RANPAK HOLDINGS CORP. Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Statements that are not historical facts are forward-looking statements. Our forward-looking statements include, but are not limited to, statements regarding our or our management team's expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to estimates, projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words "anticipate," "believe," "continue," "could," "estimate," "expect," "forecast," "intend," "may," "might," "plan," "possible," "potential," "predict," "project," "should," "would" and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. The forward-looking statements contained in this Quarterly Report on Form 10-Q are based on our current expectations and beliefs concerning future developments and their potential effects on us taking into account information currently available to us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks include, but are not limited to:
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our inability to secure a sufficient supply of paper to meet our production requirements;
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the impact of rising prices on production inputs, including labor, energy, and freight on our results of operations;
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the impact of the price of kraft paper on our results of operations;
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our reliance on third party suppliers;
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the COVID-19 pandemic and associated response;
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the impact of
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the high degree of competition in the markets in which we operate;
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consumer sensitivity to increases in the prices of our products;
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global inflation and other macroeconomic factors;
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changes in consumer preferences with respect to paper products generally;
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continued consolidation in the markets in which we operate;
•
the loss of significant end-users of our products or a large group of such end-users;
•
our failure to develop new products that meet our sales or margin expectations;
•
our future operating results fluctuating, failing to match performance or to meet expectations;
•
our ability to fulfill our public company obligations; and
•
other risks and uncertainties indicated from time to time in filings made with
the
Should one or more of these risks or uncertainties materialize, they could cause our actual results to differ materially from the forward-looking statements. We are not undertaking any obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. You should not take any statement regarding past trends or activities as a representation that the trends or activities will continue in the future. Accordingly, you should not put undue reliance on these statements.
Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis is intended to help the reader understand our business, financial condition, results of operations, liquidity and capital resources. You should read this discussion in conjunction with the sections entitled "Risk Factors" and "Forward-Looking Statements," and our financial statements and related notes included in this Quarterly Report on Form 10-Q as well as the section entitled, "Management's Discussion and Analysis of Financial Condition and Results of Operations" ofRanpak included in our 2022 10-K, filed with theSEC onMarch 31, 2023 . Capitalized terms used and not defined herein have the meanings disclosed elsewhere in the Quarterly Report on Form 10-Q. 23 -------------------------------------------------------------------------------- The following discussion contains forward-looking statements that reflect future plans, estimates, beliefs and expected performance. The forward-looking statements are dependent upon events, risks and uncertainties that may be outside of the Company's control. The Company's actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the sections titled "Risk Factors" and "Cautionary Note Regarding Forward-Looking Statements" included elsewhere in this Quarterly Report on Form 10-Q.
Overview
Ranpak is a leading provider of environmentally sustainable, systems-based, product protection solutions for e-commerce and industrial supply chains. Since inception in 1972, we have delivered high quality protective packaging solutions, while maintaining commitment to environmental sustainability. We assemble our PPS systems and provide the PPS systems and paper consumables to customers, which include direct end-users and our network of exclusive paper packaging solution distributors, who in turn place the systems with and sell paper to commercial and industrial users for the conversion of paper into packaging materials. We operate manufacturing facilities inthe United States andEurope . For our Automation product lines, we currently have dedicated facilities inVirginia andthe Netherlands , with another facility inthe United States currently under construction. R Squared Robotics, a division ofRanpak , uses three-dimensional computer vision and artificial intelligence technologies to improve end-of-line packaging and logistics functions. We also maintain sales and administrative offices inBrazil ,France ,China ,Japan , andSingapore . We are a global business that generated approximately 58.3% of our 2022 net revenue outside ofthe United States . As ofMarch 31, 2023 , we had an installed base of approximately 139.6 thousand PPS systems serving a diverse set of distributors and end-users. We generated net revenue of$81.2 million and$82.5 million in the three months endedMarch 31, 2023 and 2022, respectively. Effect of Currency Fluctuations. As a result of the geographic diversity of our operations, we are exposed to the effects of currency translation, which has affected the comparability of our results of operations between the periods presented in this report and may affect the comparability of our results of operations in future periods. Currency transaction exposure results when we generate net revenue in one currency at one time and incur expenses in another currency at another time, or when we realize gain or loss on intercompany transfers. While we seek to limit currency transaction exposure by matching the currencies in which we incur sales and expenses, we may not always be able to do so. In addition, we are subject to currency translation exposure because the operations of our subsidiaries are measured in their functional currency which is the currency of the primary economic environment in which the subsidiary operates. Any currency balances that are denominated in currencies other than the functional currency of the subsidiary are re-measured into the functional currency, with the resulting gain or loss recorded in the foreign currency (gains) losses line-item in our Unaudited Condensed Consolidated Statements of Operations. In turn, subsidiary income statement balances that are denominated in currencies other than USD are translated into USD, our reporting currency, in consolidation using the average exchange rate in effect during each fiscal month during the period, with any related gain or loss recorded as foreign currency translation adjustments in other comprehensive income (loss). The assets and liabilities of subsidiaries that use functional currencies other than the USD are translated into USD in consolidation using period end exchange rates, with the effects of foreign currency translation adjustments included in accumulated other comprehensive income.
