Ranpak Holdings Corp. quarterly report, Q2 FY2022

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Ranpak Holdings Corp. — Q2 2022 Form 10-Q

Reporting period: Three and six months ended June 30, 2022; unaudited. Unless stated otherwise, amounts are U.S. dollars in millions. Ranpak provides protective packaging systems and paper consumables for e-commerce and industrial supply chains.

Financial performance and position

  • Q2 revenue: $86.8, down 3.6% from $90.0. Paper revenue was $70.2 versus $73.5; machine lease revenue was $12.5 versus $12.4; other revenue was $4.1 versus $4.1.
  • Q2 profitability: Gross profit was $28.3, down from $35.7; gross margin was 32.6%, compared with 39.7%. Operating loss was $11.4 versus operating income of $1.1; net loss was $11.3 versus $5.2. Diluted loss per share was $0.14 versus $0.07.
  • First-half revenue and earnings: Revenue was $169.3, down 4.7% from $177.7. Gross profit was $52.9 versus $72.0, with gross margin of 31.2% versus 40.5%. Operating loss was $25.2 versus operating income of $8.8; net loss was $25.4 versus net income of $1.1. Diluted loss per share was $0.31 versus earnings per share of $0.01.
  • Non-GAAP measures: Constant-currency Q2 EBITDA was $8.8 versus $17.6, and adjusted EBITDA (AEBITDA) was $18.2 versus $25.6. First-half constant-currency EBITDA was $14.5 versus $46.1; AEBITDA was $37.3 versus $53.6. These measures exclude specified items and are not substitutes for GAAP results.
  • Cash flow: First-half operating cash use was $16.3, versus cash provided of $30.8 in 2021. Investing cash use was $23.8 versus $26.8; financing cash use was $3.7 versus financing cash provided of $73.2. Cash fell $44.7 to $59.2 from $103.9 at year-end 2021. Capital expenditures were $22.8.
  • Liquidity and debt: Current assets were $171.4 and current liabilities $53.6. Debt including finance leases, before deferred financing costs, was $393.6; the filing reports $389.1 total debt net of deferred financing costs. No revolver borrowings were outstanding; $44.2 remained available after letters of credit. Term facilities mature in 2026 and the revolving facility in 2024. The company reported compliance with financial covenants.
  • Other balance-sheet measures: Inventories rose to $42.8 from $32.9 at year-end; shareholders’ equity was $618.9 versus $636.2.

Material changes and management commentary

  • On a constant-currency basis, Q2 revenue increased 4.0% to $91.0; first-half revenue increased 1.4% to $174.9. Reported revenue was reduced by foreign-exchange effects, especially in Europe/Asia.
  • Management attributed weaker reported sales to lower economic activity, reduced e-commerce use as economies reopened, inflation’s effect on customer budgets, tighter inventory management in Europe, and ERP transition disruption—particularly in Q1. Paper-consumable volume declines were largely offset by higher price/mix.
  • Higher paper and other manufacturing input costs weighed on margins. Management said it began additional pricing actions in Q3 2022, but expected some gross-margin pressure in the medium term and could not predict how much cost inflation could be passed through.
  • SG&A rose to $30.3 in Q2 from $24.6 and to $60.0 in the first half from $43.7. Drivers included 2021 long-term incentive stock compensation, higher headcount and compensation, and ERP implementation costs. Management cited headcount reductions and deferral of initiatives as cost-containment measures.
  • The installed base of packaging systems increased 10.4% year over year to 136,500 at June 30, 2022. Management said most, but not all, Q1 ERP transition issues were corrected in Q2.

Outlook, risks and notable items

  • The filing gives no numerical revenue, earnings, margin, or cash-flow guidance. Management said cash from operations and revolver capacity were expected to be sufficient for current requirements.
  • Key risks include paper availability and pricing, inflation in labor, energy and freight, the conflict in Ukraine and related European energy and shipping pressures, competition and customer price sensitivity, demand changes, and foreign-exchange movements.
  • Variable-rate exposure remains: the company estimated that a 100-basis-point rate change would have affected first-half cash interest expense by $3.0. Interest-rate swaps hedge the dollar term facility; LIBOR transition and future benchmark changes may affect borrowing and hedge costs.
  • On July 26, 2022, after quarter-end, directors authorized a Class A share repurchase program of up to $50.0 over 36 months. Purchases are discretionary and subject to applicable restrictions.
  • Management concluded goodwill and indefinite-lived intangible assets were not impaired at June 30, 2022. It reported effective disclosure controls; the new global ERP system changed some internal controls, whose design and operating effectiveness will continue to be evaluated.
  • Management reported no material litigation or environmental contingency accruals and no off-balance-sheet arrangements as of June 30, 2022.

Important facts for investors to verify

  • Whether Q3 pricing actions offset paper, energy, freight and other input-cost inflation, and how quickly any benefit appears in gross margin.
  • Whether sales volumes and demand stabilize, particularly in Europe/Asia, and whether ERP-related operational issues are fully resolved.
  • Cash conversion and working-capital needs, including the inventory increase and first-half operating cash outflow.
  • Debt costs, rate exposure, covenant headroom and actual revolver availability, especially alongside the proposed share repurchase program.
  • The composition and persistence of AEBITDA adjustments, including stock compensation, ERP costs, restructuring and other specified items; compare these with GAAP losses and cash flow.