Ranpak Holdings Corp. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. Ranpak provides paper-based protective packaging systems and consumables, with operations principally in North America and Europe/Asia. The filing was signed May 8, 2023.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Net revenue | $81.2 million | $82.5 million | Down 1.6%; constant-currency revenue rose 1.1% |
| Gross profit / margin | $27.5 million / 33.9% | $24.6 million / 29.8% | Margin up 4.1 percentage points |
| Operating loss | $8.9 million | $13.8 million | Improved $4.9 million |
| Net loss | $12.4 million | $14.1 million | Improved $1.7 million |
| Loss per share, diluted | $0.15 | $0.17 | Loss narrowed |
| Operating cash flow | $7.5 million | Use of $9.4 million | Improved $16.9 million |
| Capital expenditures | $11.8 million | $9.8 million | Increased $2.0 million |
| Cash and cash equivalents | $58.6 million | $62.8 million at Dec. 31, 2022 | Down $4.2 million |
| Debt, including finance leases, before deferred financing costs | $399.2 million | $396.9 million at Dec. 31, 2022 | Up $2.3 million |
Gross margin improved as cost of goods sold fell 7.3%, reflecting lower input costs, reduced depreciation, and currency effects; management said paper pricing had begun to ease. SG&A decreased 8.4%, principally due to lower stock-based compensation expense. Interest expense increased 14.0% to $5.7 million as borrowing rates rose. EBITDA, a non-GAAP measure, was $7.5 million versus $5.6 million; constant-currency adjusted EBITDA was $15.1 million versus $19.1 million, down 20.9%.
At March 31, current assets were $140.2 million and current liabilities were $42.9 million. The $45.0 million revolving facility had no borrowings; after $2.4 million of letters of credit, reported availability was $42.6 million. The term facility matures in June 2026 and the revolver in 2024. The company reported compliance with financial covenants.
Changes and operating trends
- Reported revenue declined $1.3 million, while constant-currency revenue increased $0.9 million. Currency headwinds contributed 2.7 percentage points of pressure, according to management.
- By product line, cushioning revenue rose to $37.6 million from $35.6 million; void-fill fell to $30.2 million from $31.8 million; wrapping fell to $9.3 million from $11.0 million; other revenue was $4.1 million in both periods.
- Paper-consumable sales volume decreased approximately 3.5 percentage points, partly offset by a 4.2-point increase in price or mix. The installed PPS systems base grew 3.8% year over year to 139,600.
- Cash from operations turned positive, while investing cash use increased to $11.8 million, mainly for converter equipment and facility improvements. Cash ended the quarter at $58.6 million, versus $80.5 million a year earlier.
Outlook, risks, and notable items
- Guidance: The filing provides no numerical revenue, earnings, or cash-flow guidance. Management expects seasonal patterns to continue, with typically stronger revenue in the fourth quarter and slower sales in the first quarter.
- Management expects some continued gross-margin pressure in the medium term. Paper, energy, labor, and freight costs; European energy-market volatility; customer price sensitivity; and weaker end-user demand could affect results.
- Management expects interest expense on the credit facilities to increase with higher market rates. A hypothetical 100-basis-point rate move would have affected quarterly cash interest expense by approximately $1.0 million, as disclosed.
- On April 4, 2023, after quarter-end, the credit agreement was amended to replace LIBOR-based borrowing mechanics with SOFR-based mechanics. The $200 million interest-rate swap was due to mature June 1, 2024; the $50 million swap was due to mature June 1, 2023.
- A new 15-year operating lease for the Netherlands regional headquarters commenced in Q1. The company recorded approximately $14.8 million of lease assets and liabilities; total operating lease liabilities were $21.9 million at quarter-end.
- Management disclosed that disclosure controls and procedures were not effective because of material weaknesses in internal control over financial reporting previously reported in the 2022 Form 10-K. Remediation was ongoing; management nevertheless stated that the financial statements fairly present the company’s results and position in all material respects.
- Other identified risks include paper supply and pricing, reliance on suppliers, inflation and economic conditions, competition, foreign-exchange exposure, and demand changes in e-commerce and other end markets. No legal proceedings were reported, and management said no accrual was required for the disclosed contingencies.
Important facts for investors to verify
- Whether the improvement in GAAP gross margin is sustained as pricing, paper costs, volumes, and product mix change.
- How reported results and cash flows respond to foreign-exchange movements; 59.9% of Q1 revenue was denominated in currencies other than U.S. dollars, substantially euros.
- Debt interest costs, hedge maturities, covenant compliance, and the effect of the April 2023 SOFR amendment.
- The drivers of the decline in adjusted EBITDA despite higher reported EBITDA, including the non-GAAP adjustments and constant-currency methodology.
- Progress and testing of remediation for the disclosed material weaknesses in internal control.
- Capital spending, cash generation, and the financial impact of the new Netherlands facility and other expansion projects.