We hedge some of our exposure to foreign currency translation with a cross currency swap. Significant currency fluctuations could impact the comparability of results between periods, while such fluctuations coupled with material mismatches in net revenue and expenses could also adversely impact our cash flows. See "Qualitative and Quantitative Disclosures About Market Risk."
Seasonality. Approximately 31.0% of our net revenue in 2022, either directly or to distributors, was destined for end-users in the e-commerce sectors, whose businesses frequently follow traditional retail seasonal trends, including a concentration of sales in the holiday period in the fourth quarter. Our results tend to follow similar patterns, with the highest net revenue typically recorded in our fourth fiscal quarter and the slowest sales in our first fiscal quarter of each fiscal year. We expect this seasonality to continue in the future and, as a result, our results of operations between fiscal quarters in a given year may not be directly comparable.
Key Performance Indicators and Other Factors Affecting Performance
We use the following key performance indicators and monitor the following other
factors to analyze our business performance, determine financial forecasts, and
help develop long-term strategic plans.
24
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PPS Systems Base - We closely track the number of PPS systems installed with
end-users as it is a leading indicator of underlying business trends and
near-term and ongoing net sales expectations. Our installed base of PPS systems
also drives our capital expenditure budgets. The following table presents our
installed base of PPS systems by product line as of March 31, 2023 and 2022:
March 31, 2023 March 31, 2022 Change % Change
PPS Systems (in thousands)
Cushioning machines 35.0 35.3 (0.3 ) (0.8 )
Void-Fill machines 82.3 78.3 4.0 5.1
Wrapping machines 22.3 20.9 1.4 6.7
Total 139.6 134.5 5.1 3.8
Paper and Other Costs. Paper is a key component of our cost of goods sold and
paper costs can fluctuate significantly between periods. We purchase both 100%
virgin and 100% recycled paper, as well as blends, from various suppliers for
conversion into the paper consumables we sell. The cost of paper supplies is our
largest input cost, and we historically have negotiated supply and pricing
arrangements with most of our paper suppliers annually, with a view towards
mitigating fluctuations in paper cost. Nevertheless, as paper is a commodity,
its price on the open market, and in turn the prices we negotiate with suppliers
at a given point in time, can fluctuate significantly, and is affected by
several factors outside of our control, including inflationary pressures, supply
and demand and the cost of other commodities that are used in the manufacture of
paper, including wood, energy and chemicals. The market for our solutions is
competitive and it may be difficult to pass on increases in paper prices to our
customers immediately, or at all, which has in the past, and could in the
future, adversely affect our operating results. Further, the conflict in Ukraine
has increased pricing for paper products as a result of decreased availability
of paper products previously sourced from Russian paper mills. During 2022, we
eliminated our paper sourcing from Russian suppliers and reallocated our
purchases to other mills across the globe. As previously noted, we have seen
some stabilization of paper and other costs in North America , however, pricing
conditions in Europe remain unsteady, primarily due to the volatility in energy
markets. Where we can, we will look to pass increased market costs on to our
customers to mitigate the impact of these costs. We are unable to predict our
ability to pass these costs on to our customers and how much of these increases
we will be able to pass on to our customers. As such, we expect some continued
pressure on our gross margin in the medium term relative to our historical
margin profile.
Inflationary Pressures and Other Costs. We experienced inflationary pressures in
2022, increasing the costs of paper as well as shipping and logistics, energy
and wages, among other costs. In addition, inflationary pressures have adversely
impacted some of our end-users, such as automotive companies; distributors;
electronic manufacturers; machinery manufacturers; home goods manufacturers;
e-commerce and mail order fulfillment firms; and other end-users that are
particularly sensitive to reductions in business and consumer spending by their
respective customers, and which in turn have impacted our net revenue. The
conflict in Ukraine caused certain headwinds, including (i) increased energy
costs, particularly in Europe ; (ii) shipping variabilities due to truck driver
shortages and (iii) increased shipping times for paper products sourced from
Russian paper mills, in addition to increased paper costs discussed above.
Higher costs due to inflation and the conflict in Ukraine during 2022 were
partially offset by price increases, which mitigated the impact on our operating
results. However, our ability to predict or further offset inflationary cost
increases in the future or during economic downturns or recessions may be
limited or impacted by heightened competition for net revenue, an unwillingness
by our customers to accept price increase or pressure to reduce selling prices
if end-users reduce their volume of purchases. Inflationary pressures and
associated increases in interest rates and borrowing costs may also impact the
ability of some of our end-users and suppliers to obtain funds for operations
and capital expenditures, which could negatively impact our ability to obtain
necessary supplies as well as the sales of materials and equipment to affected
end-users. This could also result in reduced or delayed collections of
outstanding accounts receivable from end-users, which could impact our cash
flows. As a result, to the extent inflationary pressures continue, we expect
additional pressure on our net revenue and gross margin. We will continue to
evaluate the impact of inflationary pressures on our profitability and cash
flows as well as our end-users.
