Ranpak (PACK) - 2023 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION Provides unaudited condensed consolidated financial statements and management's discussion and analysis for Q1 2023 Item 1. Condensed Consolidated Financial Statements (Unaudited) This section presents Ranpak Holdings Corp.'s unaudited condensed consolidated financial statements for the three months ended March 31, 2023 and 2022, including statements of operations, balance sheets, changes in shareholders' equity, and cash flows, along with detailed notes explaining the company's accounting policies, financial data, and specific financial instruments Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) Presents the company's unaudited statements of operations and comprehensive income (loss) for Q1 2023 and Q1 2022 Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Three Months Ended March 31) | Metric (in millions) | 2023 | 2022 | | :------------------- | :--- | :--- | | Net revenue | $81.2 | $82.5 | | Cost of goods sold | $53.7 | $57.9 | | Gross profit | $27.5 | $24.6 | | Loss from operations | $(8.9) | $(13.8) | | Net loss | $(12.4) | $(14.1) | | Basic EPS | $(0.15) | $(0.17) | | Diluted EPS | $(0.15) | $(0.17) | - Net revenue decreased by $1.3 million (1.6%) year-over-year, from $82.5 million in Q1 2022 to $81.2 million in Q1 2023. Gross profit increased by $2.9 million (11.8%) to $27.5 million in Q1 2023, while net loss improved from $(14.1) million to $(12.4) million[13] Unaudited Condensed Consolidated Balance Sheets Details the company's unaudited balance sheet data as of March 31, 2023, and December 31, 2022 Condensed Consolidated Balance Sheets (as of March 31, 2023 and December 31, 2022) | Metric (in millions) | March 31, 2023 | December 31, 2022 | | :------------------- | :------------- | :---------------- | | Total current assets | $140.2 | $139.6 | | Total assets | $1,149.2 | $1,133.5 | | Total current liabilities | $42.9 | $39.1 | | Total liabilities | $545.6 | $520.7 | | Total shareholders' equity | $603.6 | $612.8 | - Total assets increased by $15.7 million to $1,149.2 million as of March 31, 2023, primarily driven by increases in property, plant and equipment, and operating lease right-of-use assets. Total liabilities increased by $24.9 million to $545.6 million, mainly due to higher long-term debt and operating lease liabilities[15] Unaudited Condensed Consolidated Statements of Changes in Shareholders' Equity Outlines changes in shareholders' equity for the three months ended March 31, 2023 and 2022 Condensed Consolidated Statements of Changes in Shareholders' Equity (Three Months Ended March 31) | Metric (in millions) | March 31, 2023 | March 31, 2022 | | :------------------- | :------------- | :------------- | | Balance at Dec 31 | $612.8 | $636.2 | | Stock-based awards vested and distributed | $(0.4) | $(2.9) | | Amortization of restricted stock units | $2.8 | $8.8 | | Net loss | $(12.4) | $(14.1) | | Other comprehensive income (loss) | $0.8 | $3.4 | | Balance at March 31 | $603.6 | $631.4 | - Total shareholders' equity decreased from $612.8 million at December 31, 2022, to $603.6 million at March 31, 2023, primarily due to a net loss of $12.4 million, partially offset by amortization of restricted stock units and other comprehensive income[16] Unaudited Condensed Consolidated Statements of Cash Flows Presents the company's unaudited cash flow activities for the three months ended March 31, 2023 and 2022 Condensed Consolidated Statements of Cash Flows (Three Months Ended March 31) | Cash Flow Activity (in millions) | 2023 | 2022 | | :------------------------------- | :--- | :--- | | Net cash provided by (used in) operating activities | $7.5 | $(9.4) | | Net cash used in investing activities | $(11.8) | $(10.7) | | Net cash used in financing activities | $(0.3) | $(3.1) | | Net Decrease in Cash and Cash Equivalents | $(4.2) | $(23.4) | | Cash and Cash Equivalents, end of period | $58.6 | $80.5 | - Operating activities generated $7.5 million in cash in Q1 2023, a significant improvement from a $9.4 million cash usage in Q1 2022, driven by decreased input costs and SG&A. Investing activities used $11.8 million, mainly for converter equipment and new facility leasehold improvements. Overall, cash and cash equivalents decreased by $4.2 million to $58.6 million[19][183][184] Notes to Unaudited Condensed Consolidated Financial Statements Provides detailed explanations of accounting policies, financial data, and specific financial instruments Note 1 — Nature of Operations Describes Ranpak Holdings Corp.'s business as a global provider of sustainable product protection solutions - Ranpak Holdings Corp. is a leading global provider of environmentally sustainable, systems-based product protection solutions for e-Commerce and industrial supply chains, offering proprietary protective packaging solutions (PPS) systems and paper consumables, including Automated Solutions (AS) and Automated Paper Solutions (APS)[22] Note 2 — Basis of Presentation and Summary of Significant Accounting Policies Outlines the basis of financial statement preparation and key accounting policies, including LIBOR transition - The interim unaudited condensed consolidated financial statements are