Ranpak Holdings Corp. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. Amounts are in U.S. dollars; financial figures are in millions unless stated otherwise. The 2019 acquisition created different predecessor and successor accounting periods, so reported year-over-year comparisons are not always directly comparable. Management’s pro forma comparisons adjust for acquisition accounting and, where stated, constant currency.
Business context
Ranpak supplies paper-based protective packaging systems and consumables to e-commerce and industrial customers. It reported an installed base of 113,100 systems at September 30, up 10.6% from 102,300 a year earlier. One operating segment is reported, with sales concentrated in North America and Europe/Asia.
Financial performance and liquidity
| Metric | Q3 2020 | Comparable period / change |
|---|---|---|
| Net revenue | $76.8 | $69.1 reported in Q3 2019; pro forma revenue grew 8.1% to $76.1 from $70.4 |
| Gross profit / margin | $30.2 / 39.3% | $29.5 / 42.7% reported in Q3 2019; pro forma margin declined 4.9 percentage points |
| Operating income | $2.8 | $1.0 reported in Q3 2019 |
| Net loss | $(6.1); $(0.08) per share | $(1.6); $(0.03) per share reported in Q3 2019. Pro forma comparison was a $6.2 loss versus $0.8 income |
| EBITDA / adjusted EBITDA | $15.2 / $23.7 | EBITDA was $22.9 in Q3 2019; pro forma adjusted EBITDA increased 7.7% from $22.0 |
- Pro forma nine-month revenue increased 5.3% to $208.7. Pro forma adjusted EBITDA rose 4.1% to $60.8, while pro forma net loss widened to $18.4 from $9.8.
- Q3 revenue growth reflected higher paper consumables, especially void-fill and wrapping, partly offset by lower pricing and weaker automation revenue. Europe/Asia pro forma revenue increased 14.4%; North America increased 0.9%.
- Q3 cost of goods sold increased 17.7% as revenue rose, with higher depreciation, labor, freight, and automation operating costs; lower paper prices partially offset these pressures. Pro forma gross margin contracted.
- Cash from operations was $37.8 for the first nine months. Investing cash outflow was $25.5, including $25.0 of capital expenditures; financing cash outflow was $1.2. Cash increased to $31.3 from $19.7 at year-end 2019.
- At September 30, current assets were $96.9 and current liabilities were $49.8. Debt was $426.4 net of deferred financing costs, including $1.6 current; no amounts were drawn on the $45.0 revolving facility. The company reported compliance with financial covenants.
Material changes, outlook, and risks
- Interest expense fell to $4.9 in Q3 from $9.5 a year earlier, reflecting lower debt levels and interest rates. The dollar and euro term-loan rates were 3.91% and 3.75%, respectively, at quarter-end.
- In August–September, Ranpak exchanged all outstanding warrants: approximately 20.0 million warrants were tendered for about 4.4 million Class A shares, and the remaining warrants were exchanged. No warrants remained. This increased the share count.
- COVID-19 increased e-commerce demand, helping offset weaker demand in some other industries. Social-distancing restrictions delayed system demonstrations and installations, potentially affecting customer acquisition and automation sales. Ranpak reported limited supply delays and minimal disruption to fulfilling orders, but said the pandemic’s ultimate impact remained uncertain.
- Management said operating cash flow and available revolving capacity were expected to meet current requirements; it also expects capital expenditures to increase as the business grows. The filing gives no quantified earnings or revenue guidance. Management expects the usual seasonal pattern, with stronger sales typically in Q4 and slower sales in Q1.
- Key risks include paper availability and kraft-paper prices, supplier reliance, competition, customer price sensitivity, changing preferences, customer concentration or loss, product development, foreign-exchange exposure, and COVID-19. The company does not hedge foreign-currency translation or transaction exposure; 57.1% of nine-month revenue was denominated in currencies other than U.S. dollars.
- Management found no goodwill or indefinite-lived intangible impairment at September 30 despite COVID-related uncertainty. It recorded $1.3 of additional Dutch tax expense for an uncertain tax position, which it expected to resolve within 12 months. No material litigation accrual or off-balance-sheet arrangement was reported.
- The filing describes prior-period financial-statement errors and restatements of 2019 comparative information, which management assessed as not material to the previously issued interim statements. It also reports that disclosure controls were ineffective at September 30 due to material weaknesses in internal control over financial reporting; remediation was ongoing.
Important facts for investors to verify
- Assess the quality of reported growth against the pro forma figures, including lower gross margins, product mix, paper pricing, and currency effects.
- Review the composition of adjusted EBITDA and the adjustments excluded from this non-GAAP measure.
- Monitor cash generation, capital spending, debt, interest-rate exposure, covenant compliance, and available revolver capacity.
- Track COVID-related effects on installations, automation sales, suppliers, and customer demand, alongside paper costs and foreign-exchange movements.
- Review remediation of the disclosed material weaknesses, the 2019 restatements, tax-contingency resolution, and potential dilution from earn-out shares and equity awards.