Q2 2021 Ranpak Holdings Corp Earnings Call
It was at its best quarterly sales increase of the public company by a considerable margin as economic activity ramps up and demand for our products growth.
We have made a lot of changes to the North American organization over the past 2 years and believe those efforts are beginning to show up in the results.
We added resources across the board.
The initially investing in areas such of sales marketing and engineering and more recently, adding talent in operations supply chain and quality.
We are pleased with the second quarter results, because north American net revenue increased 26, 6% year over year, primarily driven by exceptional grocery and lapping kind of strong perform.
Performance by cushioning.
Activity levels across the whole applications were strong as we secure key wins in general industrial automotive cosmetics E Commerce and ship from store.
Europe and Asia Pacific led the way again this quarter as E Commerce remains strong industrial activity improved and we.
<unk> penetrated areas of geographic expansion.
On the constant currency basis for the quarter net revenue in Europe, and APAC was up approximately 38% driven by strong growth across all product lines with particular strength in wrapping in cushioning.
Our constant currency gross profit increased.
25% year over year slightly behind sales growth, but overall, we were able to improve profitability at the adjusted EBITDA in constant currency terms outperformed our sales growth, increasing 35% year over year to $25.6 million.
Due to our sales growth of being meaningfully higher than our increase in G&A.
Miss them.
From an operational and supply chain perspective, our production continues uninterrupted and we continued to serve outsized demand globally as industrial activity increases and E Commerce remains elevated.
We're investing in additional production capacity across the globe and qualifying additional paper suppliers to expand our network.
Work for these initiatives should result in improved efficiencies over time, and an even greater service to our customers.
Like many global players, we continue to manage through higher input costs, including materials labor and transportation as well as longer lead times for parts of arriving from overseas due to port congestion and container availability.
The offset some of the constraints of the global supply chain, we're investing more in safety stock and inventory ahead of our seasonal high volume periods. So we can be better positioned to meet demand.
Our business units and finance teams have done an outstanding job of working together to identify pain points and take steps to mitigate margin exposure.
We have implemented.
The price increases to protect our margins, but also carefully designed to provide us with an opportunity to increase market share as customers increasingly look for more sustainable packaging solutions.
Overall, we're pleased with our competitive positioning and feel this is an environment, where paper solutions are very attractively positioned to gain share against plastics and film.
Based products.
Additionally, we believe that in a world, where labor and input costs are higher ramp up can thrive because of our solutions can increase throughput lower damage rates as well as reduced shipping and labor costs.
These are the high level points on our second quarter in which we delivered record results and took key steps to position ourselves for further.
Over the coming years.
With that let me turn the call over to Bill who will give you further details related to the quarter.
Thank you Omar.
In the deck, you'll see a summary of some of our key performance indicators. We will also be filing our 10-Q, which provides further information on the impacts of operating results.
Further 6 machine placement continued its strong trajectory in the quarter of 12, 9% year over year to nearly 124000 machines globally.
Cushioning systems grew 3.6%, while void fill installed systems increased 14, 1% and wrapping increase the robust 29, 6% year over year.
Overall net revenue for the company in.
In the second quarter was up 29, 1% year over year on a constant currency basis, driven by excellent top line performance in Europe, and APAC as well as North America.
In Europe, and APAC from a geographic standpoint growth was most robust and eastern and southern Europe, while middle East and Africa performed strongly as well.
In North America from a regional standpoint.
Endpoint, we experienced growth in all regions with the Midwest Central Southeast of Mexico is particular bright spots.
Across our business sectors, such as food and beverage electronics home furnishing and <unk> contributed to growth as many existing customers open new locations and expanded their relationship with <unk>.
Also overall.
For all of our PPS business, all categories were up meaningfully with Cushing up 39, 5% void fill up 17, 3% and wrapping up 48, 8% on a constant currency basis.
Our gross profit increased 25% on a constant currency basis slightly behind our sales growth due to the impact of higher material and overhead.
As well as freight costs versus the prior year of.
Offset by improved margin of automation sales and lower depreciation as a percentage of sales implying of gross margin of 39, 7% in the quarter compared to 49% in the prior year.
The increase in sales of surpassed by growth in adjusted EBITDA of <unk> 34.7.
Per cent year over year, improving margins of 29, 3% compared to 28% in the prior year.
In the quarter, we benefited from sales growth far exceeding our increase in comp and benefits even as we continue to invest in personnel and further enhance our teams.
Cash interest expense for the quarter was approximately $5.4 million following.
The equity offering at the end of May we paid down a portion of our term loan so going forward run rate annual interest expense should be just north of $20 million given the entire remaining USD tranche of our term loan it's hedged at the blended rate of 5.7% and our euro tranche of the health of 375 zero percent floor.
