Q2 2023 Ranpak Holdings Corp Earnings Call

Thank you for signing my name is Edmund and I won't be your confidence operated today at this time I would like to welcome everyone to the Red Sox second quarter earnings call.

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Sara Horvath General Counsel you May get you may begin now.

Thank you and good morning.

One.

We begin I'd like to remind you that we will discuss forward looking statements as defined under the private Securities Litigation Reform Act of 1995.

Actual results may differ materially and these forward looking statements as a result of various factors, including those disgusted our press release and the risk factors identified in Form 10-K, and our other filings.

C C.

The statements and responses to your questions. In this conference call May include forward looking statements that are subject to future events and uncertainties that could cause our actual results to differ materially from these statements.

In Pakistan, no obligation and does not intend to update any such.

You should not place undue reliance on as far as I can stay.

All of which speak to the company only adds up today.

He earnings release, we issued this morning, and the presentation for today's call I posted on the Investor Relations section of our website.

Also make a replay of this conference call available via webcast on the company website.

Our financial information that is presented in a non-GAAP basis. We have included reconciliation comparable gap information.

Please refer to the table and slide presentation accompanying today's earnings release.

Lastly will be filing our 10-Q with the S. A C for the period ending June 30th 2023.

The <unk> will be available through the F. C. C. R on the Investor Relations section of our website.

With me today I have our <unk>, our chairman and CEO through our C. F L.

I will summarize our second quarter results and provide commentary on the operating landscape and that will provide additional detail on the financial results before we open up the call for questions.

With that I'll turn the call over to our.

Thank you Sarah I'm. Good morning, everyone. I. Appreciate you all joining us today are overall second quarter financial results demonstrate continued improvement from the start of the year as we see meaningful improvement in our margin profile driven by the more favorable input costs environment and tight spending initiatives.

Although volume two are not where we would like them to be at this point, we entered 2023 with the expectations that volume would be subdued in the first half of the year and our second quarter results reflect that.

We spoke on our previous call about the softness to start in the quarter.

In June so improve the activity levels with overall demand relatively steady.

Generally speaking consumer spending continues to be impacted by the preference for travel and essentials, rather than the purchase of discretionary goods and many manufacturers are hesitant to invest.

The uncertainty outlook across the globe when.

When we came into the year when you're expected the second half to demonstrate the beginning of war normal operating conditions we.

We are still watching for that to manifest itself into activity levels. So remain cautious on the volume outlook in the near term.

Consumer spend it allocated elsewhere and overall economic conditions are choppy across the globe.

Given this backdrop for focusing on those things that are under our control to improve our performance and right now our top focus is I'm working the assets, we have and converting our pipeline a flawed strategic accounts to closes.

North American sales were down six per cent and a quarter versus last year.

By a lower volumes M. P. P S.

In order to last quarter, I would characterize activity levels in the region, a stable, but at a subdued level to start the year sentiment among manufacturing customers reflects this low environment and I think of the recent PMI and ISN data reflect this.

E Commerce activity continues to be hampered by the allocation of consumers funds to restaurants travel groceries and apparel compared to the more discretionary purchases of items, such as electronics and goods for the whole.

Fox shipments as well as straight and logistics data with like companies slightly managing their inventory with sell through remaining sauce, and a higher cost of capital flowing through the economy.

I would say overall, a similar message on the general environment for what you heard from us and <unk> with the difference being the quarter ended on a better note compared to the stock.

I also mentioned in the first quarter call, we are making inroads with <unk> with many of the accounts that may have historically been plastic only.

These trials and relationships continue to deepen and the momentum has only gotten better since the last update.

I remain optimistic about the shift towards paper for many large organizations in North America.

Sales in Europe , Asia Pacific War down, 7.6% for the quarter on a constant currency basis as activity levels in the regions are waited on by the overall economic environment in Europe , where manufacturing remains in contraction territory and consumer confidence is extremely low due to persistent inflationary pressures.

