Ranpak (PACK) - 2020 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION This section provides the unaudited condensed consolidated financial statements and management's discussion and analysis for the first quarter of 2020 Condensed Consolidated Financial Statements (Unaudited) This section presents Ranpak Holdings Corp.'s unaudited condensed consolidated financial statements for Q1 2020, distinguishing between Successor and Predecessor periods due to the June 2019 business combination Condensed Consolidated Statements of Operations (Q1 2020 vs Q1 2019) | Metric | Three Months Ended March 31, 2020 (Successor) | Three Months Ended March 31, 2019 (Predecessor) | | :--- | :--- | :--- | | Net Sales | $63.4 million | $66.1 million | | Gross Profit | $26.8 million | $28.2 million | | Income (loss) from operations | $(0.6) million | $2.2 million | | Net Loss | $(3.6) million | $(3.4) million | | Net Loss per Share (Class A & C) | $(0.05) per share | N/A | | Comprehensive Loss | $(15.4) million | $(6.8) million | Condensed Consolidated Balance Sheets | Metric | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | $20.2 million | $19.7 million | | Total Assets | $1,092.3 million | $1,104.4 million | | Goodwill | $446.7 million | $448.8 million | | Long-term debt | $415.5 million | $418.8 million | | Total Liabilities | $573.7 million | $572.6 million | | Total Shareholders' Equity | $518.6 million | $531.8 million | Condensed Consolidated Statements of Cash Flows (Q1 2020 vs Q1 2019) | Metric | Three Months Ended March 31, 2020 (Successor) | Three Months Ended March 31, 2019 (Predecessor) | | :--- | :--- | :--- | | Net cash provided by operating activities | $11.6 million | $13.6 million | | Net cash used in investing activities | $(10.5) million | $(6.6) million | | Net cash used in financing activities | $(0.4) million | $(1.1) million | | Net Increase in Cash | $0.5 million | $5.7 million | Basis of Presentation and Accounting Policies Financial statements are presented on Successor and Predecessor bases due to the June 2019 business combination, impacting comparability, with the company electing extended EGC transition periods - Financial statements distinguish between Predecessor (pre-June 3, 2019) and Successor periods (post-acquisition), which are not comparable due to acquisition accounting[26][27] - As an Emerging Growth Company (EGC), Ranpak elected the extended transition period for new accounting standards, aligning with private company adoption timelines[31][33] Segment and Geographic Information Ranpak aggregates its operating segments into one reportable segment, with Europe as the largest geographic market and one customer contributing 10% of Q1 2020 revenues Net Sales by Geographic Location (Q1 2020 vs Q1 2019) | Region | Three Months Ended March 31, 2020 (Successor) | Three Months Ended March 31, 2019 (Predecessor) | | :--- | :--- | :--- | | North America | $27.1 million | $29.9 million | | Europe | $36.3 million | $36.2 million | | Total | $63.4 million | $66.1 million | - In Q1 2020, a single customer accounted for approximately 10.0% of total revenues, an increase from 8.0% in Q1 2019[44] Goodwill and Intangible Assets As of March 31, 2020, the company held significant goodwill and intangible assets, with no impairment recorded despite a COVID-19 related assessment - An impairment assessment for goodwill and indefinite-lived intangible assets due to the COVID-19 outbreak as of March 31, 2020, concluded no impairment was necessary[58] Goodwill and Intangible Asset Balances (March 31, 2020) | Asset | Carrying Value | | :--- | :--- | | Goodwill | $446.7 million | | Total identifiable intangible assets, net | $449.6 million | Long-Term Debt As of March 31, 2020, total debt was $424.6 million, stemming from June 2019 credit facilities, with a February 2020 amendment modifying excess cash flow and stock repurchase terms Long-Term Debt Composition (March 31, 2020) | Facility | Amount | | :--- | :--- | | First Lien Dollar Term Facility | $270.9 million | | First Lien Euro Term Facility | $153.7 million | | Total Debt | $424.6 million | | Less: deferred financing costs, net | $(7.6) million | | Less: current portion | $(1.5) million | | Long-term Debt | $415.5 million | - On February 14, 2020, the credit agreement was amended to delay mandatory prepayment of term loans with excess cash flow until FY 2021 and increase allowable stock repurchases from employees and directors[93][94] Subsequent Event (COVID-19) Ranpak, deemed an essential business, continues operations during COVID-19 with limited supply delays and no material production impact, though ultimate pandemic effects remain highly uncertain - Ranpak is deemed an essential business and continues to operate its production and distribution facilities globally during the COVID-19 pandemic[172] - To date, the company experienced limited supply delays but no material impact on production or order fulfillment, though the pandemic's ultimate impact remains highly uncertain[172] Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes Q1 2020 financial results, detailing a 4.1% net sales decrease, the impact of the