Capital expenditures.
The quarter were $15.3 million driven largely by increased placement of converters. In addition to continuing to allocate capital to increasing our fleet in a moment Omar will discuss some of the key projects, where youre investing into the back half of the year to enhance our production capacity and improve our capabilities.
We believe the projects we are embarking on physician manpack extremely well for the future.
<unk> provides the proper infrastructure required for us to execute on our multiyear growth plans.
Moving briefly to the balance sheet liquidity, we're pleased to share that we completed the successful equity offering in may which greatly improved our leverage profile, while also improving float and liquidity.
We know those have been important areas of focus for the Investor community. So we're opportunistic.
The interest for the access the capital markets to address these areas and provide brand pact of additional dry powder.
We utilized almost $21 million of 110 million gross proceeds to pay down the unhedged portion of our USD term loan, leaving $250 million and USD term loan outstanding as well as the 137 million of of the Euro tranche, bringing our cash balance of 220.
$6.3 million as of June 30.
Following the transaction our net leverage based on reported LTM. Adjusted EBITDA was 2.6 times at the end of the quarter and 2.4 times on the bank adjusted EBITDA basis.
With that I'll turn it back to Omar before moving onto questions.
Thank you Bill the Sunrise.
5 of it we've had an exceptionally strong first half over the year.
Proud of the team and the results and I am excited to continue to build on our momentum.
It's great to see the balanced contribution across all regions and the continued progress we are making in our investment initiatives.
We expect to achieve a record annual performance for ramp back in 2000.
21, and the finish of the year with ramp back well positioned for the next phase of growth.
To give you some insight into how we are thinking about the next chapter I wanted to highlight a few projects we're working on the drive our global expansion.
Given the strong demand we are seeing in Asia Pacific, we will be establishing the manufacturing.
<unk> presence in the region through localizing production in China with operations beginning in 2022.
We believe expanding our presence in the region will enhance our competitive position and also enable us to better serve our customers through a more attractive pricing and shorter lead times paving the way for further penetration.
We currently serve Asia Pacific out of our European production facilities. So the new facility will also free up much needed capacity to serve the rapidly growing demands of the European region.
Inhibition for the capacity of freed up through our Asia expansion in Europe, we have contracted to move to a new building and Helen that will serve as our expanded.
Ended European headquarters and consolidate our Dutch manufacturing operations, including PPS on automation.
This new facility, which we are targeting entering at the end of 2022 will significantly increase our bps production capabilities and double our automation footprint in the Netherlands.
America, we continue for ramp up our capabilities in automation and building out of the team and securing a facility in anticipation of building a much larger presence in the region.
Within ramp back we've created R squared robotics, which is the talented team of engineers out of Virginia attack that use the <unk> computer vision and artificial intelligence.
To improve underlying packaging and logistics.
We also made a strategic investment in pick of robot led by a talented team from MIT, which I mentioned earlier.
We're now in the process of finalizing plans for an east coast based automation center, which should be ready to begin serving the north American market beginning in the second half of 2020.
You too.
Together, our European and North American facilities will enable us to serve the global markets and provide the runway we need to achieve our automation goals for the foreseeable future.
These investments are a reflection of our conviction in the growth opportunities that we are seeing in the marketplace.
In my view the scale.
Commodity presented by these dual sustainability automation tailwind as historical unique I and the team are laser focused on making sure we methodically take advantage of the stay away.
Thank you again for joining our call I will now open it up for questions operator.
At this time.
Of the I'd like to ask a question simply press Star then the number 1 on your telephone keypad, we will pause for just a moment to compile the Q&A roster.
Yes first question comes from the line of Greg Palm of Craig Hallum Group.
Yes.
Thanks, Good morning, Congrats on the results here.
Good morning, Greg.
I wanted to start off by thinking about some of the trends that you are seeing I think last quarter, you pointed to sustainability is becoming a more important driver for.
Tumors switching from plastic to paper based solutions at least in Europe and.
It looks like we saw a pretty big improvement in the growth rate in North America. This quarter. So do you think sustainability is becoming a bigger bigger talking point here or is that just more of a byproduct of improved.
Improved execution of the region.
I think right now, it's a little bit of of both for Greg.
There is no doubt, we have better cadence and rhythm in the.
The North American market as the company and Thats a contributing factor.
For a couple of years of investing in the team and the organization.
<unk>.
As you know that we are also seeing of more tailwind from sustainability and the U S.
I think of the issues with the end of life for plastics and single use plastics in particular continues you'll get a lot of traction globally.
It is a big factor in some of the wins and some of the clauses.
