Ranpak Holdings Corp. quarterly report, Q3 FY2021

Ranpak Holdings Corp. — Q3 2021 Form 10-Q

Reporting period: Three and nine months ended September 30, 2021. Ranpak provides paper-based protective packaging systems and consumables for e-commerce and industrial supply chains. Financial statements are unaudited and prepared under U.S. GAAP.

Key financial results

Metric	Q3 2021	Q3 2020	Nine months 2021	Nine months 2020
Net revenue	$97.1 million	$76.8 million	$274.8 million	$206.3 million
Gross profit / margin	$38.0 million / 39.1%	$30.2 million / 39.3%	$110.0 million / 40.0%	$84.0 million / 40.7%
Income from operations	$2.3 million	$2.8 million	$11.1 million	$0.1 million
Net loss	$1.4 million	$6.1 million	$0.3 million	$18.2 million
Operating cash flow	Not provided by quarter	Not provided by quarter	$40.8 million	$37.8 million

Q3 revenue rose 26.4% year over year; nine-month revenue rose 33.2%. Growth reflected higher sales across cushioning, void-fill, wrapping and other products. Nine-month constant-currency revenue increased 28.5%.
Q3 operating income was $2.3 million; higher SG&A more than offset gross-profit growth. SG&A increased to $27.1 million from $16.6 million, including stock-based compensation expense of $6.9 million versus $1.7 million.
Management-reported constant-currency non-GAAP EBITDA was $22.1 million for Q3 and $68.2 million for the nine months; adjusted EBITDA was $28.5 million and $82.1 million, respectively. These measures exclude specified items and should not be viewed as substitutes for GAAP results.
Nine-month cash from operations was $40.8 million. Investing used $50.7 million, including $40.6 million of capital expenditures and $9.2 million invested in minority interests in two private businesses. Financing provided $72.6 million, chiefly reflecting equity-offering proceeds.

Liquidity, debt and capital

Cash and cash equivalents were $110.4 million at September 30, 2021, up from $48.5 million at December 31, 2020. Cash included a $70.0 million money-market fund investment.
Current assets were $198.7 million and current liabilities were $71.5 million. The $45.0 million revolving facility had no outstanding borrowings at quarter-end or through October 28, 2021.
Debt including finance leases, before deferred financing costs, was $410.4 million, versus $439.8 million at year-end 2020; $2.2 million was classified as short-term. The term facilities mature in 2026; the revolver matures in 2024. Ranpak reported compliance with financial covenants.
A May 2021 offering of approximately 5.3 million Class A shares generated $103.4 million net proceeds. The company prepaid $20.9 million of term debt in June and paid an $8.2 million lender exit payment in Q1. Outstanding common shares increased to approximately 81.4 million from 75.5 million at December 31, 2020.

Material changes and management commentary

For Q3, constant-currency revenue growth was driven mainly by paper-consumable volume, with additional contribution from price/mix and automated box-sizing equipment. Europe/Asia grew faster than North America; the region represented 61.6% of reported Q3 revenue.
Management cited increased paper and freight costs, as well as rising energy costs, particularly in Europe. Existing purchasing arrangements had delayed some paper-cost impacts; as arrangements reset, management expected cost of goods sold to increase and anticipated gross-margin pressure. The company said it would seek to pass higher costs to customers but could not predict how much it could recover.
The installed base of protective packaging systems reached approximately 129,200, up 14.2% year over year. E-commerce seasonality typically contributes to stronger fourth-quarter sales and slower first-quarter sales.
Management said COVID-related delays in demonstrations and installations could affect system growth, new-customer acquisition and automation sales. It reported limited supply delays and no material operating disruption to date, but could not predict the pandemic’s ultimate effects.
No quantified full-year revenue, earnings or cash-flow guidance was provided in the supplied filing text. Management stated that cash from operations and available revolver capacity were expected to meet current requirements, while noting future capital needs could depend on growth, acquisitions and market access.

Risks, contingencies and unusual items

Key disclosed risks include paper supply availability and pricing, reliance on suppliers, freight and energy inflation, competition and customers’ sensitivity to price increases, currency fluctuations, COVID-19 impacts and dependence on product development and customer retention.
About 66.2% of nine-month revenue was denominated in currencies other than the U.S. dollar, substantially all in euros. The filing estimates a 10% euro movement would change reported nine-month revenue by approximately $17.4 million. A cross-currency swap was initiated in September 2021; interest-rate swaps hedge floating-rate debt exposure.
Capital expenditures were $40.6 million for the nine months, versus $25.0 million in 2020, and included higher spending on converter equipment. Inventory increased to $30.2 million from $16.1 million at year-end.
Ranpak recorded no amounts for litigation or environmental contingencies in the periods presented and reported no material off-balance-sheet arrangements. Management stated known litigation contingencies were not expected to materially affect financial condition, liquidity or cash flows.
Management assessed goodwill and indefinite-lived intangibles and concluded impairment was not more likely than not at September 30, 2021. Disclosure controls were considered effective; no material Q3 change in internal control over financial reporting was reported.

Important facts for investors to verify

Whether paper, freight and energy inflation can be passed through to customers, and the resulting effect on gross margins.
Whether continued revenue growth converts into stronger operating profit and cash flow as SG&A, stock compensation and investment spending rise.
Debt repayment capacity, covenant headroom, interest-rate exposure and the use of remaining equity-offering proceeds.
Working-capital trends, particularly the sharp increase in inventory, and the pace and returns of elevated capital expenditures.
Exposure to euro movements, supply-chain disruptions, COVID-related installation delays and the seasonal concentration of fourth-quarter demand.
The potential dilution from equity issuance and outstanding restricted and performance-based stock awards.