Q2 2020 Ranpak Holdings Corp Earnings Call

Down the line for the next available operator.

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He's down the line for the next available operator.

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Okay.

We're calling me have the name of the conference you're calling.

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I'd number.

Yes.

Yes, it's 66768.

And nine eight.

I think.

Oh.

Just following up.

David Brown D.A. the I'd, we are LW I know.

Your last name again.

B R O W. I know.

Oh Brown, Okay. Thank you, David Brown and hope for just a second.

[laughter].

Okay.

I mean I have your company name David.

Hi.

Hey, I E R Hey.

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You said eight I E R.

Yes, correct.

Okay and your telephone number.

To want to 960 3697.

Thank you, Sir and I'll join you now and have a great day.

Thank you.

Any further assistance please press star zero.

I would now like Dan the conference over to your speaker today.

Yeah.

She sustainability officer, and corporate Secretary David merger.

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Thanks, Good morning, everyone before we begin I'd like to remind you that we will discuss forward looking statements as defined under the private Securities Litigation Reform Act would like to 95 actual results may differ materially from those forward looking statements as result of various factors, including those discussed in our press release the risk factors outlined in our most recent sport.

Okay subsequent form 10-Q's, and other filings with the FCC.

Some of the statements in response to your questions. In this conference call May include forward looking statements that are subject to feature Benson uncertainties that could cause our actual results to differ materially from those statements.

In fact assumes no obligation does not intend to update any such forward looking statements you should not place undue reliance on each one.

All of which speaks to the company only as of today.

Earnings release issued this morning, the presentation for today's call are posted on the Investor Relations section of our website copies releases going including 8-K.

Got it to the FCC before this call will also make a replay of this conference call available via webcast on the company's website.

For financial information is presented on a non-GAAP basis. We've included reconciliations to comparable GAAP information. Please refer to the table in slide presentation accompanying todays earnings release also as he will discuss in more detail later due to the accounting treatment for the business combination we closed on June 3rd 2019.

Also presented our results for the three and six months ended June Thirtyth 2019 on a combined basis, reflecting a simple arithmetic combination of the got predecessor and successor periods without further adjustment as well as any other adjustments as described.

Lastly, we'll be filing our form 10-Q with the FCC period, ending June Thirtyth 2020, 10-Q will be available through the FCC Rami Investor Relations section of our website.

With me today, I will last week, our chairman and CEO Bill drew our interim CFO.

Oh, I will summarize our second quarter results until will provide some additional detail before opening up the call for questions with that let me turn the call over to Omar.

Thank you David and good morning, everyone I'd like to start by thanking our team for their extraordinary efforts over the past few months and adapting so well to rapidly changing environment.

If you had asked me six months ago, if we could achieve the level of productivity and maintain efficiencies like we have so far this year with the majority of our employees working remotely I would not have thought it possible.

I've been impressed by the teams resolve especially the team members, who have been showing up to our manufacturing facilities every day.

It's because of them we have maintained our reputation as a reliable supplier and been able to keep up with the substantial demand. We are seeing from many of our customers who continue to experience significant volume increases in their business.

Our top priorities remain to safety and health of our colleagues as well as maintaining business continuity.

We continue to operate under local health and safety guidelines are taking strict precautionary measures as we start the process of bringing back staggered needs of employees to our offices.

From an operational perspective, our equipment and paper supplies remain on interrupted and our supply chain remains intact.

We've managed the business exceptionally well and continue to advance our key initiatives, while the pivoting towards areas of greater near term opportunity.

Our reliability and innovation, we're on full display this quarter and I'm extremely proud before teams across the globe for the performance they put in.

Execution and focus were terrific and operating in this environment pushed us to develop new skills utilizing technology that will become part of our labor going forward.

Enabling us to be a faster moving and more efficient company.

I'm very pleased with the second quarter performance, we delivered strong results from a growth and profitability standpoint, driven by robust growth in Europe and Asia Pacific.

The opening up with economies first in Asia Pacific and then in Europe provided us with significant growth.

As demand remained elevated in E commerce.

Industrial activity has begun to return, albeit slowly and improved as the quarter progressed.

Areas, such as beauty cosmetics home decor pet consumer goods electronics toys as well as medical supplies continue to experience substantial demand.

North America initially faced some headwinds early in the quarter due to the lock down but incrementally improved as the quarter progressed.

