Ranpak Holdings Corp. — Q1 2022 Form 10-Q
Business context and period. Unaudited results for the three months ended March 31, 2022, compared with Q1 2021. Ranpak supplies paper-based protective packaging systems and consumables to e-commerce and industrial customers. It reported one reportable segment. The company identified approximately 134,500 installed systems at quarter-end, up 11.4% year over year.
Key financial results
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Net revenue | $82.5 million | $87.7 million |
| Gross profit / margin | $24.6 million / 29.8% | $36.3 million / 41.4% |
| Operating income (loss) | $(13.8) million | $7.7 million |
| Net income (loss) | $(14.1) million | $6.3 million |
| Diluted earnings (loss) per share | $(0.17) | $0.08 |
| Operating cash flow | $(9.4) million | $12.5 million |
| Capital expenditures | $9.8 million | $10.9 million |
| Cash and cash equivalents, quarter-end | $80.5 million | $103.9 million at Dec. 31, 2021 |
| Debt including finance leases, before deferred financing costs | $403.9 million | $406.5 million at Dec. 31, 2021 |
Interest expense was $5.0 million, down from $5.6 million. The company reported constant-currency adjusted EBITDA of $19.1 million, down 31.8% from $28.0 million; this is a non-GAAP measure and includes specified adjustments.
Material changes and drivers
- Revenue declined 5.9% year over year; on the company’s constant-currency basis, it fell 1.3% to $83.9 million. North America revenue rose 10.0% to $30.9 million, while Europe/Asia revenue fell 13.4% to $51.6 million, including currency headwinds.
- Paper consumables volume was a significant headwind. Management attributed disruption to the global ERP transition, including cutover downtime, processing and shipping inefficiencies, and delayed pricing increases. Omicron-related limits on customer visits also affected sales.
- Cost of goods sold rose 12.6% to $57.9 million, primarily due to higher paper and freight costs and increased depreciation. Gross margin contracted to 29.8% from 41.4%.
- SG&A increased 55.5% to $29.7 million, reflecting higher stock-based compensation, headcount and compensation, and ERP implementation costs. Stock-based compensation expense was $8.8 million versus $2.7 million.
- Operating cash flow swung to an outflow of $9.4 million from an inflow of $12.5 million. Cash declined $23.4 million during the quarter, partly reflecting working-capital increases, including inventory and receivables.
Liquidity, debt and outlook
Quarter-end current assets were $187.0 million and current liabilities were $67.7 million. The $45.0 million revolving facility had no borrowings; after $0.9 million of letters of credit, reported availability was $44.1 million. Management said cash and expected operating cash flows, together with revolver capacity, should provide sufficient resources for current requirements. The first-lien term facilities mature in 2026; the revolving facility matures in 2024. Ranpak said it was in compliance with all financial covenants at March 31, 2022.
No quantified earnings or revenue guidance was provided. Management expects cost of goods sold to rise amid inflation, paper-market pressures, higher energy and freight costs, and disruption to Russian-sourced paper. It intends to seek customer price increases but cannot predict how much it can pass through, and expects medium-term gross-margin pressure. The company also expects capital expenditures to increase as it expands and upgrades facilities and systems.
Risks, contingencies and unusual items
- Paper supply and pricing are material risks: the filing describes limited qualified suppliers, approximately 46.1% of North American raw paper purchases from one supplier in 2021, and shipping and pricing effects related to Russian sourcing and the conflict in Ukraine.
- ERP implementation disrupted sales and operations. Management reported disclosure controls effective, while noting it revised controls and will continue evaluating their design and operation during the transition.
- Ranpak cited exposure to foreign exchange, floating interest rates and potential LIBOR transition effects. A 100-basis-point rate move was estimated to affect quarterly cash interest expense by approximately $1.0 million; a 10% Euro move would change reported quarterly revenue by approximately $5.2 million.
- Management discussed ongoing uncertainty around COVID-19, supply availability, input inflation, customer price sensitivity and competition. It reported no material litigation accruals or environmental contingency amounts and no off-balance-sheet arrangements.
- Quarter results included materially higher stock compensation and ERP-related costs. The company’s adjusted EBITDA excludes certain items; assess the reconciliation and recurring nature of adjustments when comparing performance.
Important facts for investors to verify
- Whether ERP-related operational and shipping disruption has abated and whether it affected subsequent-period sales or controls.
- Paper, freight and energy cost trends, supplier concentration and Ranpak’s ability to secure supply and recover costs through pricing.
- Whether revenue and gross margins recover, particularly in Europe/Asia, and how much results reflect volume, pricing/mix and foreign exchange.
- Operating cash flow, working-capital requirements and liquidity relative to capital expenditure plans and debt service.
- Debt covenant headroom, variable-rate exposure and the eventual benchmark-rate transition; also review non-GAAP adjustments against GAAP results.