prepared in accordance with GAAP and SEC Regulation S-X, consolidating the Company and its wholly-owned subsidiaries. Management uses estimates and assumptions, and actual results may differ. The Company is evaluating the effects of ASU 2022-06 regarding the transition from LIBOR to SOFR for its indebtedness and interest rate swap agreements, with completion expected by June 30, 2023[23][25][26][29][31] Note 3 — Supplemental Balance Sheet Data and Cash Flow Information Provides additional details on accounts receivable, inventories, property, plant and equipment, and cash flow Accounts Receivable, net (in millions) | Metric | March 31, 2023 | December 31, 2022 | | :----- | :------------- | :---------------- | | Accounts receivable | $34.8 | $33.7 | | Allowance for doubtful accounts | $(0.4) | $(0.7) | | Accounts receivable, net | $34.4 | $33.0 | Inventories, net (in millions) | Metric | March 31, 2023 | December 31, 2022 | | :----- | :------------- | :---------------- | | Raw materials | $9.8 | $12.4 | | Work-in-process | $6.7 | $5.7 | | Finished goods | $6.3 | $7.2 | | Total inventories | $22.8 | $25.3 | | Reserve for obsolescence | $(0.2) | $(0.3) | | Inventories, net | $22.6 | $25.0 | Property, Plant and Equipment, net (in millions) | Metric | March 31, 2023 | December 31, 2022 | | :----- | :------------- | :---------------- | | Total property, plant, and equipment | $257.9 | $245.6 | | Accumulated depreciation | $(130.9) | $(121.6) | | Property, plant, and equipment, net | $127.0 | $124.0 | Supplemental Cash Flow Information (in millions) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :----- | :-------------------------------- | :-------------------------------- | | Interest paid | $5.8 | $5.1 | | Income taxes paid | $0.8 | $0.7 | | Right-of-use assets obtained in exchange for lease liabilities | $18.1 | $0.1 | Note 4 — Segment and Geographic Information Details revenue, gross profit, and long-lived assets by geographic region for the company's single operating segment - Ranpak operates as a single reportable segment, with revenue and gross profit attributed to individual countries based on selling location, primarily North America and Europe. No single customer exceeded 10% of net revenue in Q1 2023 or Q1 2022[36][38] Revenue and Segment Gross Profit by Geographic Region (in millions, Three Months Ended March 31) | Metric | 2023 | 2022 | | :----- | :--- | :--- | | Revenue | | | | North America | $31.1 | $30.9 | | Europe/Asia | $50.1 | $51.6 | | Net revenue | $81.2 | $82.5 | | Segment gross profit | | | | North America | $9.4 | $9.9 | | Europe/Asia | $18.1 | $14.7 | | Gross profit | $27.5 | $24.6 | Long-Lived Assets by Geographic Region (in millions) | Region | March 31, 2023 | December 31, 2022 | | :----- | :------------- | :---------------- | | North America | $67.4 | $65.4 | | Europe/Asia | $81.5 | $64.6 | | Total long-lived assets | $148.9 | $130.0 | Note 5 — Revenue Recognition, Contracts with Customers Explains the company's policies for recognizing revenue from various product and service offerings - Revenue is recognized when control of goods or services is transferred to customers. Paper consumables revenue is recognized at shipping, automation equipment sales over time using an input method, and maintenance revenue straight-line. Variable consideration (rebates, discounts) is estimated and included in transaction price if probable of no significant reversal[41][43] Disaggregated Revenue (in millions, Three Months Ended March 31) | Revenue Type | 2023 | 2022 | | :------------- | :--- | :--- | | ASC 606 | | | | North America | $25.3 | $25.6 | | Europe/Asia | $43.1 | $44.7 | | Total paper and other revenue | $68.4 | $70.3 | | ASC 842 | | | | Machine lease revenue | $12.8 | $12.2 | | Net revenue | $81.2 | $82.5 | Changes in Deferred Revenue (in millions, Three Months Ended March 31, 2023) | Metric | Amount | | :----- | :----- | | Beginning balance | $0.9 | | Deferral of revenue | $2.3 | | Recognition of revenue | $(1.6) | | Ending balance | $1.6 | Note 6 — Goodwill, Long-Lived Assets, Intangible Assets and Impairment Discusses the accounting for goodwill, long-lived assets, and intangible assets, including impairment reviews - Goodwill and indefinite-lived intangible assets are reviewed annually for impairment, and no indicators of impairment were present as of March 31, 2023. Definite-lived intangible assets include customer/distributor relationships, patented/unpatented technology, and other intellectual property, with a total net amount of $260.2 million as of March 31, 2023[48][49][51][53] Goodwill Balances by Operating Segment (in millions) | Segment | December 31, 2022 | Currency translation | March 31, 2023 | | :------ | :---------------- | :------------------- | :------------- | | North America | $338.8 | - | $338.8 | | Europe | $107.9 | $2.0 | $109.9 | | Total | $446.7 | $2.0 | $448.7 | Identifiable Intangible Assets, net (in millions) | Asset Type | March 31, 2023 (Net) | December 31, 2022 (Net) | | :--------- | :------------------- | :---------------------- | | Customer/distributor relationships | $147.3 | $149.0 | | Patented/unpatented technology | $112.6 | $116.6 | | Intellectual property | $0.3 | $0.3 | | Total definite-lived