Impact of the COVID-19 Pandemic. The COVID-19 pandemic has resulted in changes
in market and economic conditions around the world. We continue to operate our
production and distribution facilities, both domestically and internationally,
albeit subject to measures designed to promote a safe operating environment.
During the COVID-19 pandemic, our assembly and distribution operations have
experienced disruptions, including lockdowns; port congestion; component-related
supply-related challenges (including from China ); increased shipping and
logistics costs; and delayed availability of supplies. Additionally, social
distancing and similar measures adopted in many jurisdictions around the world
impacted our ability to demonstrate and install our protective packaging systems
and Automation products and, as a result, such demonstrations and installations
were delayed. The COVID-19 pandemic and associated shutdown measures also
contributed to an increase in e-commerce activity and our net revenue, and the
subsequent reopening of economies has had a negative impact on e-commerce
activity and our net revenues. While we do not currently expect COVID-19 to have
a material impact on our business, results of operations, financial condition or
liquidity, we cannot predict the extent to which we will ultimately be impacted
due to the uncertain nature and duration of the COVID-19 pandemic. See "Risk
Factors" located in the 2022 10-K. We will continue to evaluate the nature and
extent of the impact to our business, results of operations, financial
condition, and cash flows.
25
--------------------------------------------------------------------------------Results of Operations
The following tables set forth our results of operations for the three months
ended
Our condensed consolidated financial statements are prepared in accordance with
GAAP. We have, however, also presented below Earnings Before Interest, Taxes,
Depreciation and Amortization ("EBITDA") and adjusted EBITDA ("AEBITDA"), which
are non-GAAP financial measures. We have included EBITDA and AEBITDA because
they are key measures used by our management and Board of Directors to
understand and evaluate our operating performance and trends, to prepare and
approve our annual budget and to develop short- and long-term operational plans.
In particular, the exclusion of certain expenses in calculating EBITDA and
AEBITDA can provide a useful measure for period-to-period comparisons of our
primary business operations. Adjusting AEBITDA for comparability for constant
currency also assists in this comparison as it allows a better insight into the
performance of our businesses that operate in currencies other than our
reporting currency. Before consolidation, our Europe /Asia financial data is
derived in Euros. To calculate the adjustment that we apply to present AEBITDA
on a constant currency basis, we multiply this Euro-derived data by 1.15 to
reflect an exchange rate of 1 Euro to 1.15 USD , which we believe is a reasonable
exchange rate to use to give a stable depiction of the business without currency
fluctuations between periods, to calculate Europe /Asia data in constant currency
USD. An exchange rate of 1.15 approximates the average exchange rate of the Euro
to USD over the past five years. We also present non-GAAP constant currency net
revenue and derive it in the same manner. We believe that EBITDA and AEBITDA
provide useful information to investors and others in understanding and
evaluating the Company's operating results in the same manner as our management
and Board of Directors.
However, EBITDA and AEBITDA have limitations as analytical tools, and you should
not consider them in isolation or as substitutes for analysis of our results as
reported under GAAP. In particular, EBITDA and AEBITDA should not be viewed as
substitutes for, or superior to, net income (loss) prepared in accordance with
GAAP as a measure of profitability or liquidity. Some of these limitations are:
•
although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and EBITDA and AEBITDA do not reflect all cash capital expenditure requirements for such replacements or for new capital expenditure requirements;
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EBITDA and AEBITDA do not reflect changes in, or cash requirements for, our working capital needs;
•
AEBITDA does not consider the potentially dilutive impact of equity-based compensation;
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EBITDA and AEBITDA do not reflect the impact of the recording or release of valuation allowances or tax payments that may represent a reduction in cash available to us;
•
AEBITDA does not take into account any restructuring and integration costs;
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AEBITDA is presented on a constant currency basis and gives effect to the impact of currency fluctuations
•
while EBITDA for all periods herein has been reported without giving effect to constant currency adjustments, we have previously presented EBITDA on a constant currency basis, which reduces its usefulness as a comparative measure to certain of our historical results that are not presented in this report; and
•
other companies, including companies in our industry, may calculate EBITDA and AEBITDA differently, which reduces their usefulness as comparative measures.