We have had in the U S.
I would say it continues to feel like early days.
And we are excited about where we are and we're hopeful that that's going to become a bigger tailwind in North America.
And the next few quarters and hopefully the next few years.
But the sustainability.
This is certainly a contributing factor.
Yeah makes sense.
In terms of margins looks like it was down a little bit quarter over quarter, assuming some of that may just have to do with mix knowing that North America is lower margin, but I think you did allude to it.
The increase.
In supply.
Supply chain related costs input costs I mean, it seems like we're in an environment, where everything is going up. So how are you thinking about pricing in the wake of everything going on yes.
I think we are as you know, we're very focused on maintaining our financial profile.
<unk> seen in the quarter mix.
Was a part of it.
Both from product as well as from a geography standpoint.
The global the global issues that we all know they apply to us freight issues labor issues.
And lead time issues, I would say where we sit.
Feel pretty good debt, we can pass the.
Increases to the customers we have done some of that we continue to do that given the robust demand environment.
We think and frankly, given the global issues of supply chain and pricing our customers are not surprised when they see some of these price increases from us So we feel.
Of these probably good about maintaining our financial profile and the stronger demand environment Greg.
Do you envision it getting worse from here in upcoming quarters or should it start to improve.
I'd say our visibility between now and year end is more or less of the same so similar challenges similar issues.
We feel pretty good we can manage.
I think in 2022, my personal prediction for what it's worth as I think some of these pressures may ease up as oil companies and different players in the supply chain are accustomed to sort of the new world and hopefully over time and this will depend obviously on what happens.
With the pandemic and with Covid.
As of the wall of stabilizes there are less funding usual reopening related items. If you will that are creating some of these pressure points.
Now in December we expect more or less of the same and we feel very good about maintaining our financial profile in this period.
Okay. Good.
I guess just last 1 I wanted to spend just a minute or 2 on an automation because it's obviously a scheme that's built in but Omar what's your long term vision. If you want to call. It that on what end of line fulfillment or manufacturing looks like and maybe just sort of bucket out ran.
Pac may fit in with that vision, Yes, I think our vision is.
And users with high volume will continue with the sort of flow for more automated solutions less reliance on labor. Our solutions are not designed to eliminate labor completely they're designed to add efficiency reduce.
The number of people you need for your end of line and rely more on smart equipment smart machines to do those functions as well and to do them with tremendous speed.
I honestly think of the next couple of years are going to be of unique time in history for the opportunity in that space as more folks look for fulfill.
Reduced in logistics and the role of I envision us player as being a leader in the space not just in providing the best equipment.
Hopefully the smartest equipment and this is why we have been laser focused for the last year and a half of making sure. We're building our AI knowledge of machine learning the knowledge of computer vision knowledge.
<unk> robotic capability and gray I feel great about where we are today and now it's up to us as the team to execute but we have all the key pieces in place Greg.
Okay makes sense I'll leave it there thanks and good luck. Thank you.
Your next question comes from the line.
If we get to see.
Hello, operator.
Your next question comes from the line of Stefan <unk> from <unk> Securities.
Good morning, Nomura and Bill Congrats.
That's on the quarter.
Good morning, Seth.
I just wanted to touch on the SG&A.
Up a little bit year over year extremely bridges that increase is that all of automation or how should we think about that.
Yes, Jeff I think.
SG&A this quarter right there with.
The offering.
Obviously in May so there was some professional fees that were in there and then also some additional <unk> expense.
Related to us outperforming our plan. So we had the catch up on that.
Got it is true maybe quantify how much of that was in.
How much of it would've been without.
Those.
As of for probably 2.
$2 million to $3 million.
Sure.
And then on the Capex.
It seems pretty high just in terms of per machine.
<unk> talked about increasing inventory.
Do you count Capex, just buying machines of not placing them yet.
How should.
About that.
Yes, when we when we.
By machines and have them placed into our inventory in the ready to be deployed into the field thats going to be included in our Capex.
Got it so it's not an issue of just part is getting more expensive.
Yeah, I mean, I think with supply chain right you have to do a little bit more on the freight side and in.
We think with the demand that we're seeing to fulfill customers needs, sometimes you have to speed that up a little bit.
So getting the machine too.
North America into Europe, there's a little bit more expensive right now, but well behind at the normalized.
The step 1 of the things to highlight on the euro.
Youre alluding.
And of your question is obviously, we're entering the season with the second half of the year and just where you want to make sure given the robust demand, we're ready and we've had a lot of success of globally with a lot of closes in the last 6 months and the east closes by definition will require equipment at some of these customers scale and.
And sort of implement our solutions and more facilities. So so part of part of that Capex of getting ready for ramping up for the peak of our business.
