Ranpak (PACK) - 2021 Q4 - Annual Report

Part I Business Ranpak provides sustainable paper-based protective packaging solutions globally, operating a razor/razor-blade model with diverse product lines and strong distributor sales - Ranpak operates a razor/razor-blade business model, providing proprietary PPS systems and selling high-margin, exclusive paper consumables, which generates recurring revenue[21][22] - The company emphasizes environmentally sustainable products, with paper consumables being fiber-based, biodegradable, renewable, and curb-side recyclable. In 2021, 55.3% of raw paper supply was from 100% recycled content[23][32] 2021 Financial and Operational Highlights | Metric | Value | Source Chunk(s) | | :--- | :--- | :--- | | Net Revenue | $383.9 million | 39 | | Income from Operations | $12.2 million | 39 | | Installed PPS Systems | 133,200 units | 23, 30 | | Revenue from North America | 38.3% | 39 | | Revenue from Europe/Asia | 61.7% (49.6% Europe, 12.1% Asia/Other) | 23, 39 | | Revenue from Distributors | 87.6% | 36 | | Revenue from Direct Sales | 12.4% | 37 | | Revenue from E-commerce | 33.8% | 23, 57 | 2021 Revenue by Product Line | Product Line | Revenue (USD Million) | % of Net Revenue | Installed Base (Units) | | :--- | :--- | :--- | :--- | | Cushioning (PadPak®) | $162.6 | 42.4% | ~35,000 | | Void-Fill (FillPak®) | $154.5 | 40.2% | ~78,000 | | Wrapping (WrapPak®, etc.) | $52.0 | 13.5% | ~21,000 | | Automation & Other | $14.8 | 3.9% | N/A | - The company's growth strategy focuses on organic growth, innovation (e.g., PadPak® Auto-Coiler, AutoFill™), geographic expansion (especially Asia-Pacific), and strategic partnerships/acquisitions like Pickle Robot, Creapaper, and Recycold[47][42] Risk Factors Ranpak faces supply chain risks from limited paper suppliers, rising input costs, global operational risks including currency fluctuations, and financial risks from debt covenants and significant shareholder influence - The company is highly dependent on a limited number of paper suppliers. In 2021, 46.1% of North American raw paper was purchased from WestRock, and 11.4% of global supply came from a Russian supplier, posing significant supply chain risk[85] - Rising costs for production inputs, particularly kraft paper, labor, energy, and freight, driven by global inflation, are expected to increase cost of goods sold and potentially pressure gross margins[77][88] - Global operations expose the company to risks such as foreign currency fluctuations, tariffs (especially related to U.S.-China trade), and political instability. In 2021, 64.9% of revenue was generated outside the U.S[98][101][104] - JS Capital holds approximately 37.5% of the company's total outstanding shares, giving it significant influence over corporate actions, including the election of directors and major transactions[125] - The company's debt facilities impose operating and financial restrictions, including limitations on incurring additional debt, paying dividends, and making acquisitions. Failure to comply with covenants could lead to default[138][140] Unresolved Staff Comments The company reports no unresolved staff comments - None[176] Properties Ranpak maintains global and regional headquarters, operates various production and assembly facilities, and is expanding automation capabilities with new sites Key Company Locations and Functions | Location | Function(s) | | :--- | :--- | | Concord Township, Ohio | Global HQ, PPS Assembly, Paper, Automation, Admin/Sales | | Heerlen, The Netherlands | Europe/Asia Regional HQ, PPS Assembly, Paper, Admin/Sales | | Christiansburg, Virginia | Automation | | Kerkrade, The Netherlands | Automation | | Nyrany, Czech Republic | PPS Assembly, Paper | - The company is expanding its automation capabilities with new facilities being built in Shelton, Connecticut, and Kerkrade, The Netherlands[177] Legal Proceedings The company is subject to various legal proceedings in the ordinary course of business, not expected to have a material impact - The company is subject to various legal proceedings from time to time, which are considered part of the ordinary course of business[178] Mine Safety Disclosures This item is not applicable to the company - Not applicable[179] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Class A Common Shares trade on the NYSE under "PACK"; the company has not paid and does not plan to pay cash dividends due to debt covenants - Class A Common Shares are traded on the NYSE under the ticker "PACK"[180] - The company has not paid cash dividends and does not plan to in the foreseeable future, restricted by debt covenants[181] Reserved This item is not applicable - Not applicable[185] Management's Discussion and Analysis of Financial Condition and Results of Operations In 2021, net revenue grew 28.7% to $383.9 million, net loss narrowed to $2.8 million, and liquidity improved with $103.9 million cash and reduced debt Results of Operations In 2021, net revenue increased 28.7% to $383.9 million, gross margin declined to 38.8% due to higher costs, and net loss significantly improved to $2.8 million Comparison of Key Financials (2021 vs. 2020) | Metric (USD Millions) | 2021 | 2020 | % Change | | :--- | :--- | :--- | :--- | | Net Revenue | $383.9 | $298.2 | 28.7% | | Gross Profit | $148.9 | $122.6 | 21.5% | | Income from Operations | $12.2 | $11.7 | 4.3% | | Net Loss | $(2.8) | $(23.4) | 88.0% improvement | | AEBITDA (Constant Currency) | $117.8 | $93.7 | 25.7% | Net Revenue by Geography (2021 vs. 2020) | Geography (USD Millions) | 2021 | 2020 | % Change | | :--- | :--- | :--- | :--- | | North America | $146.9 | $127.4 | 15.3% | | Europe/Asia | $237.0 | $170.8 | 38.8% | - The increase in net revenue was primarily driven by a 21.4 percentage point increase in the volume of paper consumable products sold[207] - Cost of goods sold increased 33.8% to $235.0 million, outpacing revenue growth due to higher sales volumes, increased paper and freight costs, and a $7.5 million increase in depreciation[210] Liquidity and Capital Resources