intangible assets | $260.2 | $265.9 | | Trademarks/tradenames with indefinite lives | $106.2 | $106.2 | | Identifiable intangible assets, net | $366.4 | $372.1 | Remaining Estimated Amortization Expense for Definite-Lived Intangible Assets (in millions, as of March 31, 2023) | Year | Amount | | :--- | :----- | | 2023 | $21.8 | | 2024 | $29.1 | | 2025 | $28.6 | | 2026 | $28.2 | | 2027 | $28.1 | | Thereafter | $124.4 | | Total | $260.2 | Note 7 — Long-Term Debt Details the company's long-term debt facilities, including term loans and revolving credit, and associated interest rates - Ranpak's long-term debt facilities include a $378.2 million First Lien Dollar Term Facility, a €140.0 million First Lien Euro Term Facility, and a $45.0 million Revolving Facility. As of March 31, 2023, total debt was $396.4 million, with no amounts outstanding under the Revolving Facility. Interest rates for the Dollar and Euro Term Facilities were 8.42% and 6.18% respectively, as of March 31, 2023. An amendment on April 4, 2023, replaced LIBOR-based interest rates with SOFR-based rates[57][59][60][71] Long-Term Debt Composition (in millions) | Debt Type | March 31, 2023 | December 31, 2022 | | :-------- | :------------- | :---------------- | | First Lien Dollar Term Facility | $250.0 | $250.0 | | First Lien Euro Term Facility | $147.7 | $145.4 | | Finance lease liabilities | $1.5 | $1.5 | | Equipment financing | $0.8 | - | | Deferred financing costs, net | $(3.6) | $(3.9) | | Total debt | $396.4 | $393.0 | | Less: current portion of long-term debt | $(0.7) | $(0.6) | | Less: current portion of finance lease liabilities | $(0.7) | $(0.7) | | Long-term debt | $395.0 | $391.7 | Note 8 — Derivative Instruments Explains the use of interest rate and cross-currency swaps to manage financial risk exposures - Ranpak uses interest rate swaps to manage exposure to variable interest rates on debt, converting a portion of variable rate debt to fixed rate. The company also uses cross-currency swaps to hedge net investment in European subsidiaries against Euro/USD exchange rate fluctuations. As of March 31, 2023, $250.0 million of the First Lien Dollar Term Facility was hedged by interest rate swaps[72][79][81][82][83][86] Interest Rate Swap Agreements (as of March 31, 2023) | Swap | Designation | Maturity Date | Rate | Notional Value (in millions) | Debt Instrument Hedged | Percentage of Debt Instrument Outstanding | | :--- | :---------- | :------------ | :--- | :--------------------------- | :--------------------- | :---------------------------------------- | | September 2019 Swap | Cash flow hedge | June 1, 2023 | 1.50% | $50.0 | First Lien Dollar Term Facility | 20% | | Second Amended January 2019 Swap | Cash flow hedge | June 1, 2024 | 2.09% | $200.0 | First Lien Dollar Term Facility | 80% | | Total | | | | $250.0 | | 100% | Fair Values of Derivative Assets and Liabilities (in millions) | Derivative Type | Balance Sheet Classification | March 31, 2023 | December 31, 2022 | | :-------------- | :--------------------------- | :------------- | :---------------- | | Interest Rate Swap Agreements | Prepaid expenses and other current assets | $5.8 | $6.3 | | Interest Rate Swap Agreements | Other assets | $0.4 | $1.8 | | Cross-Currency Swap Agreement | Derivative instruments | $(4.7) | $(3.7) | Note 9 — Accumulated Other Comprehensive Income (Loss) Presents the components of accumulated other comprehensive income (loss), including foreign currency translation and swap gains/losses Components of Accumulated Other Comprehensive Income (Loss) (in millions) | Component | March 31, 2023 (Net) | December 31, 2022 (Net) | | :-------- | :------------------- | :---------------------- | | Foreign currency translation | $(4.9) | $(8.0) | | Unrealized gain (loss) on interest rate swaps | $6.9 | $8.6 | | Unrealized gain (loss) on cross-currency swap | $(3.6) | $(3.0) | | Realized gain (loss) on cross-currency swap | $7.6 | $7.6 | | Total | $6.0 | $5.2 | - Accumulated other comprehensive income (loss) increased from $5.2 million at December 31, 2022, to $6.0 million at March 31, 2023, primarily due to positive foreign currency translation adjustments and reclassifications from accumulated other comprehensive income (loss)[89][91] Note 10 — Fair Value Measurement Describes the fair value hierarchy and measurement techniques for financial instruments - Financial instruments are categorized into a three-tier fair value hierarchy based on input observability. Money market funds are Level 1, while current and long-term debt, interest rate swap agreements, and cross-currency swap agreements are Level 2, valued using quoted market prices for similar assets/liabilities or model-based techniques with observable inputs[92][94] Fair Value Measurements of Financial Instruments (in millions) | Instrument | March 31, 2023 (Carrying Amount) | March 31, 2023 (Level 1) | March 31, 2023 (Level 2) | | :--------- | :------------------------------- | :----------------------- | :----------------------- | | Money market fund | $27.8 | $27.8 | - | | Current and long-term debt | $400.0 | - | $396.2 | | Interest rate swap agreements | $6.2 | - | $6.2 | | Cross-currency swap agreement | $4.7 | - | $4.7 | Note 11 — Income Taxes Analyzes the