EBITDA - EBITDA is a non-GAAP financial measure that we calculate as net income (loss), adjusted to exclude: benefit from (provision for) income taxes; interest expense; and depreciation and amortization. AEBITDA - AEBITDA is a non-GAAP financial measure that we present on a constant currency basis and calculate as net income (loss), adjusted to exclude: benefit from (provision for) income taxes; interest expense; depreciation and amortization; stock-based compensation expense; and, in certain periods, certain other income and expense items; as further adjusted to reflect the performance of the business on a constant currency basis. In addition, in our discussion below, we include certain other unaudited, non-GAAP constant currency data for the three months endedMarch 31, 2023 and 2022. This data is based on our historical financial statements included elsewhere in this Quarterly Report on Form 10-Q, adjusted (where applicable) to reflect a constant currency presentation between periods for the convenience of readers. We reconcile this data to our GAAP data for the same period under "Presentation and Reconciliation of GAAP to Non-GAAP Measures" for the three months endedMarch 31, 2023 and 2022. 26 --------------------------------------------------------------------------------
Comparison of First Quarter of 2023 to First Quarter of 2022
Three Months Ended March 31,
2023 % Net revenue 2022 % Net revenue
Net revenue $ 81.2 - $ 82.5 -
Cost of goods sold 53.7 66.1 57.9 70.2
Gross profit 27.5 33.9 24.6 29.8
Selling, general and
administrative expenses 27.2 33.5 29.7 36.0
Depreciation and
amortization expense 8.0 9.9 8.2 9.9
Other operating expense,
net 1.2 1.5 0.5 0.6
Loss from operations (8.9 ) (11.0 ) (13.8 ) (16.7 )
Interest expense 5.7 7.0 5.0 6.1
Foreign currency gain 0.2 0.2 (0.6 ) (0.7 )
Other non-operating
income, net (0.3 ) (0.4 ) - -
Loss before income tax
benefit (14.5 ) (17.9 ) (18.2 ) (22.1 )
Income tax benefit (2.1 ) (2.6 ) (4.1 ) (5.0 )
Net loss $ (12.4 ) (15.3 ) $ (14.1 ) (17.1 )
Non-GAAP
EBITDA $ 7.5 $ 5.6
AEBITDA (Constant
Currency) $ 15.1 $ 19.1
Net Revenue
The following tables and the discussion that follows compare our net revenue by
geographic region and by product line for the first quarter of 2023 and 2022 on
a GAAP basis and on a non-GAAP constant currency basis as described above and in
the discussion below. See also "Presentation and Reconciliation of GAAP to
Non-GAAP Measures" for further detail:
Three Months Ended March 31,
2023 % Net revenue 2022 % Net revenue
North America $ 31.1 38.3 $ 30.9 37.5
Europe/Asia 50.1 61.7 51.6 62.5
Net revenue $ 81.2 100.0 $ 82.5 100.0
Cushioning machines $ 37.6 46.3 $ 35.6 43.2
Void-Fill machines 30.2 37.2 31.8 38.5
Wrapping machines 9.3 11.5 11.0 13.3
Other 4.1 5.0 4.1 5.0
Net revenue $ 81.2 100.0 $ 82.5 100.0
Non-GAAP Constant Currency
Three Months Ended March 31,
2023 % Net revenue 2022 % Net revenue $ Change % Change
North America $ 31.1 36.7 $ 30.9 36.8 $ 0.2 0.6
Europe/Asia 53.7 63.3 53.0 63.2 0.7 1.3
Net revenue $ 84.8 100.0 $ 83.9 100.0 $ 0.9 1.1
Cushioning machines $ 39.5 46.6 $ 36.3 43.3 $ 3.2 8.8
Void-Fill machines 31.3 36.9 32.3 38.5 (1.0 ) (3.1 )
Wrapping machines 9.6 11.3 11.1 13.2 (1.5 ) (13.5 )
Other 4.4 5.2 4.2 5.0 0.2 4.8
Net revenue $ 84.8 100.0 $ 83.9 100.0 $ 0.9 1.1
27-------------------------------------------------------------------------------- Net revenue for the first quarter of 2023 was$81.2 million compared to net revenue of$82.5 million in the first quarter of 2022, a decrease of$1.3 million or 1.6% year over year. Net revenue was negatively impacted by decreases in void-fill and wrapping, partially offset by increases in cushioning and other products. In addition to currency headwinds, which contributed 2.7 points of pressure, revenue was negatively affected by increased business sponsoring costs; lower economic activity; and the impact inflationary pressures are having on consumer and corporate budgets. Cushioning increased$2.0 million , or 5.6%, to$37.6 million from$35.6 million ; void-fill decreased$1.6 million , or 5.0%, to$30.2 million from$31.8 million ; wrapping decreased$1.7 million , or 15.5%, to$9.3 million from$11.0 million ; and other sales were flat at$4.1 million for the first quarter of 2023 compared to the first quarter of 2022. Other net revenue includes automated box sizing equipment and non-paper revenue from packaging systems installed in the field, such as systems accessories. The decrease in net revenue is quantified by a decrease in the volume of sales of our paper consumable products of approximately 3.5 percentage points ("pp"), partially offset by a 4.2 pp increase in the price or mix of our paper consumable products, and an increase of 0.3 pp in sales of automated box sizing equipment. Constant currency net revenue was$84.8 million for the first quarter of 2023, a 1.1% increase from constant currency net revenue of$83.9 million for the first quarter of 2022. Net revenue inNorth America for the first quarter of 2023 totaled$31.1 million compared to net revenue inNorth America of$30.9 million in the first quarter of 2022. The increase of$0.2 million , or 0.6%, was primarily attributable to increases in cushioning, void-fill, and other sales, partially offset by decreases in wrapping sales. Net revenue inEurope /Asia for the first quarter of 2023 totaled$50.1 million compared to net revenue inEurope /Asia of$51.6 million in the first quarter of 2022. The decrease of$1.5 million , or 2.9%, was driven by lower void-fill, wrapping, and other sales as well as currency headwinds, partially offset by increases in cushioning sales. Constant currency net revenue inEurope /Asia was$53.7 million for the first quarter of 2023, a$0.7 million , or 1.3%, increase from constant currency net revenue of$53.0 million for the first quarter of 2022. Cost of Goods Sold Cost of goods sold for the first quarter of 2023 totaled$53.7 million , a decrease of$4.2 million , or 7.3%, compared to$57.9 million in the first quarter of 2022. The change was primarily due to lower input costs and a decrease in depreciation of$2.3 million over the prior year. Additionally, currency rate fluctuations accounted for approximately 2.4% of the decrease over prior year. Paper pricing has begun to ease and we began to see relief in the first quarter of 2023 compared to the inflationary pressures in 2022.