As of December 31, 2021, cash and equivalents increased to $103.9 million, total debt decreased to $406.5 million, and liquidity is deemed sufficient Cash and Debt Position (as of Dec 31) | Metric (USD Millions) | 2021 | 2020 | | :--- | :--- | :--- | | Cash and Cash Equivalents | $103.9 | $48.5 | | Total Debt | $406.5 | $439.8 | Summary of Cash Flows (Year Ended Dec 31) | Cash Flow (USD Millions) | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $54.3 | $63.8 | | Net cash used in investing activities | $(69.8) | $(34.5) | | Net cash provided by (used in) financing activities | $72.0 | $(1.6) | - In May 2021, the company sold 5.3 million shares of Class A common stock for net proceeds of $103.4 million, which was used for debt prepayment and investment in a money market fund[230] Critical Accounting Policies and Estimates Critical accounting policies involve significant judgment in revenue recognition, goodwill impairment, derivative financial instruments, and income tax estimations - Revenue Recognition: Revenue is recognized when control of goods or services is transferred. The policy requires significant estimates for variable consideration, such as customer rebates, which were approximately 7.4% of revenue in 2021[257][259] - Goodwill and Intangible Assets: Goodwill is tested for impairment annually (or more frequently if needed) by comparing the fair value of reporting units to their carrying value. This process involves significant management estimates of future revenues, operating margins, and discount rates[262][264] - Derivative Financial Instruments: The company uses interest rate swaps and cross-currency swaps to manage exposure to interest rate and foreign currency fluctuations. These are recorded at fair value, with changes for designated hedges recorded in other comprehensive income[269][270][271] - Income Taxes: The company accounts for income taxes using the asset and liability method, requiring recognition of deferred tax assets and liabilities. Management must assess whether it is more likely than not that deferred tax assets will be realized[274][275] Quantitative and Qualitative Disclosures About Market Risk Ranpak faces interest rate risk, foreign currency exchange rate risk (61.7% non-USD revenue), and commodity price risk, using derivatives to mitigate some exposures - Interest Rate Risk: A 100 basis point change in interest rates would have a $10.7 million impact on annual cash interest expense. The company uses interest rate swaps to manage this risk[280] - Foreign Currency Exchange Rate Risk: 61.7% of 2021 net revenue was denominated in currencies other than the USD. A 10% change in the Euro's value would impact net revenue by approximately $23.7 million[286][287] - Commodity Price Risk: The company faces risk from paper price fluctuations. While annual supplier negotiations have historically mitigated this, recent global inflation may lead to increased price volatility[288] Financial Statements and Supplementary Data This section presents audited consolidated financial statements for 2021, with an unqualified auditor's opinion, noting goodwill impairment as a critical audit matter Consolidated Balance Sheet Data (as of Dec 31) | Metric (USD Millions) | 2021 | 2020 | | :--- | :--- | :--- | | Total Assets | $1,213.4 | $1,133.5 | | Total Liabilities | $577.2 | $610.6 | | Total Shareholders' Equity | $636.2 | $522.9 | Consolidated Statement of Operations Data (Year Ended Dec 31) | Metric (USD Millions) | 2021 | 2020 | | :--- | :--- | :--- | | Net Revenue | $383.9 | $298.2 | | Gross Profit | $148.9 | $122.6 | | Income from Operations | $12.2 | $11.7 | | Net Loss | $(2.8) | $(23.4) | | Loss Per Share (Basic & Diluted) | $(0.04) | $(0.32) | - The independent auditor, Deloitte & Touche LLP, issued an unqualified opinion on the financial statements and internal controls. The goodwill impairment analysis was identified as a Critical Audit Matter due to the significant judgments required by management in estimating the fair value of its reporting units[295][296][300] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes or disagreements with its accountants regarding financial disclosure - None[516] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2021, with no material changes - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2021[517] - Management assessed internal control over financial reporting and concluded it was effective as of December 31, 2021[518] Other Information No other information is reported under this item - None[529] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable[530] Part III Directors, Executive Officers, and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2022 Proxy Statement - Information is incorporated by reference from the 2022 Proxy Statement[531] Executive Compensation Executive compensation information is incorporated by reference from the 2022 Proxy Statement - Information is incorporated by reference from the 2022 Proxy Statement[532] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership information is incorporated by reference from the 2022 Proxy Statement - Information is incorporated by reference from the 2022 Proxy Statement[533] Certain Relationships and Related Transactions, and Director Independence Information on related party transactions and director independence is incorporated by reference from the 2022 Proxy Statement - Information is incorporated by reference from the 2022 Proxy Statement[534] Principal Accounting Fees and Services Principal accounting fees and services information is incorporated by reference from the 2022 Proxy Statement - Information is incorporated by reference from the 2022 Proxy Statement[535] Part IV Exhibits and Financial Statement Schedules This section lists all financial statements, schedules, and exhibits filed with or incorporated by reference into the Form 10-K report - This item lists all financial statements, schedules, and exhibits filed with the report[536] Form 10-K Summary The company reports no summary for this Form 10-K - None[539]