effective tax rate and its reconciliation to the U.S. federal statutory rate Effective Tax Rate (Three Months Ended March 31) | Metric | 2023 | 2022 | | :----- | :--- | :--- | | Effective tax rate | 14.4% | 22.7% | - The effective tax rate decreased to 14.4% in Q1 2023 from 22.7% in Q1 2022, primarily due to a $1.2 million tax expense related to stock-based compensation shortfall. The rate differs from the U.S. federal statutory rate due to stock-based compensation expense, foreign-derived intangible income deduction, U.S. tax credits, and varying foreign tax rates[96] Note 12 — Leases Details the company's lease arrangements, including right-of-use assets and lease liabilities - Ranpak leases automobiles, machinery, equipment, warehouses, and office buildings, accounting for them under ASC 842. In Q1 2023, the company commenced a 15-year operating lease for a new regional headquarters in Eygelshoven, Netherlands, recording approximately $14.8 million in operating right-of-use assets and corresponding lease liabilities[98][99] Lease Assets and Liabilities (in millions) | Metric | March 31, 2023 | December 31, 2022 | | :----- | :------------- | :---------------- | | Lease assets | | | | Operating lease right-of-use assets, net | $21.9 | $6.0 | | Finance lease right of use assets, net | $1.4 | $1.4 | | Total lease assets | $23.3 | $7.4 | | Lease liabilities | | | | Operating lease liabilities, current | $2.7 | $2.0 | | Operating lease liabilities, non-current | $19.2 | $4.0 | | Finance lease liabilities, current | $0.7 | $0.7 | | Finance lease liabilities, non-current | $0.8 | $0.8 | | Total lease liabilities | $23.4 | $7.5 | Maturities of Lease Liabilities (in millions, as of March 31, 2023) | Year | Operating | Finance | Total | | :--- | :-------- | :------ | :---- | | 2023 | $3.4 | $0.6 | $4.0 | | 2024 | $4.2 | $0.6 | $4.8 | | 2025 | $4.0 | $0.3 | $4.3 | | 2026 | $2.6 | $0.1 | $2.7 | | 2027 | $2.1 | - | $2.1 | | 2028 and Thereafter | $19.8 | - | $19.8 | | Total lease payments | $36.1 | $1.6 | $37.7 | | Less lease interest | $(14.2) | $(0.1) | $(14.3) | | Total lease liabilities | $21.9 | $1.5 | $23.4 | Note 13 — Commitments and Contingencies Addresses legal proceedings, environmental regulations, and other potential liabilities - Ranpak is subject to ordinary course legal proceedings and environmental regulations but believes any potential losses or liabilities would not materially affect financial condition, liquidity, or cash flows. No amounts were required to be reflected in the interim financial statements for contingencies as of March 31, 2023[102][105][106][107] Note 14 — Stock-Based Compensation Provides details on stock-based compensation expense, restricted stock units, and performance share units Stock-Based Compensation Expense (in millions, Three Months Ended March 31) | Metric | 2023 | 2022 | | :----- | :--- | :--- | | Stock-based compensation expense | $2.8 | $8.8 | | Tax (expense) benefit for stock-based compensation | $0.7 | $0.3 | | Stock-based compensation expense, net of tax | $2.1 | $9.1 | - Stock-based compensation expense decreased significantly to $2.8 million in Q1 2023 from $8.8 million in Q1 2022, primarily due to reductions in expense associated with the 2021 LTIP PRSUs. The 2019 Omnibus Incentive Plan had 6,831,525 shares available for future awards as of March 31, 2023[110][111][153] Activity of RSUs and PRSUs (Three Months Ended March 31, 2023) | Metric | RSUs Quantity | RSUs Avg Grant Date Fair Value | PRSUs Quantity | PRSUs Avg Grant Date Fair Value | | :----- | :------------ | :----------------------------- | :------------- | :------------------------------ | | Restricted at Dec 31, 2022 | 351,945 | $15.78 | 2,560,551 | $23.52 | | Granted | 24,474 | $6.30 | 1,251,870 | $6.30 | | Vested | (103,565) | $27.97 | (435,219) | $18.38 | | Forfeited | (7,513) | $27.81 | (18,281) | $34.22 | | Outstanding at March 31, 2023 | 265,341 | $9.81 | 3,358,921 | $17.71 | Note 15 — Earnings (Loss) per Share Explains the computation of basic and diluted earnings (loss) per share using the two-class method - Basic and diluted EPS are computed using the two-class method, allocating net loss between Class A and Class C common shares based on their rights. For Q1 2023, basic and diluted EPS for Class A and C were $(0.15) and $(0.14) respectively, with 2.9 million anti-dilutive securities omitted from the diluted EPS calculation due to the loss position[119][120][121] Earnings (Loss) per Share Computation (Three Months Ended March 31) | Metric | 2023 | 2022 | | :----- | :--- | :--- | | Net loss attributable to common stockholders for basic and diluted EPS (in millions) | $(12.4) | $(14.1) | | Basic weighted average common shares outstanding | 82,136,793 | 81,573,467 | | Diluted weighted average common shares outstanding | 82,136,793 | 81,573,467 | | Loss per share attributable to common stockholders - Basic | $(0.15) | $(0.17) | | Loss per share attributable to common stockholders - Diluted | $(0.15) | $(0.17) | | Class A – basic earnings (loss) per share | $(0.15) | $(0.17) | | Class C – basic earnings (loss) per share | $(0.14) | $(0.17) | Note 16 — Transactions with Related Parties Discloses transactions with related parties, including a shared services