2025. And so you kind of have to look through the realities of health in and out if you will of this difficult and unusual time. And look through our view of the actual net organic volume initiatives that we're executing on, which give us the confidence that organic volume and sales growth will be consistent and available based upon the actual initiatives we have underway.

Okay now I am sorry if I missed this but can you touch on how Europe performed during the quarter. I mean, a lot of companies have been talking about beverages being particularly weak in Europe, especially Southern Europe. You know what do you see in the second quarter and what are your expectations for the back half for that region?

Our business in Europe was strong Ghansham and again, we're running a little different race than some because we're replacing a lot of shrink wrap film and other plastics to fully enclosed fiber and Kio Clip and those kind of projects. So we're driving some real growth there year-on-year and this is a strong business for us.

Got it, thanks so much.

And at this time I would like to turn the call back to Mike Doss for any closing remarks.

Thank you for joining us on our earnings call today. We'll look forward to talking to you again in October.

Ladies and gentlemen this concludes today's conference call. Thank you for your participation, you may now disconnect.