We are through the Destocking in Europe that plagued us last year and I think in some cases customers are over correcting on the inventory side, but the overall environment in the region remains constrained even with energy pricing down more than 80% from their peak.

Asia is mixed about places like Australia, New Zealand, and Japan demonstrate strength and account activity.

The volume environment remains inconsistent January with solid February with decent March and April or weaker followed by a strong may and a decent June .

It is hard right now to get certain or January constructive in the short term on the volume environment.

Existing debase book of business, but the key account activity. We are pursuing does provide for some optimism.

<unk> and throughout the rest of the year and into 2024, which is positive for us.

On another positive no the margin profile over the business is improving faster than anticipated with gross margin achieving level you have the date that we thought would take all year to achieve.

Fortunately supply chain is meaningfully improved and we are getting more relief on the input cost side of things, which supports expect it to continue with margin improvement throughout 2023 globally.

We have seen this year when the volumes are there and the stronger months the operating leverage as powerful so I'm confident we are getting back on track in the immediate term, though we are not waiting for the macro to turn for tightening of the focus of the company and executing on those areas that are in our control.

We're aggressively managing head count and new projects to Dyson are spent profile.

We are prioritizing initiatives that maximize cash flow generation and only pursuing growth projects that move the needle and maximize return.

We have made tremendous investments in digital and physical infrastructure as well as new products over the past couple of years now.

Now in the mode of Titans cope that is focused on productivity and efficiency.

In short we as a team are working the assets, we have to generate cash and demonstrate the benefits and contributions of the investments we have made.

Now with that let me turn it over to bill for some financial detail.

Thank you Omar.

<unk>, you'll see a summary of some of our key performance indicators will also be filing a 10-Q, which provides further information on <unk> operating results.

Machine placement increased 3.1% year over year, two over 140700 machines globally cushioning systems declined 0.6%, but void so installed systems increased 4.1% and wrapping increased 5.2% year over year.

Growth in the machine failed population has been lower this year due to a combination of flower activity level generally in our efforts to optimize our fleet.

Maximize capital efficiency, we are focused on getting underutilized converters back and redeployment to more productive areas.

Net revenue for the company in the second quarter was down 7% year over year on a constant currency basis, driven by headwinds in both geography's against the largest quarter, we experienced in 2022.

North American net revenue decreased 6% versus the prior year, driven by lower industrial activity and continued ecommerce malaise as it relates to discretionary goods.

In Europe in APAC net revenue on a constant currency basis was down 7.6% year over year with all categories under pressure in the quarter due to lower volumes versus the prior year, driven largely by a lower base level of activity given the volatility of energy and remaining inflationary pressures in the region.

A side of April we've seen a steady base level of volumes in Europe for most of the year and when these base level of activity of present the profitability in the region is returning to more historical levels, which is really encouraging.

Automation sales increase year over year and represent approximately 7% of sales on a constant currency basis as we continue to get traction in space with our box customization and automated solutions.

Although our top line was down the impact in the second quarter was more than offset by the improved input cost environment is gross profit increased five per cent on a constant currency basis applying in Martin's 37 per cent compared to $32 six per cent in the prior year. This.

This is continued improvement from Q4 of 2022, and so you wanted this year, which both had very similar levels consolidated net revenue.

And roughly 85 million in sales in each of those quarters gross margins have improved from 28.1% in queue for 234 per cent in Q1, and 37 per cent in queue too with the largest benefits coming in May and June which are better volume months in the quarter compared to a lackluster April which we previously communicated.

Obviously has more volume flow through the better to pick up will be as we expect to absorb more overhead and you've got the greater benefit of lower pricing.

Constant currency adjusted EBITDA increased 4% year over year to $19 million applying a 22.5% margin driven by improved gross profit and take control and spend and represents continued sequential improvement.

This compares to $12.9 million and 15.1 million in constant currency adjusted EBITDA on similar sales and Q4, 2022, Q1 2000 twenty-three respectively.

As we get into the second half of the year, we expect our financial profile to continue to improve as we get into a study your volume portion of the year due to the traditional seasonality the business at.