agreement with One Madison Group LLC - Ranpak has a Shared Services Agreement with One Madison Group LLC, an entity controlled by its CEO, for administrative and corporate services. Total fees under this agreement were $0.1 million for both Q1 2023 and Q1 2022[123] Note 17 — Shareholders' Equity Details changes in shareholders' equity, including the authorized share repurchase program - On July 26, 2022, the Board of Directors authorized a general share repurchase program for up to $50.0 million of Class A common stock, with a 36-month expiration. Repurchases can occur through various methods and are at the discretion of the Directors[124] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Ranpak's financial condition and results of operations for the three months ended March 31, 2023, compared to the same period in 2022, including an overview of the business, key performance indicators, detailed analysis of revenue and expenses, liquidity, and capital resources Cautionary Note Regarding Forward-Looking Statements Highlights risks and uncertainties that could cause actual results to differ from forward-looking statements - The report contains forward-looking statements based on current expectations, which involve risks and uncertainties that could cause actual results to differ materially. Key risks include paper supply, rising input costs (labor, energy, freight), kraft paper prices, reliance on third-party suppliers, COVID-19, Russia's invasion of Ukraine, competition, consumer sensitivity to price increases, global inflation, changes in consumer preferences, consolidation, loss of end-users, failure to develop new products, and fluctuating operating results[126][127] Overview Provides a general description of Ranpak's business, global operations, and key financial highlights - Ranpak is a leading global provider of environmentally sustainable, systems-based product protection solutions for e-commerce and industrial supply chains, with manufacturing facilities in the U.S. and Europe, and sales/administrative offices globally. As of March 31, 2023, the company had an installed base of approximately 139.6 thousand PPS systems. Net revenue for Q1 2023 was $81.2 million, with 58.3% of 2022 net revenue generated outside the U.S. The business is subject to currency fluctuations and seasonality, with highest net revenue typically in Q4[131][132][133][135] Key Performance Indicators and Other Factors Affecting Performance Discusses key metrics like PPS system installed base and external factors impacting financial performance - The installed base of PPS systems is a key indicator, growing 3.8% year-over-year to 139.6 thousand systems as of March 31, 2023. Paper costs, the largest input, are subject to volatility from inflation, supply/demand, and energy prices, with European pricing remaining unsteady. Inflationary pressures also impact shipping, logistics, energy, and wages, affecting end-user spending and potentially gross margins. The COVID-19 pandemic caused supply chain disruptions and increased e-commerce activity, with subsequent reopening negatively impacting e-commerce revenue[137][138][139] Installed Base of PPS Systems (in thousands) | PPS Systems | March 31, 2023 | March 31, 2022 | Change | % Change | | :------------ | :------------- | :------------- | :----- | :------- | | Cushioning machines | 35.0 | 35.3 | (0.3) | (0.8) | | Void-Fill machines | 82.3 | 78.3 | 4.0 | 5.1 | | Wrapping machines | 22.3 | 20.9 | 1.4 | 6.7 | | Total | 139.6 | 134.5 | 5.1 | 3.8 | Results of Operations Analyzes the company's financial performance, including revenue, costs, and profitability for the period - Ranpak presents GAAP results alongside non-GAAP measures like EBITDA and Adjusted EBITDA (AEBITDA) on a constant currency basis to provide a clearer view of operating performance. AEBITDA for Q1 2023 was $15.1 million, a decrease of 20.9% from $19.1 million in Q1 2022, primarily due to lower economic activity and inflationary pressures[141][143][145][161] Summary of Results of Operations (in millions, Three Months Ended March 31) | Metric | 2023 | 2022 | | :----- | :--- | :--- | | Net revenue | $81.2 | $82.5 | | Cost of goods sold | $53.7 | $57.9 | | Gross profit | $27.5 | $24.6 | | Selling, general and administrative expenses | $27.2 | $29.7 | | Depreciation and amortization expense | $8.0 | $8.2 | | Loss from operations | $(8.9) | $(13.8) | | Interest expense | $5.7 | $5.0 | | Foreign currency gain | $0.2 | $(0.6) | | Loss before income tax benefit | $(14.5) | $(18.2) | | Income tax benefit | $(2.1) | $(4.1) | | Net loss | $(12.4) | $(14.1) | | EBITDA | $7.5 | $5.6 | | AEBITDA (Constant Currency) | $15.1 | $19.1 | Net Revenue Examines changes in net revenue by geographic region and product line, including constant currency impacts - Net revenue decreased by 1.6% year-over-year to $81.2 million in Q1 2023, impacted by currency headwinds (2.7 points of pressure), increased business sponsoring costs, lower economic activity, and inflationary pressures. Cushioning revenue increased by 5.6%, while void-fill and wrapping decreased by 5.0% and 15.5% respectively. On a constant currency basis, net revenue increased by 1.1% to $84.8 million[149] Net Revenue by Geographic