Selling, General and Administrative Expenses ("SG&A")
SG&A for the first quarter of 2023 was$27.2 million , a decrease of$2.5 million , or 8.4%, from$29.7 million in the first quarter of 2022. The change in SG&A was primarily due to a decrease in stock compensation expense, primarily related to reductions in expense associated with the 2021 LTIP PRSUs. Additionally, currency rate fluctuations accounted for approximately 2.0% of the decrease over prior year.
Depreciation and Amortization
Depreciation and amortization expenses for the first quarter of 2023 were$8.0 million , a decrease of$0.2 million , or 2.4%, from$8.2 million in the first quarter of 2022 primarily due to a decrease in depreciation of computer software. Additionally, currency rate fluctuations accounted for approximately 1.2% of the decrease over prior year.
Other Operating Expense, Net
Other operating expense, net for the first quarter of 2023 was
Interest Expense
Interest expense for the first quarter of 2023 was$5.7 million , an increase of$0.7 million , or 14.0%, from$5.0 million in the first quarter of 2022. The change was due to increases in interest rates associated with our first lien credit facilities during the first quarter. Additionally, currency rate fluctuations accounted for approximately 2.0% of the increase over prior year.
Foreign Currency (Gain) Loss
Foreign currency loss for the first quarter of 2023 was$0.2 million , a change of$0.8 million , or 133.3%, from foreign currency gain of$0.6 million in the first quarter of 2022 due to the volatility in Euro exchange rates compared to USD. 28 --------------------------------------------------------------------------------
Other Non-Operating Income, Net
Other non-operating income, net for the first quarter of 2023 was$0.3 million and represents the unrealized gain on our investment in a money market fund. Other non-operating income, net was not material for the first quarter of 2022.
Income Tax Benefit
Income tax benefit for the first quarter of 2023 was$2.1 million , or an effective tax rate of 14.4%. Income tax benefit was$4.1 million in the first quarter of 2022, or an effective tax rate of 22.7%. The fluctuation in the effective tax rate between periods was primarily attributable to the impact of a shortfall related to stock-based compensation. The effective tax rate differs from theU.S. federal statutory rate due primarily to expense from stock-based compensation, which is partially offset by theU.S. foreign derived intangible income deduction, tax credits available in theU.S. , and income in foreign jurisdictions that are taxed at different rates than theU.S. statutory tax rate.
Net Loss
Net loss for the first quarter of 2023 decreased$1.7 million to$12.4 million from a net loss of$14.1 million in the first quarter of 2022. The change was due to the reasons discussed above.
EBITDA and AEBITDA
EBITDA for the first quarter of 2023 was
Presentation and Reconciliation of GAAP to Non-GAAP Measures
As noted above, we believe that in order to better understand the performance of the Company, providing non-GAAP financial measures to users of our financial information is helpful. We believe presentation of these non-GAAP measures is useful because they are many of the key measures that allow management to evaluate more effectively our operating performance and compare the results of our operations from period to period and against peers without regard to financing methods or capital structure. Management does not consider these non-GAAP measures in isolation or as an alternative to similar financial measures determined in accordance with GAAP. The computations of EBITDA and AEBITDA may not be comparable to other similarly titled measures of other companies. These non-GAAP financial measures should not be considered as alternatives to, or more meaningful than, measures of financial performance as determined in accordance with GAAP or as indicators of operating performance. The following tables and related notes reconcile certain non-GAAP measures, including the non-GAAP constant currency measures, to GAAP information presented in this Quarterly Report on Form 10-Q for the three months endedMarch 31, 2023 and 2022: 29 --------------------------------------------------------------------------------
Three Months Ended March 31,
2023 2022 $ Change % Change
Net revenue $ 81.2 $ 82.5 $ (1.3 ) (1.6 )
Cost of goods sold 53.7 57.9 (4.2 ) (7.3 )
Gross profit 27.5 24.6 2.9 11.8
Selling, general and
administrative expenses 27.2 29.7 (2.5 ) (8.4 )
Depreciation and
amortization expense 8.0 8.2 (0.2 ) (2.4 )
Other operating expense
(income), net 1.2 0.5 0.7 140.0
Income (loss) from
operations (8.9 ) (13.8 ) 4.9 (35.5 )
Interest expense 5.7 5.0 0.7 14.0
Foreign currency gain 0.2 (0.6 ) 0.8 (133.3 )
Other non-operating