Perfect that makes sense.
Thank you so much I'll jump back in the queue.
Sure.
Your next question comes.
From the line of Alexander Lee of bearing Baron capital.
Good morning, guys congrats on the quarter.
Morning, Alex.
I'm just wondering on the topic of Capex, how do we think about it on a more medium term base. This year you guys had mentioned.
The number of projects and initiatives that you're counting.
Implementing over the next couple of years.
Yes, the trying to facility in them.
Essentially a more M&A going forward of somebody's got to discuss the previously you know how do we think about capex on the towards the 'twenty 'twenty 2 and sent to me 3 the gonna increases of.
The proportion of sales.
I think Alex let me give you the high level and then I'll have bill chime in at a high level of the main driver for Capex, we will be investing in our equipment and converters that that drive our growth.
Then clearly we have the maintenance capex that youre familiar with.
And in addition to that for the next let's call. It 18 months or so given our real estate expansion plans and expanding our capacity that will be that added aspects of the capex. The.
Associated with that last piece.
Are going to be relatively modest.
And bill can give.
I have a better sense.
Each facility, we're not talking about huge amounts of capital to either expand our footprint or getting these for some of these ready.
And that's going to position us for further growth, but outside of that.
Once we're done with these projects expect more of a normalized capex that frankly as we grow.
As a percentage of sales.
The capex will be coming down.
I'll, let bill chime in with a bit more specificity.
So if youre looking for some color on the real estate projects that Omar outlined.
Earlier, I think you can ballpark it in the of less than $20 million area.
Either.
U S debt that.
We feel like we will be funding out of our cash flow generation. So we will have plenty of dry powder to deploy for growth initiatives as well.
Okay, great. Thanks, a lot and then.
So all of it.
My head for the remainder of the year.
From your press release it sounds like you guys are expecting the step.
Profit from the sort of 30% year over year revenue growth.
Largely due to that of comparable as an H 1 of 2020 of tough comparison H 'twenty, how do we think about revenue for the Prestea.
Yeah, Alex I don't think we've quantified.
We expect in the next.
Down for months other than saying, we're expecting a record year, obviously Q3, and Q4 of last year, where were very robust and we frankly expect.
Very strong performance in the next 2 quarters the finished the year.
So we're less focused on what percent.
Scent of growth, we deliver each quarter and more on the cadence of our business and sort of how we're going to finish the year and obviously, how we position ourselves for 2022, but I think of the rest of this year, we're expecting a very strong finish to the year.
Okay, great. Thanks, guys.
Thank you.
Your next question comes from the line of Ryan Dennis Savage of Sidoti and company.
That's a quick question of the follow up with automation.
Where are you seeing.
The most constructive talks with customers.
In the end markets.
Anything holding you back in the initiatives of automation around the global supply chain.
Around the global supply chain.
There are some modest lead times and delays on certain parts I would not say, it's holding us back I would say, it's just causing us to.
For us in turn work to deliver things on time, which is similar to our PPS business just supply chain in general requires.
The more precise management and more hard work. If you will in terms of where we're seeing the opportunities I would say e-commerce players retailers a couple of.
<unk> opportunities and a lot of 3 PL. These areas need a lot of help in moving more boxes more parcels out of the door and we're spending a lot of time in the sectors around different automation solutions.
Thanks for that.
Just 1 more.
On North America results were obviously very strong can you just talk about the conversations you guys are having in North America is it from new or existing customers and what is the product offering they would be most interested in.
We have had and again this is something that I've said publicly for a while given the investment we made in the sale of the organization and.
In the last few months, we've had a number of successful closes and as you know once we close of the new account. It takes a little bit of time for some of these accounts the ramp up so in Q2, we saw a number of the successful causes become meaningful paying customers. So we are winning new business, we are waiting for new accounts.
Accounts and the leading indicators as we speak in our business in terms of pipeline trials etcetera continues to be very robust in North America. So part of the growth is new business that we've been winning in some cases.
Folks that are experiencing growth themselves and other credit.
Cases.
I mentioned, it's folks, making the decision to have more sustainable packaging solutions and we fit that bill.
My expectation as we sort of go forward as you will continue to see a number of these new clothes as ramp up and sort of increase the level of activity and then the second piece.
As we the America is we've had a number of existing accounts opening new facilities expanding their physical footprint and we were of the natural partner for them.
They've expanded their.
Other business.
Thanks appreciate it.
At this time Im showing no further.
The questions I will turn the call back over to Bill.
Thank you.
And thank you all for joining US today, we look forward to speaking again for Q3.
Thank you. This concludes today's conference call you may now disconnect.