Region (in millions, Three Months Ended March 31) | Region | 2023 | 2022 | | :----- | :--- | :--- | | North America | $31.1 | $30.9 | | Europe/Asia | $50.1 | $51.6 | | Net revenue | $81.2 | $82.5 | Net Revenue by Product Line (in millions, Three Months Ended March 31) | Product Line | 2023 | 2022 | | :----------- | :--- | :--- | | Cushioning machines | $37.6 | $35.6 | | Void-Fill machines | $30.2 | $31.8 | | Wrapping machines | $9.3 | $11.0 | | Other | $4.1 | $4.1 | | Net revenue | $81.2 | $82.5 | Non-GAAP Constant Currency Net Revenue (in millions, Three Months Ended March 31) | Metric | 2023 | 2022 | $ Change | % Change | | :----- | :--- | :--- | :------- | :------- | | North America | $31.1 | $30.9 | $0.2 | 0.6 | | Europe/Asia | $53.7 | $53.0 | $0.7 | 1.3 | | Net revenue | $84.8 | $83.9 | $0.9 | 1.1 | | Cushioning machines | $39.5 | $36.3 | $3.2 | 8.8 | | Void-Fill machines | $31.3 | $32.3 | $(1.0) | (3.1) | | Wrapping machines | $9.6 | $11.1 | $(1.5) | (13.5) | | Other | $4.4 | $4.2 | $0.2 | 4.8 | | Net revenue | $84.8 | $83.9 | $0.9 | 1.1 | Cost of Goods Sold Analyzes the factors contributing to changes in the cost of goods sold, including input costs and depreciation - Cost of goods sold decreased by $4.2 million (7.3%) to $53.7 million in Q1 2023, primarily due to lower input costs and a $2.3 million decrease in depreciation. Currency rate fluctuations also contributed approximately 2.4% to the decrease, as paper pricing began to ease compared to 2022's inflationary pressures[152] Selling, General and Administrative Expenses ("SG&A") Discusses the drivers behind changes in SG&A expenses, including stock compensation and currency effects - SG&A expenses decreased by $2.5 million (8.4%) to $27.2 million in Q1 2023, mainly driven by a reduction in stock compensation expense, particularly related to the 2021 LTIP PRSUs. Currency rate fluctuations also contributed approximately 2.0% to this decrease[153] Depreciation and Amortization Examines the changes in depreciation and amortization expenses, primarily due to computer software - Depreciation and amortization expenses decreased by $0.2 million (2.4%) to $8.0 million in Q1 2023, primarily due to a decrease in depreciation of computer software. Currency rate fluctuations accounted for approximately 1.2% of this decrease[154] Other Operating Expense, Net Details the increase in other operating expenses, primarily driven by research and development costs - Other operating expense, net, increased by $0.7 million to $1.2 million in Q1 2023, primarily due to an increase in research and development costs[155] Interest Expense Analyzes the increase in interest expense due to higher interest rates on credit facilities - Interest expense increased by $0.7 million (14.0%) to $5.7 million in Q1 2023, driven by higher interest rates associated with the company's first lien credit facilities. Currency rate fluctuations contributed approximately 2.0% to this increase[156] Foreign Currency (Gain) Loss Explains the foreign currency loss, primarily attributed to Euro/USD exchange rate volatility - The company recorded a foreign currency loss of $0.2 million in Q1 2023, a change of $0.8 million from a $0.6 million gain in Q1 2022, primarily due to volatility in Euro exchange rates against the USD[157] Other Non-Operating Income, Net Reports other non-operating income, primarily from an unrealized gain on a money market fund investment - Other non-operating income, net, was $0.3 million in Q1 2023, representing an unrealized gain on the company's investment in a money market fund. This was not material in Q1 2022[158] Income Tax Benefit Discusses the income tax benefit and the factors influencing the effective tax rate - Income tax benefit was $2.1 million in Q1 2023, resulting in an effective tax rate of 14.4%, down from 22.7% in Q1 2022. This fluctuation was mainly due to a tax expense related to stock-based compensation shortfall, partially offset by U.S. foreign-derived intangible income deduction, tax credits, and varying foreign tax rates[159] Net Loss Summarizes the decrease in net loss, reflecting the combined impact of revenue and expense changes - Net loss decreased by $1.7 million to $12.4 million in Q1 2023 from $14.1 million in Q1 2022, reflecting the combined effects of changes in revenue, costs, and other income/expenses[160] EBITDA and AEBITDA Presents EBITDA and Adjusted EBITDA (AEBITDA) as non-GAAP measures for operating performance analysis - EBITDA increased by 33.9% to $7.5 million in Q1 2023 from $5.6 million in Q1 2022. However, Adjusted EBITDA (AEBITDA) on a constant currency basis decreased by 20.9% to $15.1 million in Q1 2023 from $19.1 million in Q1 2022, after adjusting for non-cash and unusual items[161] Presentation and Reconciliation of GAAP to Non-GAAP Measures Reconciles GAAP financial measures to non-GAAP measures like EBITDA and Adjusted EBITDA for clarity - Ranpak provides non-GAAP financial measures like EBITDA and AEBITDA to help users understand operating performance and compare results, acknowledging their limitations as analytical tools and not as substitutes for GAAP measures[162] Reconciliation of GAAP to Non-GAAP Measures (in millions, Three Months Ended March 31) | Metric | 2023 | 