June 2019 business combination, and factors like system growth, currency, and COVID-19, while affirming stable liquidity Overview and Key Factors Ranpak, a global packaging solutions provider, saw its installed base grow 8.5% to 106.9 thousand units, with COVID-19 driving e-commerce demand offsetting other sector weakness, while the June 2019 business combination impacts comparability - The installed base of protective packaging systems grew 8.5% to approximately 106.9 thousand units as of March 31, 2020, with wrapping machines showing the highest growth at 30.8%[191] - The COVID-19 pandemic led to strong e-commerce demand, offsetting other industry reductions, though social distancing delayed new system demonstrations and installations[190] Results of Operations Q1 2020 net sales decreased 4.1% to $63.4 million due to lower paper consumable volume and pricing, while SG&A expenses rose 37.1% to $19.6 million, resulting in a net loss of $3.6 million Net Sales by Product Line (Q1 2020 vs Q1 2019) | Product Line | Q1 2020 Net Sales | Q1 2019 Net Sales | % Change | | :--- | :--- | :--- | :--- | | Cushioning | $28.5 million | $32.2 million | (11.5)% | | Void-Fill | $24.7 million | $26.9 million | (8.2)% | | Wrapping | $7.9 million | $5.3 million | +49.1% | | Other | $2.3 million | $1.7 million | +35.3% | | Total | $63.4 million | $66.1 million | (4.1)% | - SG&A expenses increased by $5.3 million (37.1%) year-over-year, driven by severance, non-cash equity compensation, growth initiatives, and public company costs[207] - Pro forma Adjusted EBITDA, a non-GAAP measure, decreased 8.1% to $18.1 million from $19.7 million year-over-year on a constant currency basis[215] Liquidity and Capital Resources As of March 31, 2020, the company maintains sufficient liquidity with $20.2 million in cash and an undrawn $45.0 million revolving credit facility, supported by $11.6 million in operating cash flow Cash and Liquidity Position (as of March 31, 2020) | Metric | Amount | | :--- | :--- | | Cash and cash equivalents | $20.2 million | | Total Debt | $424.6 million | | Revolving Credit Facility Availability | $45.0 million | Summary of Cash Flows (Q1 2020) | Cash Flow Activity | Amount | | :--- | :--- | | Net cash provided by operating activities | $11.6 million | | Net cash used in investing activities | $(10.5) million | | Net cash used in financing activities | $(0.4) million | Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from interest rates, foreign currency, and commodity prices, managed through interest rate swaps, Euro-denominated sales, and annual paper price negotiations - A hypothetical 100 basis point change in interest rates would impact annual cash interest expense by approximately $1.1 million for Q1 2020, managed with interest rate swaps[252] - For Q1 2020, 57.2% of net sales ($36.3 million) were non-USD denominated, primarily Euro, where a 10% Euro value change would impact net sales by approximately $3.6 million[255] Controls and Procedures As of March 31, 2020, disclosure controls were deemed ineffective due to material weaknesses in internal control over financial reporting, which the company is actively remediating without material impact from COVID-19 remote work - Management concluded that disclosure controls and procedures were not effective as of March 31, 2020, due to material weaknesses in internal control over financial reporting previously identified in the 2019 Form 10-K[259] - The company is actively remediating identified material weaknesses, and the transition to remote work due to COVID-19 has not materially impacted internal controls[260][261] PART II – OTHER INFORMATION This section provides additional information including legal proceedings, risk factors, and other required disclosures Legal Proceedings The company reported no legal proceedings for the period - No legal proceedings were reported for the period[265] Risk Factors This section supplements existing risk factors, focusing on potential adverse impacts of the COVID-19 pandemic on manufacturing, supply chain, logistics, and end-user demand - The COVID-19 pandemic poses risks including reduced manufacturing productivity, supply chain disruptions for machine parts and paper, transportation delays, and negative impacts on end-user demand due to economic decline[268][269][271] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds for the period - No unregistered sales of equity securities or use of proceeds were reported[273] Defaults Upon Senior Securities The company reported no defaults upon senior securities - No defaults upon senior securities were reported[274] Mine Safety Disclosures This item is not applicable to the company - This item is not applicable to the company[275] Other Information The company reported no other information - No other information was reported[276] Exhibits This section lists exhibits filed with Form 10-Q, including business combination agreements, corporate governance documents, debt agreements, and CEO/CFO certifications - Key exhibits include Amendment No. 1 to the First Lien Credit Agreement and CEO/CFO certifications pursuant to the Sarbanes-Oxley Act[278]