income, net (0.3 ) - (0.3 ) -
Loss before income tax
benefit (14.5 ) (18.2 ) 3.7 (20.3 )
Income tax benefit (2.1 ) (4.1 ) 2.0 (48.8 )
Net loss (12.4 ) (14.1 ) 1.7 (12.1 )
Depreciation and
amortization expense - COS 8.3 10.6 (2.3 ) (21.7 )
Depreciation and
amortization expense - D&A 8.0 8.2 (0.2 ) (2.4 )
Interest expense 5.7 5.0 0.7 14.0
Income tax benefit (2.1 ) (4.1 ) 2.0 (48.8 )
EBITDA(1) 7.5 5.6 1.9 33.9
Adjustments(2):
Unrealized (gain) loss
translation 0.2 (0.6 ) 0.8 (133.3 )
Non-cash impairment losses 0.4 - 0.4 -
M&A, restructuring,
severance 0.2 0.5 (0.3 ) (60.0 )
Amortization of restricted
stock units 2.8 8.8 (6.0 ) (68.2 )
Amortization of
cloud-based software
implementation costs(3) 0.7 0.7 - -
Cloud-based software
implementation costs 1.2 2.5 (1.3 ) (52.0 )
Other adjustments 1.3 1.2 0.1 8.3
Constant currency 0.8 0.4 0.4 100.0
Constant Currency
AEBITDA(1) $ 15.1 $ 19.1 $ (4.0 ) (20.9 )
(see subsequent footnotes)
(1) Reconciliations of EBITDA and AEBITDA for each period presented are to net loss, the nearest GAAP equivalent.
(2) Adjustments are related to non-cash unusual or infrequent costs such as: effects of non-cash foreign currency remeasurement or adjustment; impairment of returned machines; costs associated with the evaluation of acquisitions; costs associated with executive severance; costs associated with restructuring actions such as plant rationalization or realignment, reorganization, and reductions in force; costs associated with the implementation of the global ERP system; and other items deemed by management to be unusual, infrequent, or non-recurring.
(3) Represents amortization of capitalized costs related to the implementation of the global ERP system, which are included in SG&A.
Liquidity and Capital Resources
Liquidity describes the ability of a company to generate sufficient cash flows to meet the cash requirements of its business operations, including working capital needs, capital expenditures, debt service, acquisitions, other commitments and contractual obligations. We evaluate liquidity in terms of cash flows from operations and other sources and the sufficiency of such cash flows to fund our operating, investing and financing activities. We believe that our cash balances together with borrowing capacity under the revolving portion of the Facilities will provide us with sufficient resources to cover our current requirements. Our main liquidity needs relate to capital expenditures and expenses for the production and maintenance of PPS systems placed at end-user facilities, working capital, including the purchase of paper raw materials, and payments of principal and interest on our outstanding debt. We expect our capital expenditures to increase as we continue to grow our business, expand our manufacturing footprint, and upgrade our existing systems and facilities. We continue to evaluate our inventory requirements and adjust according to our volume forecasts. Our future capital requirements and the adequacy of available funds will depend on many factors, and if we are unable to obtain needed additional funds, we may have to reduce our operating costs or incur additional debt, which could impair our growth prospects and/or otherwise negatively impact our business. Further, volatility in the equity and credit markets resulting from the COVID-19 pandemic, the conflict inUkraine , or other macroeconomic factors could make obtaining new equity or debt financing more difficult or expensive. 30 -------------------------------------------------------------------------------- We had$58.6 million in cash and cash equivalents as ofMarch 31, 2023 and$62.8 million as ofDecember 31, 2022 . Including finance lease liabilities and excluding deferred financing costs, we had$399.2 million in debt,$2.5 million of which was classified as short-term, as ofMarch 31, 2023 , compared to$396.9 million in debt,$2.4 million of which was classified as short-term, as ofDecember 31, 2022 . AtMarch 31, 2023 , we did not have amounts outstanding under our$45.0 million revolving credit facility, and we had no borrowings under such facility throughMay 8, 2023 . Share Repurchase Program OnJuly 26, 2022 , the Directors authorized a general share repurchase program of our Class A common stock of up to$50.0 million , with a 36-month expiration. These Class A common stock repurchases may occur in transactions that may include, without limitation, tender offers, open market purchases, accelerated share repurchases, negotiated block purchases, and transactions effected through plans under Rule 10b5-1 of the Securities Exchange Act of 1934. The timing and actual amount of shares repurchased will depend on a variety of different factors and may be modified, suspended or terminated at any time at the discretion of the Directors.
