Ranpak (PACK) - 2019 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Condensed Consolidated and Financial Statements (Unaudited) This section presents unaudited condensed consolidated financial statements for the period ended June 30, 2019, reflecting the Ranpak Business Combination's impact with "Successor" and "Predecessor" periods - On June 3, 2019, the Ranpak Business Combination was consummated, acquiring Rack Holdings and establishing Ranpak Holdings Corp. as the accounting acquirer, leading to separate "Predecessor" and "Successor" financial statement presentations that are not directly comparable[22][26][28] Condensed Consolidated Statements of Operations Highlights (in millions) | | Successor (Jun 3 - Jun 30, 2019) | Predecessor (Jan 1 - Jun 2, 2019) | Predecessor (Six Months Ended Jun 30, 2018) | | :--- | :--- | :--- | :--- | | Net sales | $16.3 | $106.4 | $126.8 | | (Loss) income from operations | $(5.1) | $(5.9) | $6.3 | | Net (loss) income | $(10.5) | $(19.0) | $(4.9) | Condensed Consolidated Balance Sheets Highlights (in millions) | | Successor (June 30, 2019) | Predecessor (December 31, 2018) | | :--- | :--- | :--- | | Cash and cash equivalents | $11.5 | $17.5 | | Goodwill | $464.1 | $355.7 | | Total Assets | $1,082.4 | $792.7 | | Long-term debt | $526.7 | $494.9 | | Total Liabilities | $671.7 | $596.3 | | Total Shareholders' Equity | $410.7 | $196.4 | Condensed Consolidated Statements of Cash Flows Highlights (in millions) | | Successor (Jun 3 - Jun 30, 2019) | Predecessor (Jan 1 - Jun 2, 2019) | Predecessor (Six Months Ended Jun 30, 2018) | | :--- | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(24.6) | $24.5 | $19.7 | | Net cash used in investing activities | $(947.6) | $(10.8) | $(15.4) | | Net cash provided by (used in) financing activities | $666.5 | $(13.3) | $(2.6) | - The acquisition of Rack Holdings was completed for $798.9 million and €140.0 million, resulting in the recognition of $462.9 million in Goodwill and $450.9 million in intangible assets[42][47] - New senior secured credit facilities, including a $378.2 million dollar-denominated term facility and a €140.0 million euro-denominated term facility, were established to fund the business combination and repay existing debt[59] - On August 9, 2019, CEO J. Mark Borseth resigned and was replaced by Executive Chairman Omar M. Asali[119][120] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on financial results, emphasizing the June 3, 2019 business combination's impact, presenting combined and pro forma results, and discussing liquidity and capital resources - The installed base of protective packaging systems, a key performance indicator, increased by 7.6% to 100.2 thousand units as of June 30, 2019, from 93.1 thousand units as of June 30, 2018[138] Installed Protective Packaging Systems Base (in thousands) | Protective Packaging Systems | As of June 30, 2019 | As of June 30, 2018 | % Change | | :--- | :--- | :--- | :--- | | Cushioning machines | 31.9 | 30.5 | 4.6% | | Void-fill machines | 58.3 | 54.5 | 7.0% | | Wrapping machines | 10.1 | 8.1 | 23.4% | | Total | 100.2 | 93.1 | 7.6% | Combined Financial Performance (Three Months Ended June 30) | Metric | 2019 | 2018 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $56.6M | $65.2M | (13.2)% | | Pro Forma Net Sales (Constant Currency) | $59.9M | $64.1M | (6.5)% | | Pro Forma Adjusted EBITDA | $16.9M | $21.1M | (19.9)% | Combined Financial Performance (Six Months Ended June 30) | Metric | 2019 | 2018 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $122.7M | $126.8M | (3.3)% | | Pro Forma Net Sales (Constant Currency) | $126.5M | $123.2M | 2.6% | | Pro Forma Adjusted EBITDA | $36.3M | $39.2M | (7.2)% | - The 13.2% decrease in Q2 2019 combined net sales was primarily driven by a 9.4 percentage point decrease in paper consumable product volume and a 1.5 percentage point decrease in automated box sizing equipment sales, partially offset by a 4.8 percentage point increase from higher prices[152] - As of June 30, 2019, the company held $11.5 million in cash and cash equivalents and $537.4 million in debt, with management anticipating sufficient liquidity from operations and revolving facility capacity[190][191] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section