Ranpak (PACK) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Overall net revenue for the company in Q3 increased by 10.5% year-over-year on a constant currency basis, driven by a 14.7% increase in volumes, offset by lower price mix [21][22] - Adjusted EBITDA increased by 13.9% year-over-year to $20.5 million, implying a 21.6% margin [26] - Gross profit increased by 8.6% on a constant currency basis, with a margin of 37.5%, compared to 38.2% in the prior year [25] Business Line Data and Key Metrics Changes - North American net revenue increased by 15.5% year-over-year, with volumes up 26.1%, driven by strength in e-commerce related to plastic to paper switching [22][9] - In Europe and APAC, net revenue on a constant currency basis increased by 7.1% year-over-year, driven by 9% volume growth, offset partially by pricing give back and void-fill mix headwinds [23][24] - Machine placements increased by 1.1% year-over-year to approximately 143,000 machines globally, with cushioning systems increasing by 0.3% and void-fill installed systems increasing by 1.3% [20] Market Data and Key Metrics Changes - North American sales increased by 15.5% on a constant currency basis, while Europe and Asia Pacific activity levels improved sequentially versus the second quarter [9][11] - Geographically, strength was seen in Brazil, the U.K., South Africa, and the Czech Republic, while Poland and Germany were weaker [13] - The European industrial sector remains sluggish, with lower order levels for capital and consumer goods [12] Company Strategy and Development Direction - The company is focused on driving volumes through strategic accounts and automation, with a commitment to maintaining gross margin profiles [32][40] - The sustainability momentum in North America is strong, with expectations to capitalize on the shift from plastic to paper [38] - The Malaysia plant went live in August, providing a lower-cost base to serve the Asia Pacific region and enabling growth [39] Management's Comments on Operating Environment and Future Outlook - The general environment remains somewhat timid globally, with an uneven environment in Europe and Asia Pacific [8] - Management remains confident in guidance for Q4 and believes that the company is well-positioned to drive positive outcomes for the business and shareholders [56][57] - The company is focused on cash generation and deleveraging, with a target of reaching three turns or below in net debt to adjusted EBITDA [30][40] Other Important Information - Capital expenditures for the quarter were$ 5.6 million, down from just under $10 million per quarter for the first half of the year [28] - The company completed Q3 with a strong liquidity position, including a$ 69.5 million cash balance and no drawings on the revolving credit facility [30] Q&A Session Summary Question: Why was EBITDA up only slightly despite sales growth? - Management indicated that mix was part of the reason, with growth more in void-fill than in cushioning and wrapping, and that strategic account activity ramped up towards the end of Q2 [42][43] Question: How much of the 26% volume growth in North America was due to new business? - Management clarified that inventory levels were light, and the growth was primarily due to paper consumption rather than customers loading up [46][47] Question: What is the strategy for debt coming due in 2026? - Management emphasized the importance of improving operating momentum to access credit markets effectively [48][49] Question: Any surprises in the quarter? - Management expressed pleasant surprise with the volume and size of accounts being fulfilled, indicating higher than expected demand [52][54] Question: Are there additional accounts ramping up in Q4? - Management stated that the focus is on serving existing accounts during the peak season rather than ramping up new accounts [56][57] Question: Update on automation and its impact on customer acquisition? - Management noted that automation, along with other integrated solutions, is critical for winning large accounts, with bookings up 60% year-over-year [60][62]