Debt Profile
The material terms of the Facilities are summarized in Note 7, "Long-Term Debt" to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. InJune 2019 , Holdings, theU.S. Borrower, and the Dutch Borrower entered into the Facilities. The First Lien Term Facility matures in 2026 and the Revolving Facility matures inJune 2024 . As ofMarch 31, 2023 andDecember 31, 2022 , no amounts were outstanding under the Revolving Facility. Borrowings under the Facilities, at the Borrowers' option, bear interest at either (i) an adjusted eurocurrency rate or, as of the effectiveness of Amendment No. 2, the SOFR rate, or (ii) a base rate, in each case plus an applicable margin. The applicable margin is 3.75% with respect to eurocurrency borrowings and base rate borrowings as ofMarch 31, 2023 andDecember 31, 2022 , (in each case, assuming a first lien net leverage ratio of less than 5.00:1.00), subject to a leverage-based step-up to an applicable margin equal to 4.00% for eurocurrency borrowings and SOFR borrowings, as applicable and 3.00% with respect to base rate borrowings. Global interest rates have risen meaningfully in 2022 and we expect interest on our Facilities to increase. The Revolving Facility includes borrowing capacity available for standby letters of credit of up to$5.0 million . Any issuance of letters of credit will reduce the amount available under the Revolving Facility. As ofMarch 31, 2023 , we had$2.4 million committed to outstanding letters of credit, leaving net availability under the Revolving Facility at$42.6 million . The Facilities will provide the Borrowers with the option to increase commitments under the Facilities in an aggregate amount not to exceed the greater of$95.0 million and 100% of trailing-twelve months Consolidated EBITDA (as defined in the definitive documentation with respect to the Facilities) for the four consecutive fiscal quarters most recently ended, plus any voluntary prepayments of the First Lien Term Facility (and, in the case of the Revolving Facility, to the extent such voluntary prepayments are accompanied by permanent commitment reductions under the Revolving Facility), plus unlimited amounts subject to the relevant net leverage ratio tests and certain other conditions. The obligations of the Borrowers under the Facilities and certain of their obligations under hedging arrangements and cash management arrangements are unconditionally guaranteed by Holdings and theU.S. Guarantors, and solely with respect to the obligations of the Dutch Borrower or any Dutch Guarantor, the Dutch Guarantors, in each case, other than certain excluded subsidiaries. The Facilities are secured by (i) a first priority pledge of the equity interests of the Borrowers and of each direct, wholly-owned restricted subsidiary of any Borrower or any Guarantor and (ii) a first priority security interest in substantially all of the assets of the Borrowers and the Guarantors (in each case, subject to customary exceptions), provided that notwithstanding the foregoing, obligations of theU.S. Borrower andU.S. Guarantors under the Facilities were not secured by assets of the Dutch Borrower or any Dutch Guarantor. The Facilities impose restrictions that require the Company to comply with or maintain certain financial tests and ratios. Such agreements restrict our ability to, among other things: (i) declare dividends or redeem or repurchase capital stock, including with respect to Class A common stock; (ii) prepay, redeem or purchase other debt; (iii) incur liens; (iv) make loans, guarantees, acquisitions and other investments; (v) incur additional indebtedness; (vi) engage in sale and leaseback transactions; (vii) amend or otherwise alter debt and other material agreements; (viii) engage in mergers, acquisitions and asset sales; (ix) engage in transactions with affiliates; and (x) enter into arrangements that would prohibit us from granting liens or restrict our ability to pay dividends, make loans or transfer assets among our subsidiaries. 31 --------------------------------------------------------------------------------
Amendments to First Lien Credit Facilities
OnFebruary 14, 2020 , theU.S. Borrower, the Dutch Borrower, Holdings, certain other subsidiaries of Holdings, certain lenders party to Amendment No. 1 and the Administrative Agent entered into Amendment No. 1. Among other things, the Amendment No. 1 amends the Facilities such that (x) the requirement of the Borrowers to apply a percentage of excess cash flow to mandatorily prepay term loans under the Facilities commences with the fiscal year endingDecember 31, 2021 (instead of the fiscal year endingDecember 31, 2020 ) and (y) the aggregate amount per fiscal year of capital stock of any parent company of theU.S. Borrower that is held by directors, officers, management, employees, independent contractors or consultants of theU.S. Borrower (or any parent company or subsidiary thereof) that theU.S. Borrower may repurchase, redeem, retire or otherwise acquire or retire for value has been increased to the greater of$10.0 million and 10% of Consolidated AEBITDA (as defined in the Facilities) (increased from the greater of$7.0 million and 7% of Consolidated AEBITDA) as of the last day of the most recently ended quarter for which financial statements have been delivered.
On
Borrower Assumption Agreement
OnJuly 1, 2020 , contemporaneously with the Reorganization,Ranger Packaging LLC ,Ranpak Corp. ,Ranger Pledgor LLC , certain other subsidiaries ofRanger Pledgor LLC andGoldman Sachs Lending Partners LLC entered into the Borrower Assumption Agreement whereby, among other things,Ranpak Corp. assumed all obligations, liabilities and rights ofRanger Packaging LLC as theU.S. Borrower under the Facilities. Permitted Exit Payment Additionally, as a result of making the Exit Payment to our lenders, we became eligible to enter into the Permitted Exit Payment Amendment (as defined in the Credit Agreement) to the Credit Agreement which, among other things, introduced additional exceptions to the negative covenant that restricts the ability of the Borrowers and their restricted subsidiaries from paying dividends and distributions or repurchasing capital stock. OnJuly 28, 2021 , the Permitted Exit Payment Amendment to the Credit Agreement became effective.