Were constructive on the outlook for North America as many of the improvement efforts and growth initiatives. We had been implementing are beginning to have an impact as regions open up and our sales teams are equipped with exciting new products.

Our pipeline of trial activity is robust and the chatter in the market surrounding our new product introductions slated for the second half it's very positive.

The try didn't launch is receiving exceptional feedback and we're excited to introduce Guardian, our next generation cushioning products in North America this quarter.

We believe the smaller footprint over this machine combined with a strong cushing capabilities will be met by high demand.

We're working on a number of other initiatives and cold chain and other areas that are in trial phase currently which we think we'll also be well received that I'll discuss in further detail in upcoming calls.

In summary, we're excited and are expecting improved results in the second half in North America.

Turning the discussion now to second quarter highlights for the quarter consolidated net revenue on a constant currency basis increased 13.2%.

Driven by robust demand for voiced fill and wrapping products primarily in response to elevated E commerce activity.

North America net revenue decreased 5.4% year over year, primarily driven by lower cushioning sales at school that impacted sales in the industrial end markets overall performance in North America bottomed in April and sequentially improved as we got deeper into the quarter.

June was our strongest month into quarter in North America as a number of industrial players started opening up their facilities.

On a constant currency basis for the quarter net revenue in Europe, and Asia Pacific was approximately 32%.

Given by growth across all product lines with particular strength in void fill and dropping.

Europe continues to be a real source of strength fueled by solid execution continued elevated ecommerce demand and sustainability.

In Asia Pacific, We continue to see robust growth driven by the boom in E Commerce and the economic recovery in China that is lifting the whole region.

Supply dynamics in the paper market remain favorable providing a benefit to our gross profit for the quarter and should continue to be a tailwind for the remainder of the year.

While our sales increased 13% our cost of materials increased a little over 10%, providing an uplift to our profitability.

In constant currency terms and pro forma for purchase accounting adjustments in the second quarter of 2019, adjusted EBITDA of $19 million was up 13.1% year over year due to higher sales and lower input costs offset slightly by increased gionee due to continued investments in personnel compare.

There to the second quarter last year.

Those are the high level points on our second quarter, which I believe was a strong loan even in the face off challenging conditions.

Again, I'm very proud of the team and I'm looking forward to what we can achieve together given the steps we have taken to build and more dynamic organization driven by innovation and customer focus.

We've introduced to best in class products and about six months and are keeping our foot on the gas with regards to innovation as that will enable us to drive growth and add value to our customers going forward.

With that let me turn the call over to Bill who will give you further details related to the corridor.

Thank you Omar and our slide deck, you'll see that due to the predecessor and successor periods and transaction adjustments for the business combination will medicine. The convenience of breeders. We presented the three month period ended June Thirtyth 2019 on a combined basis. This reflects a simple arithmetic combination the got predecessor and successor period is also pro forma for.

Constant currency in purchase accounting adjustments in order to present, a meaningful comparison against the corresponding periods in the three months ended June Thirtyth 2020, really filing our 10-Q today, which provides further information on Ranpak operating results.

Machine placement continued its steady increase in the quarter up 9.2% year over year to nearly 110000 machines globally.

Similar to recent quarters cushioning systems grew in the mid single digits, while bleed through installed systems increased nearly 8%.

Our smallest product line wrapping is experiencing exciting growth north of 33% year over year, and becoming a meaningful contributor to our topline.

As Omar mentioned overall net revenue for the company in the second quarter was up 13.2% year over year on a constant currency basis, driven by strong performance in Europe, and APAC offset slightly by North America, which experienced some headwinds in industrial end markets.

On a pro forma basis for constant currency in purchasing accounting adjustments gross margin for the quarter was 40.9% compared to 42.4% in the prior year.

When examining our gross margin it's important to note that as part of that business combination last year. There was a step up in the value of our converter assets that took place in the fourth quarter.

Within Cogs. This resulted in increase in depreciation expense as a percent of sales more than 230 basis points year over year, Let me, 0.7% to 11.1% offsetting some of the benefit of the lower raw material costs.

The increase in sales and cash profitability was consistent with growth in adjusted EBITDA, which rose 13% year over year, we're holding margin flat at 28%.

Things on input costs, we largely reinvest in personnel additions we've made taking the organization from 550 employees to over 600.

Interest expense for the quarter was approximately five and half million and should remain consistent with the remainder of the year as the majority of her interest exposure on our U.S. Detroit just hedged.

