Ranpak Holdings Corp. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021; comparisons are with the same 2020 periods. Amounts are in U.S. dollars, millions, unless stated otherwise. Ranpak supplies paper-based protective packaging systems and consumables to e-commerce and industrial supply chains.
Financial performance
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Net revenue | $90.0 | $66.1 | $177.7 | $129.5 |
| Gross profit | $35.7 | $27.0 | $72.0 | $53.8 |
| Gross margin | 39.7% | 40.8% | 40.5% | 41.5% |
| Operating income (loss) | $1.1 | $(2.1) | $8.8 | $(2.7) |
| Net income (loss) | $(5.2) | $(8.5) | $1.1 | $(12.1) |
| Diluted EPS | $(0.07) | $(0.12) | $0.01 | $(0.17) |
- Revenue grew 36.2% in Q2 and 37.2% in the first half on a reported basis. Management’s constant-currency comparisons show growth of 29.1% and 30.1%, respectively.
- Management attributed growth primarily to higher paper-consumable volumes across cushioning, void-fill and wrapping. Constant-currency price and mix were lower by 3.0 percentage points in Q2 and 4.9 points in the first half.
- Gross margin declined year over year: management cited higher paper volumes, freight and production costs, and increased depreciation. SG&A grew more slowly than revenue, lowering its share of constant-currency revenue.
- Constant-currency adjusted EBITDA, a non-GAAP measure, was $25.6 million in Q2 versus $19.0 million, and $53.6 million for the first half versus $37.1 million. These figures include management-defined adjustments and should not be treated as GAAP profit or cash flow.
Cash flow, liquidity and debt
- First-half operating cash flow was $30.8 million, compared with $22.3 million. Investing cash outflow was $26.8 million, including $26.2 million of capital expenditures; financing provided $73.2 million.
- Cash and cash equivalents were $125.3 million at June 30, 2021, up from $48.5 million at year-end. The balance included $70.0 million invested in a money market fund.
- Ranpak raised $103.4 million net in a May equity offering of approximately 5.3 million Class A shares. It used $20.9 million to prepay term debt and reported that offering proceeds were also held in the money market fund, with remaining proceeds available for general corporate purposes.
- Debt including finance leases, before deferred financing costs, was $414.8 million, down from $439.8 million at December 31, 2020. No amounts were drawn on the $45 million revolving facility; the company reported compliance with financial covenants. Term facilities mature in 2026 and the revolver in 2024.
- Current assets were $201.7 million and current liabilities $65.7 million. Inventory rose to $25.6 million from $16.1 million at year-end.
Changes, outlook and risks
- Revenue increased across all major product categories, with Europe/Asia a significant contributor. The installed base of protective packaging systems grew 12.9% year over year to approximately 123,600.
- Management gave no specific financial guidance in the supplied filing text. It said paper prices and freight costs had risen, expected higher paper costs as supply arrangements were renewed, and anticipated some gross-margin pressure. Its ability to pass increases to customers was uncertain.
- COVID-19 had delayed some system demonstrations and installations, potentially affecting customer acquisition and automation sales. Management reported limited supply delays and no material production or fulfillment disruption to date, but noted the pandemic’s future effects remained uncertain.
- Other disclosed risks include paper availability and commodity prices, supplier reliance, competition, customer response to price increases, consumer preferences, foreign-exchange volatility and seasonality. The company does not hedge foreign-exchange transaction or translation exposure; 67% of first-half revenue was denominated in currencies other than U.S. dollars, substantially euros.
- A hypothetical 10% euro movement would have changed first-half reported revenue by approximately $11.4 million. Management also estimated a hypothetical 100-basis-point interest-rate change would have affected six-month cash interest expense by $3.3 million.
- An $8.2 million lender Exit Payment was paid in Q1. A credit agreement amendment became effective July 28, 2021, adding exceptions to restrictions on dividends and share repurchases. Management reported no material litigation accruals or off-balance-sheet arrangements; it concluded disclosure controls were effective.
Important facts for investors to verify
- Whether paper and freight inflation can be passed through to customers, and the resulting effect on gross margins.
- Whether volume growth and the expanding installed base continue, particularly in Europe/Asia, and whether automation installations recover from delays.
- Cash deployment after the equity offering, future capital expenditure needs, and debt repayment capacity alongside working-capital growth.
- The assumptions and adjustments behind constant-currency EBITDA and adjusted EBITDA, and how those non-GAAP measures reconcile to GAAP results.
- Exposure to euro movements, variable-rate debt and the terms and coverage of interest-rate swaps.