Cash Flows
The following table sets forth our summary cash flow information for the periods
indicated:
Three Months Ended March 31,
2023 2022
Net cash provided by (used in) operating
activities $ 7.5 $ (9.4 )
Net cash used in investing activities (11.8 ) (10.7 )
Net cash used in financing activities (0.3 ) (3.1 )
Effect of Exchange Rate Changes on Cash 0.4 (0.2 )
Net Decrease in Cash and Cash Equivalents (4.2 ) (23.4 )
Cash and Cash Equivalents, beginning of
period 62.8 103.9
Cash and Cash Equivalents, end of period $ 58.6 $ 80.5
Cash Flows Provided by (Used in) Operating Activities
Net cash provided by operating activities was$7.5 million in the three months endedMarch 31, 2023 . Cash used in operating activities was$9.4 million in the three months endedMarch 31, 2022 . The changes in operating cash flows are largely due to the increases in cash earnings due to decreased input costs and decreased SG&A.
Cash Flows Used in Investing Activities
Net cash used in investing activities was$11.8 million in the three months endedMarch 31, 2023 and reflects cash used for production of converter equipment and leasehold improvements for our new facilities inConnecticut andThe Netherlands . Cash used in investing activities was$10.7 million in the three months endedMarch 31, 2022 and reflects cash used for production of converter equipment; cash used for the renovation of our global headquarters inConcord ,Ohio ; and cash used for leasehold improvements for our new facilities inConnecticut andThe Netherlands . 32 --------------------------------------------------------------------------------
Cash Flows Used in Financing Activities
Net cash used in financing activities was$0.3 million in the three months endedMarch 31, 2023 and reflects debt repayments, payments on finance lease liabilities, and tax payments for withholdings on stock compensation, partially offset by proceeds received from an equipment financing arrangement. Net cash used in financing activities was$3.1 million in the three months endedMarch 31, 2022 and reflects debt repayments, payments on finance lease liabilities, and tax payments for withholdings on stock compensation.
Contractual Obligations and Other Commitments
We lease production and administrative facilities as well as automobiles, machinery and equipment. We have various contractual obligations and commercial commitments that are recorded as liabilities in our condensed consolidated financial statements. Other items, such as purchase obligations and other executory contracts, are not recognized as liabilities, but are required to be disclosed. There have been no significant changes outside the ordinary course of business to our "Contractual Obligations" table in "Management's Discussion and Analysis of Financial Condition and Results of Operations" of the 2022 10-K.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of
Critical Accounting Policies
Our unaudited condensed consolidated financial statements have been prepared in conformity with GAAP, which requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of our financial statements and the reported amounts of revenues and expenses during the reporting period. While we do not believe that the reported amounts would be materially different, application of these policies involves the exercise of judgment and the use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on experience and various other assumptions that we believe are reasonable under the circumstances. All of our significant accounting policies, including certain critical accounting policies and estimates, are disclosed in our 2022 10-K.
Impairment of
We periodically review goodwill and indefinite-lived intangible assets for possible impairment whenever there is evidence that events or changes in circumstances indicate that the carrying value of our goodwill reporting units or identifiable indefinite-lived intangible assets may be less than their fair values. Additionally, we review our long-lived asset groups whenever there is evidence that events or changes in circumstances indicate the carrying value of our asset groups may not be recoverable. If events or circumstances exist, including a continuation of current market conditions, that indicate that the carrying value of our goodwill reporting units or identifiable indefinite-lived intangible assets may be less than their fair values, or the carrying amount of our long lived-asset groups may no longer be recoverable, we may recognize a non-cash impairment of goodwill, identifiable indefinite-lived intangible assets, or long-lived asset groups, which could have a material adverse effect on our consolidated financial condition or results of operations in future periods. For additional information on our accounting principles with respect to goodwill, identifiable indefinite-lived intangible assets, and long-lived assets, please see "Management Discussion & Analysis - Critical Accounting Policies" in our 2022 10-K. As ofMarch 31, 2023 , there were no indicators to suggest that it is more likely than not that the fair value of our reporting units and indefinite-lived intangible assets were below their carrying values. As ofMarch 31, 2023 , there were no indicators of impairment present for long-lived assets that required us to test for recoverability. If we fail an impairment test, any non-cash impairment charge may have an adverse effect on our results of operations and financial condition. We will continue to monitor events and circumstances for indicators of impairment in our reporting units, indefinite-lived intangible assets, and asset groups.
Recently Issued and Adopted Accounting Pronouncements
For recently issued and adopted accounting pronouncements, see Note 2, "Basis of
Presentation and Summary of Significant Accounting Policies" to the unaudited
condensed consolidated financial statements included elsewhere in this Quarterly
Report on Form 10-Q.
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