Ranpak Holdings Corp. — 2019 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2019. The filing also reports fourth-quarter results. Ranpak completed its business combination on June 3, 2019; the year therefore combines predecessor results through June 2 and successor results thereafter. Because acquisition accounting created a new basis of accounting, those periods are not directly comparable. Full-year 2019 comparisons below use the company’s simple combined presentation unless otherwise noted.
Business context
Ranpak supplies paper-based protective packaging systems and consumables to e-commerce and industrial customers. Its recurring-consumables model is supported by an installed base of approximately 104,600 systems, up 7.3% from 2018. About 86% of 2019 sales were through distributors; approximately 54.8% were generated outside the United States. Cushioning and void-fill remained the largest product lines.
Financial performance and liquidity
| Metric | 2019 | 2018 |
|---|---|---|
| Net sales | $269.5 million | $267.9 million |
| Gross profit / margin | $110.9 million / 41.2% | $114.6 million / 42.8% |
| Operating income | $2.2 million | $11.0 million |
| Net income (loss) | $(36.2) million | $(8.6) million |
| EBITDA (non-GAAP) | $62.1 million | $79.7 million |
| Adjusted EBITDA (non-GAAP, pro forma/constant currency presentation) | $87.3 million | $84.6 million |
| Cash provided by operating activities | $26.3 million combined | $42.0 million |
| Capital expenditures | $29.7 million combined | $24.8 million |
Sales increased 0.6% year over year, but gross margin declined 1.6 percentage points. Higher selling, general and administrative expenses, paper costs, and transaction-related and acquisition-accounting effects weighed on reported profitability. Interest expense increased to $47.5 million from $30.9 million, reflecting higher debt, interest rates, and financing-related charges. The 2019 combined net loss was $36.2 million; management’s adjusted EBITDA measure excludes specified transaction and other items and is not a substitute for GAAP results.
Fourth-quarter 2019 successor-period sales were $77.7 million, gross profit $32.8 million, operating income $12.1 million, and net loss $3.2 million. Fourth-quarter 2018 sales were $76.0 million, gross profit $32.4 million, operating income $2.8 million, and net loss $4.0 million; comparisons are affected by the predecessor/successor accounting-basis change.
At year-end, cash and cash equivalents were $19.7 million, debt was $428.2 million (including $1.6 million current), and net debt was $408.5 million. Current assets were $71.4 million and current liabilities $31.9 million. The $45 million revolving facility was undrawn. A December 2019 stock offering generated $107.7 million net proceeds, used to repay term debt. The company reported compliance with debt covenants at year-end.
Material changes and unusual items
- Ranpak acquired Rack Holdings on June 3, 2019 for reported consideration of approximately $955.7 million, including cash consideration denominated in dollars and euros. The transaction introduced a new accounting basis and substantial goodwill and intangible assets.
- Combined sales were nearly flat. Wrapping sales rose 37.9% to $26.7 million and cushioning rose 2.7% to $123.1 million; void-fill declined 4.9% to $112.4 million. Management attributed the overall increase partly to price and consumable volume, offset by lower void-fill sales and purchase-accounting effects.
- The company identified errors in previously issued 2019 interim financial statements, including cash-flow classifications, foreign-currency presentation, and goodwill. It corrected them in the 10-K and said the interim misstatements were not material to those interim statements.
- Management identified material weaknesses in internal control over financial reporting, did not complete a full year-end assessment, and concluded disclosure controls and procedures were ineffective. The filing describes plans to hire qualified staff and use a third-party provider to assist with remediation. The auditor did not express an opinion on internal-control effectiveness.
- An e3neo earn-out settlement was agreed in March 2020 for approximately $1.6 million; $1.4 million was accrued at year-end, with the remaining $0.2 million expected to be expensed in 2020.
Outlook, commentary, and risks
The filing gives no numerical revenue or earnings guidance. Management’s stated priorities include organic growth, product innovation, expansion of wrapping and automation, geographic expansion, retail-channel development, and selective partnerships or acquisitions. Management expects seasonal patterns to continue, with sales typically strongest in the fourth quarter and slowest in the first.
- Supply and input costs: Paper is the largest input cost; one supplier provided approximately 60% of North American paper purchases in 2019. On-site paper inventory generally represented about five production days. The company also reported delays in certain system components following the coronavirus outbreak in China.
- Customer and market exposure: The largest single end-user represented approximately 10% of 2019 sales. Some major e-commerce customers are seeking to reduce packaging-material use. Competition, pricing sensitivity, and shifts in sustainability preferences could affect demand and margins.
- Debt and rates: Debt is primarily floating-rate, although $250 million of interest-rate swaps were in place. Management estimated that a 100-basis-point rate change would affect annual cash interest expense by approximately $1.3 million. Debt covenants restrict certain transactions and distributions.
- Other exposures: International operations create foreign-exchange risk; the company did not hedge foreign-currency translation or transaction exposure. The filing also highlights supplier and distributor reliance, tariffs, labor, environmental compliance, cybersecurity, litigation, and acquisition-integration risks.
Most important facts for investors to verify
- Reconcile reported GAAP results with the company’s combined and pro forma non-GAAP presentations, including the substantial gap between 2019 GAAP EBITDA and adjusted EBITDA.
- Monitor remediation of the disclosed material weaknesses and whether subsequent filings show effective controls and reliable reporting.
- Track debt paydown, cash generation after capital expenditures, interest costs, and covenant headroom.
- Assess paper-supplier concentration, component availability, and the effect of paper-price changes on margins and customer pricing.
- Follow void-fill trends and major-customer consumption, alongside growth and profitability in wrapping, automation, and other newer offerings.