Capital expenditures for the quarter was 7.9 million driven largely by increased placement of converters in this environment, we're focusing on investing in areas of existing high demand and have put on holds in the more discretionary capex items until conditions normalize.

In areas of high demand we are on offense in areas that are more challenged we pulled back somewhere near term investment.

Moving to balance sheet liquidity, our cash position remained strong at 22.6 million as at June Thirtyth, and a $45 million revolver, undrawn and fully available to us for the seek additional liquidity.

Our leverage from bank adjusted EBITDA standpoint, It was 4.4 times at the end of the quarter.

With that I'll turn it back Omar before we move on to questions.

Thanks, Bill to summarize similar to the message and our last call our business fundamentals liquidity and financial position our strong.

The team continues to execute well and take a balanced approach to operations. We're pleased with the performance in the first half a year. It period that was challenging given the global pandemic.

We continue to develop new offerings that we believe will further cementos as industry leaders.

Our customer value proposition is exceptionally strong and improving further each and every day.

Initiatives, we have implemented position us very well for the second half a year and beyond.

The three main growth drivers for this business, which our E commerce automation and sustainability are fully intact and experiencing strong tailwinds.

The penetration of ecommerce globally has accelerated meaningfully and I believe in a substantial portion of this shift is likely a permanent changing consumer behavior.

Colin is driving technology adoption and changing company behavior.

Companies recognize the need for automation to maximize output of facilities, while minimizing the number of workers.

Sustainability remains a strong force and shows no signs up abating as pressure from consumers employees regulators and investors increasingly bush corporations to improve the imprint they leave on the environment.

We feel very good about the trends we are seeing in these three areas and our investing behind them.

In closing a year ago I sought to create a customer centric organization that is data driven.

And one where employees our owners and therefore act accordingly.

Instilling an ownership culture based around serving the customer is critical as it drives to behavior and the sense of accountability, which in turn improves engagement and productivity.

I'm very pleased to report that through investments in talent innovation and technology, we have significantly improved our abilities to address our customers' needs.

Our investments in technology, and enable us to have faster access to more insightful and robust data.

Our communications inside the company or a clear and frequent.

We continue to invest in the business and our people, bringing a new energy and excitement level to the ramp back key.

Our employees are now equity owners, leading to a difference in approach and mentality.

We're simply building a strong foundation for ramp back to excel and grow in the marketplace.

With that thanks again for joining us this morning, I'll now open it up to questions.

Operator.

At this time, if you'd like to ask your question. Please press star one on your telephone keypad. Your first question comes from the line of Greg Palm with Craig Hallum Capital. Your line is open.

Yeah. Thanks, good morning, Congrats on the good results there.

[noise] tax Greg good morning.

So maybe you know more broadly I guess, what are your seen from from new customers versus existing customers just trying to get a sense for whether the strength in the growth is coming from new or existing.

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It's a little bit Oh for both the biggest growth obviously, it's coming from from anybody involved in E commerce directly or indirectly.

The quarter went on Greg, we started seeing some industrial or existing comp or customers open up facilities. So that provided some boost and then the other thing as we discussed in last quarter, we've had a pretty large pipeline of new customer as well with that.

Shutdowns of Lockdowns and so on we have not been able to have our employees go in there and either installed equipment or start the initial sale process et cetera, and as the quarter progress that changed as well.

So we started seeing more facilities open frankly in Asia in Europe, as well as in certain parts of the United States and as these facilities were opened we were able to convert Moreover, our pipeline into paying customers.

And that trend continues up today, where we're having more success accessing facilities. So so it's a mix of both.

But they really robustness and boom continues to come from from E commerce or part of the business.

Yeah, It makes sense any way to.

Maybe quantify what what the growth is of that and how much is E. Commerce is a business now I mean winter in terms of mix of revenue.

[noise] <unk> direct E commerce, or probably you know grew comfortably double digit then that's it makes invoice fail and in wrapping and then E commerce activity, all sort of bricks and mortars players et cetera experience very very high growth.

But that often very a very small base.

So if you look at our business is the largest grow or was wrapping globally, followed by voice filled a and then Cushing, obviously had a pretty difficult time, mostly in the United States with declines in double digits, but kept improving the corner went on a which which was good to see.

Okay.

What about you know automation.

You mentioned that a couple of times you know it sounds like there's there's obviously increased interest for that solution given everything going on I mean are those still you know sort of pipeline talks or their trials are you deploying that system that I'd customers, yet how should we think about the timing.