2022 | $ Change | % Change | | :----- | :--- | :--- | :------- | :------- | | Net loss | $(12.4) | $(14.1) | $1.7 | (12.1) | | Depreciation and amortization expense – COS | $8.3 | $10.6 | $(2.3) | (21.7) | | Depreciation and amortization expense – D&A | $8.0 | $8.2 | $(0.2) | (2.4) | | Interest expense | $5.7 | $5.0 | $0.7 | 14.0 | | Income tax benefit | $(2.1) | $(4.1) | $2.0 | (48.8) | | EBITDA | $7.5 | $5.6 | $1.9 | 33.9 | | Adjustments: | | | | | | Unrealized (gain) loss translation | $0.2 | $(0.6) | $0.8 | (133.3) | | Non-cash impairment losses | $0.4 | - | $0.4 | ― | | M&A, restructuring, severance | $0.2 | $0.5 | $(0.3) | (60.0) | | Amortization of restricted stock units | $2.8 | $8.8 | $(6.0) | (68.2) | | Amortization of cloud-based software implementation costs | $0.7 | $0.7 | - | - | | Cloud-based software implementation costs | $1.2 | $2.5 | $(1.3) | (52.0) | | Other adjustments | $1.3 | $1.2 | $0.1 | 8.3 | | Constant Currency AEBITDA | $15.1 | $19.1 | $(4.0) | (20.9) | Liquidity and Capital Resources Assesses the company's ability to meet short-term and long-term obligations, including cash flows and debt - Ranpak believes its cash balances and revolving credit facility capacity are sufficient for current requirements, but expects capital expenditures to increase. As of March 31, 2023, cash and cash equivalents were $58.6 million, and total debt was $399.2 million (excluding deferred financing costs), with $42.6 million net availability under the $45.0 million revolving credit facility[167][169][173] Share Repurchase Program Details the authorized share repurchase program for Class A common stock - On July 26, 2022, the Board authorized a $50.0 million share repurchase program for Class A common stock, with a 36-month expiration. The timing and amount of repurchases are at the Directors' discretion[170] Debt Profile Outlines the company's debt facilities, maturity dates, interest rates, and compliance with covenants - The First Lien Term Facility matures in 2026 and the Revolving Facility in June 2024. Interest rates on borrowings are variable, with global rates rising in 2022. An amendment on April 4, 2023, transitioned the interest rate from LIBOR to SOFR. The facilities include capacity for increased commitments and impose restrictions on the company's financial activities, all of which were in compliance as of March 31, 2023[171][172][174][176][179] Cash Flows Analyzes cash flows from operating, investing, and financing activities for the period Summary Cash Flow Information (in millions, Three Months Ended March 31) | Cash Flow Activity | 2023 | 2022 | | :----------------- | :--- | :--- | | Net cash provided by (used in) operating activities | $7.5 | $(9.4) | | Net cash used in investing activities | $(11.8) | $(10.7) | | Net cash used in financing activities | $(0.3) | $(3.1) | | Effect of Exchange Rate Changes on Cash | $0.4 | $(0.2) | | Net Decrease in Cash and Cash Equivalents | $(4.2) | $(23.4) | | Cash and Cash Equivalents, end of period | $58.6 | $80.5 | Cash Flows Provided by (Used in) Operating Activities Examines the drivers of cash generated or used in operating activities - Net cash provided by operating activities was $7.5 million in Q1 2023, a significant improvement from $9.4 million used in Q1 2022, primarily due to increased cash earnings from decreased input costs and reduced SG&A[183] Cash Flows Used in Investing Activities Details cash used for capital expenditures and other investing activities - Net cash used in investing activities increased to $11.8 million in Q1 2023 from $10.7 million in Q1 2022, reflecting capital expenditures for converter equipment and leasehold improvements for new facilities in Connecticut and the Netherlands[184] Cash Flows Used in Financing Activities Reports cash used for debt repayments, lease payments, and stock compensation withholdings - Net cash used in financing activities decreased to $0.3 million in Q1 2023 from $3.1 million in Q1 2022. This was due to debt repayments, finance lease payments, and tax payments for stock compensation withholdings, partially offset by proceeds from equipment financing[185] Contractual Obligations and Other Commitments Confirms no significant changes to contractual obligations since the last annual report - There have been no significant changes outside the ordinary course of business to Ranpak's contractual obligations table as disclosed in the 2022 10-K[186] Off-Balance Sheet Arrangements States that there were no off-balance sheet arrangements as of March 31, 2023 - Ranpak did not have any off-balance sheet arrangements as of March 31, 2023[187] Critical Accounting Policies Highlights key accounting policies requiring significant management estimates and judgments - Ranpak's financial statements are prepared using GAAP, requiring management estimates and assumptions. Critical policies include impairment reviews of goodwill, indefinite-lived intangible assets, and long-lived assets. No impairment indicators were present as of March 31, 2023[188][189][190] Recently Issued and Adopted Accounting Pronouncements Refers to Note 2 for details on new accounting pronouncements and their impact - For details on recently issued and adopted accounting pronouncements, refer