outlines the company's primary market risks: interest rate, foreign currency, and commodity price risk, and how they are managed - The company is exposed to interest rate risk on its $537.4 million of floating-rate long-term debt, where a 100 basis point change would have impacted interest expense by $0.3 million for the six months ended June 30, 2019[212] - To mitigate interest rate risk, the company entered into an interest rate swap with a notional amount of $200 million, converting a portion of its variable-rate debt to a fixed rate[213][215] - Significant foreign currency exchange rate risk exists, with 51.6% of net sales ($63.3 million) for the first six months of 2019 denominated in non-U.S. dollar currencies, primarily the Euro, where a 10% change in the Euro-to-dollar exchange rate would impact reported net sales by approximately $6.3 million[217][218] Item 4. Controls and Procedures Due to the recent Ranpak Business Combination, management was unable to fully assess the effectiveness of disclosure controls and procedures as of June 30, 2019 - Management was unable to conduct an assessment of the effectiveness of the company's disclosure controls and procedures as of June 30, 2019[223] - The inability to perform the assessment stemmed from the recent business combination, which rendered pre-existing controls inapplicable and necessitated significant time and resources to design and implement a new control framework for the post-combination entity[223] PART II – OTHER INFORMATION Item 1. Legal Proceedings The company reports that there are no material legal proceedings - The company reported no legal proceedings[227] Item 1A. Risk Factors This section details significant risks to the company's business, including supplier concentration, competition, substantial debt, global operations, and its status as an "emerging growth company" - The company faces significant supplier concentration risk, having purchased approximately 45% of its North American raw paper requirements from a single supplier, WestRock Company, in 2018[230] - The company's largest single end-user accounted for approximately 11% of net sales for the year ended December 31, 2018, and some e-commerce clients are actively reducing packaging material consumption[246] - Global operations present risks, including potential tariffs on goods imported from China, where the company sources a majority of components and systems for its end-users[234][259] - The substantial debt incurred to finance the business combination imposes operating and financial restrictions, potentially hindering the company's ability to finance expenditures, make acquisitions, or engage in new business activities[318][322] - As an "emerging growth company," Ranpak benefits from certain exemptions from disclosure requirements, which could potentially make its securities less attractive to investors[324] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section discloses the company's warrant repurchase program, approved on March 27, 2019, authorizing up to $10 million in repurchases Issuer Purchases of Equity Securities (Warrants) | Period | Total Number of Units Purchased | Average Price Paid per Unit | | :--- | :--- | :--- | | April 1 - 30, 2019 | 462,000 | $1.3764 | | May 1 - 31, 2019 | — | — | | June 1 - 30, 2019 | — | — | | Total | 462,000 | $1.3764 | - The Board of Directors approved a warrant repurchase program on March 27, 2019, authorizing up to $10 million in repurchases, with approximately $9.36 million remaining available under the program as of April 30, 2019[351] Item 3. Defaults Upon Senior Securities The company reports no defaults upon senior securities - The company reported no defaults upon senior securities[352] Item 4. Mine Safety Disclosures This item is not applicable to the company - This section is not applicable[352] Item 5. Other Information The company reports no other information - The company reported no other information[352] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including key legal and corporate governance documents - The filing includes key legal and corporate governance documents as exhibits, such as the First Lien Credit Agreement, Certificate of Incorporation, Bylaws, and the 2019 Omnibus Incentive Plan[352][354]