Yes, so so automation level of Ah conversation and excitement is exceptionally high.

We are dedicating a lot of resources there a this past quarter again, given the pandemic et cetera are not all facilities were open but as they opened up we were able to deliver some equipment.

And and realize some sales the pipeline continues to grow I think automation for the rest of the year.

Are you know couldn't be limited by just how many facilities are open and our ability to physically delivery equipment.

But as I look sort off to late in 2020 and 2021.

He just said CRE mendis pipeline.

Of customer needs and automation and the other thing I will tell you is we are investing heavily.

In innovation in that area to come up with even more products based on what we're learning from our customers and prospects.

Feel automation is just going to be a phenomenal opportunity and we have some very exciting things that we're working on that I think will be coming to market. Later this year and early in 2021.

Okay, Great and I guess, just last one you know as far as capital allocation goes maybe you can you remind us what your near term priorities are and you know whether cleaning up the warrants is something of a near term priority or what's the expectation is there.

Yeah, our thinking has not changed.

The dealing with the warrants at the right time is absolutely a priority and then from a capital allocation standpoint, or paying down debt and we're entering our busy season.

So for the next a you know six months, we expect to generate a lot of cash and as I've said you you know for the last number of quarters I hope that what you will see from US is it pretty clean cap structure with less debt and just common equity down the road and that should the sort of.

Take the whole cap structure discussion off the table, where we can just focus on the execution on fundamentals of our business.

So both dealing with the warrants at the right time, yeah, Greg as well as as continuing to de lever our top priorities from the cap structure standpoint.

Perfect very helpful. That's it for me. Thanks, so much best of luck going forward.

Thanks, a lot.

And if you'd like to ask a question. Please press star one on your telephone keypad. Your next question comes from the line of Stefanos Crist CJ Securities. Your line is open.

Good morning, and congrats on the corner.

Morning, Stefano Thank you.

We start maybe talking about the softness in North America particular, cushioning versus Europe, and Asia, maybe what do you think needs to happen for that demand to recover.

Yeah, I think first we need we need facilities open it's as simple as that with with severe shutdowns. Indeed many locations.

And obviously, it's impacting demand and when you look at what's happening in North America, a lot of the weaknesses. If you look at it by region was in the Midwest in States like Illinois, Michigan, Indiana as well as some of the Southern States, you know, Texas, Oklahoma et cetera.

Equally driven a lot by just industrial activity oil and gas market as well as the auto sector and aerospace sector.

And early in the quarter in April.

That weakness was a was quite noticeable as I said as the quarter progressed, we started seeing some of these facilities opened we started seeing better pattern self ordering.

Are you know our consumables and that continue so I think where we are today I like what I'm seeing in terms of their recovery over the industrial activity.

With a big caviar, which is as we all see the resurgence off of the virus in certain states in the south and other parts of the country. That's the point that we're paying attention to.

And to see if that could have an impact, but what we're seeing our trends into industrial channel that that continue to improve.

Got it that makes sense. Thank you.

And I I believe you briefly touched on you know those industrial end markets that are beginning to recover.

Could you maybe give some more detail on those and wide those are doing better than other end markets.

Yeah, I think you.

You know in sort of heavy machinery and units sold off the auto market.

In some areas frankly, the improvement has been just just opening the facilities I'm not sure. The improvement has been you know robust economic activity.

So I think just the facilities being open is helping us. So that's one trend that we continue to see here and frankly.

It's a trend that is even better in Europe. So I think the activity in the auto market the activity in some of the machinery players I'm the activity in some of the tooling businesses. All that is recovering the recovery is is slow.

But it is a recovery and that's why we like what we're seeing and I've always maintained for the second half of the year. If we see elevated ecommerce activity not necessarily luck, what we saw in Q2 and see some recovery in the industrial channel, which is what my expectation is then I'm expecting that we will have a very good period.

You know of performance for for a company so I like what I'm seeing in the marketplace I like how we're positioned.

Bought what we're watching is just sort of the path over the virus and see if that is going to have any negative impact that is on foreseen right now.

Perfect. Thank you and a that's it for me.

Baxter who knows.

I'd like to ask your question. Please press star one on your telephone keypad.

Okay and.

Question is at this time I'll turn the call back over to our presenters for any closing remarks.

Hi. This is this is bill thanks, everyone for joining us. This morning, we look forward to speaking with you again next quarter.

Take care.

Today's conference call you may now disconnect.

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