to Note 2, 'Basis of Presentation and Summary of Significant Accounting Policies,' within the unaudited condensed consolidated financial statements[192] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details Ranpak's exposure to market risks, including interest rate risk, foreign currency exchange rate risk, and commodity price risk, and the strategies employed to manage these exposures Interest Rate Risk Discusses exposure to interest rate fluctuations on floating rate debt and hedging strategies - Ranpak is exposed to interest rate fluctuations on its floating rate debt and uses interest rate swap agreements to manage this exposure. A hypothetical 100 basis point increase or decrease in interest rates would impact cash interest expense by $1.0 million for Q1 2023. An amendment on April 4, 2023, replaced LIBOR-based interest rates with SOFR-based mechanics for its credit agreement[193][195] Foreign Currency Exchange Rate Risk Addresses risks from foreign currency exchange rate changes on global operations and mitigation efforts - Ranpak is exposed to foreign currency exchange risk due to its global operations, with $48.6 million (59.9% of net revenue) denominated in non-USD currencies, primarily Euro, for Q1 2023. A 10% change in the Euro/USD exchange rate would impact net revenue by approximately $5.0 million. The company uses natural hedging and cross-currency swaps to mitigate this risk[197][198] Commodity Price Risk Explains the impact of paper price volatility on business and potential limitations in passing on costs - Ranpak's business is significantly impacted by paper price fluctuations, its largest input cost. While historically mitigating this through annual negotiations, global inflation, COVID-19, and the conflict in Ukraine have introduced greater commodity price volatility. The ability to pass on increased costs to customers may be limited, potentially pressuring gross margins[137][199] Item 4. Controls and Procedures This section addresses the effectiveness of Ranpak's disclosure controls and procedures, including management's assessment of material weaknesses and ongoing remediation efforts Evaluation of Disclosure Controls and Procedures Assesses the effectiveness of disclosure controls and procedures, noting material weaknesses - As of March 31, 2023, Ranpak's Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were not effective due to material weaknesses in internal control over financial reporting, as described in the 2022 10-K. Despite this, management concluded that the consolidated financial statements fairly present the company's financial position, results of operations, and cash flows[202][203] Remediation Plans Outlines ongoing efforts to address and remediate identified material weaknesses in internal controls - Ranpak is actively implementing a remediation plan to address the identified material weaknesses in internal control over financial reporting. Remediation will be considered complete once controls operate effectively for a sufficient period and are tested[204] Changes in Internal Control Over Financial Reporting Reports on any changes in internal control over financial reporting during the quarter - Other than the ongoing remediation activities to address material weaknesses, there were no changes in Ranpak's internal control over financial reporting during Q1 2023 that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[205] PART II – OTHER INFORMATION Contains additional information not covered in the financial statements, including legal, risk, and exhibit details Item 1. Legal Proceedings This section states that there are no material legal proceedings to report for the period - There are no legal proceedings to report[206] Item 1A. Risk Factors This section refers readers to the company's 2022 10-K for detailed information on risk factors - Information about risk factors is contained in Item 1A of the 2022 10-K[207] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section indicates that there were no unregistered sales of equity securities or use of proceeds to report - No unregistered sales of equity securities and use of proceeds to report[208] Item 3. Defaults Upon Senior Securities This section states that there were no defaults upon senior securities during the period - No defaults upon senior securities to report[209] Item 4. Mine Safety Disclosures This section indicates that mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable[210] Item 5. Other Information This section states that there is no other information to report - No other information to report[211] Item 6. Exhibits This section lists the exhibits filed as part of the Quarterly Report on Form 10-Q, including corporate documents, credit agreement amendments, and certifications - The report includes exhibits such as the Certificate of Incorporation, Bylaws, Specimen Common Stock Certificate, Amendment No. 2 to the First Lien Credit Agreement, and certifications from the CEO and CFO[213] Signatures The report is signed on behalf of Ranpak Holdings Corp. by William Drew, Senior Vice President and Chief Financial Officer - The report was signed by William Drew, Senior Vice President and Chief Financial Officer, on May 8, 2023[217]