Ranpak Holdings Corp. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparative period is Q1 2023. Unaudited U.S. GAAP financial statements. Ranpak supplies paper-based protective packaging systems and consumables, as well as end-of-line automation solutions.
Financial performance
Unless otherwise noted, amounts are in millions of U.S. dollars.
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Net revenue | $85.3 | $81.2 | +$4.1; +5.0% |
| Gross profit / margin | $32.3 / 37.9% | $27.5 / 33.9% | +$4.8; +4.0 percentage points |
| Operating loss | $(4.8) | $(8.9) | Improved $4.1 |
| Net loss | $(8.1) | $(12.4) | Improved $4.3 |
| Loss per share, basic and diluted | $(0.10) | $(0.15) | Improved $0.05 |
| Operating cash flow | $5.2 | $7.5 | Down $2.3 |
| Cash and equivalents, period end | $55.1 | $58.6 | Down $3.5 year over year |
| Debt, including finance leases and before deferred financing costs | $403.0 | $407.4 at Dec. 31, 2023 | Down $4.4 |
Gross margin improved as cost of goods sold declined 1.3% despite higher sales; management cited lower input costs, partly offset by higher volume and currency effects. SG&A rose 2.6% to $27.9, including higher employee compensation, temporary labor, bad debt and professional fees, partly offset by lower share-based compensation. Interest expense increased 8.8% to $6.2, primarily reflecting higher facility borrowing costs. A $1.4 foreign-currency gain also supported the year-over-year improvement in net loss.
Management-reported non-GAAP EBITDA was $15.4, up from $7.5; constant-currency adjusted EBITDA (AEBITDA) was $20.2, up from $15.1. These measures exclude specified items and are not substitutes for GAAP results.
Revenue, cash flow and liquidity
- Paper revenue was $66.2, machine lease revenue $12.8 and other revenue $6.3. Void-fill revenue increased 9.6% to $33.1; cushioning declined 0.8% to $37.3 and wrapping declined 7.5% to $8.6. Other revenue rose 53.7% to $6.3.
- Revenue increased 2.6% in North America to $31.9 and 6.6% in Europe/Asia to $53.4. On a constant-currency basis, total revenue was $88.5, up 4.4% from $84.8.
- Management attributed sales growth to approximately 5.3% higher paper-consumable volume and 2.7% higher automated box-sizing equipment sales, partly offset by a 3.6% decline in paper-consumable price or mix. The PPS installed base grew 0.9% year over year to approximately 140,800 systems.
- Investing cash outflow was $10.3, including $7.5 for converter equipment, $2.3 for other property and equipment, and $0.5 invested in Pickle Robot. Financing cash outflow was $1.3. Cash declined $6.9 from year-end to $55.1.
- Cash was supplemented by $41.4 of availability under the $45.0 revolving facility at March 31, after $3.6 of letters of credit; no revolver borrowings were outstanding. Current assets were $125.0 and current liabilities $51.3.
- Long-term debt matures in June 2026; the revolving facility matures in June 2025. Reported March 31 rates were 9.43% on the dollar term facility and 7.86% on the euro term facility. The company reported compliance with financial covenants.
Material changes, outlook and risks
- Outlook: The filing provides no quantified revenue, earnings or cash-flow guidance. Management believes cash and revolver availability are sufficient for current requirements, while noting capital spending needs may increase as the company grows and upgrades facilities and systems.
- Costs and demand: Management expects continued medium-term gross-margin pressure relative to historical levels and warns that inflation, paper prices, labor, energy and freight costs may pressure revenue and margins. It may not be able to pass cost increases to customers promptly or fully. Demand may also be affected by customer inventory rebalancing, consumer spending and competition.
- Seasonality: Sales typically are slowest in Q1 and highest in Q4, reflecting e-commerce and holiday-season patterns.
- Interest-rate exposure: Management estimated that a hypothetical 100-basis-point change in applicable base rates would have affected Q1 cash interest expense by $1.0. An interest-rate swap covering $200.0 of notional debt matures June 1, 2024; the company anticipates reclassifying $1.7 from accumulated other comprehensive income into earnings over the next 12 months.
- Foreign exchange: 62.6% of Q1 revenue was denominated in currencies other than the U.S. dollar, substantially euros. A 10% euro movement would have changed reported Q1 revenue by approximately $5.3, before considering other effects.
- Subsequent events: After quarter-end, Ranpak received €15 million (approximately $16.1) under a patent-litigation settlement and €5 million (approximately $5.4) related to the sale of two patents. On April 19, it also invested $4.3 in Pickle Robot preferred shares. These events occurred after March 31 and are not included in quarter-end cash or Q1 results.
- Contingencies and unusual items: No amounts were accrued for litigation or environmental contingencies in the periods presented; management says ordinary-course claims could nevertheless affect a particular period. Q1 included $0.8 of SOX remediation costs among the items added back in AEBITDA. No impairment indicators were reported at March 31.
- Controls: Disclosure controls were not effective because of material weaknesses in internal control over financial reporting previously described in the 2023 Form 10-K. Remediation is ongoing; the company expects to remediate certain weaknesses by year-end 2024 but cautions that testing or delays could defer that conclusion.
Most important facts for investors to verify
- Whether the gross-margin improvement is sustainable as paper, labor, freight and other input costs change, and whether pricing can offset cost pressure.
- Whether operating cash generation can support capital spending, working capital and debt service; reconcile the decline in cash with the reported operating and investing cash flows.
- Debt terms, covenant headroom, floating-rate exposure and the effect of the June 2024 swap maturity on interest expense.
- The accounting, timing and cash-flow treatment of the post-quarter patent settlement and patent sale proceeds, and the additional Pickle investment.
- Progress and testing evidence for remediation of the material weaknesses and improvement in disclosure controls.