At this point, we expect that the vast majority of the Destocking impact is behind us for what we can see leaving the general velocity V. D T largely driven by end user demand needs.

Again last year. It was very unusual for a variety of reasons, but in particular the deviation from the usual revenue cadence of the year, which had shown the back half stepping up meaningfully from the first half and generating roughly 55 per cent of the volumes for the year.

We do expect to see some improvement in the back half of this year, but I do think it will be waited on by the overall environment, which is slower to rebound.

<unk>, we expect to have the greatest impact of paper price reductions in the second half is that costs increased steadily throughout 2022 and kicked in the fourth quarter.

We believe improved instead of your volume to the second half combined with maximum input cost savings should enable us to continue to improve our Jesse dot throughout the year.

Some regions, we continue to experienced input cost savings so as we reach our target margin levels in the region, we will need to share those savings with our customers.

Put some pressure on the top line the margin profile is what we were most focused on in the near term.

Believe the volumes will pick up in due course and get the top line directory back on track.

Expenditures for the quarter with $13.4 million with more than half driven by the funding of our real estate projects and other investments.

Plays a strong emphasis on minimizing capex projects and for to spend maximize Castro generation for remainder of the year.

We've been briefly to the balance sheet liquidity.

We completed <unk> with a strong liquidity position, including a cash balance and $53 $90 million in the quarter and no drawings on a revolving credit facility.

Barnett leverage based on reported LTM adjusted EBITDA was 5.7 times at the end of the quarter.

We continue to expect to ever speak in the second quarter as we expect to build EBITDA for the remainder of the year.

Cash perspective, we expect to three it'd be the trough and to build in queue for some of our capital commitments related to real estate did move into Q3, and the timing of it and voices from the developers.

I want to reiterate the message from the previous couple of quarters, where we recognize the importance of maintaining a strong cash and liquidity position and it focused on returning to our target left ratio of three turns or less.

At this point major components of our investment cycle are complete outside of the Malaysia facility with which is roughly 1.5 million, enabling us to focus on cash generation and deleveraging.

Tightly manage working capital and are vigilant on cost to maximize cash and get our profitability metrics back on track.

With that I'll turn it back to Omar perform a bunch of questions.

Thank you Bill and closing we continue to make progress to improve the financial profile of the business and believe we have all the tools necessary to get back to where we want to be.

Or a longterm objective is a business that is steadily growing it stop lying in the high single pillow double digit area gross margins in the high 30 to 40 per cent area and EBITDA margins in the high twenties too low thirties per cent area.

But substantial cash being generated along the way.

We're committed to deleveraging to three turns or less and believe we can achieve this through EBIT <unk> growth as our margins continue to improve volumes return.

And we generate cash from our existing asset base.

We've completed or will be in the near term completing our large projects for rat pack that had been under way for the past couple of years.

These are in the areas of systems, and physical infrastructure and M P I and innovation.

North America, and European headquarters as well as our Connecticut automation center are done the heavy.

The lift in our systems and I spent is complete and the tremendous M. P. I development over the past few years further cements ourselves as the leader in paper base protective packaging and then the line automation.

All of these physical digital a new product initiatives have taken a tremendous amount of focus on capital over the past few years.

All while dealing with the pandemic followed by an energy crisis in our biggest region.

Now that we have our platform in place we have rationalized our objectives narrowed our scope of projects to provide a level of focus to the organization that has not been available in years. We have developed a strong scalable core where we are focused on gaining efficiencies through a better processes and access to data.

I've mentioned earlier, the favorable input costs environment and shared on a few occasions, our goal to get gross margins for P. B S back to the historical levels.

Certain regions of the World, we have been able to achieve this so we are at a point now where we need to share some of the faith savings with our customers.

This has happened ahead of schedule, but it does present some pressure to the top line forecast, we provided that the beginning of the year.

At this point given the slower economic outlook on pricing concessions due to our sharing of lower input costs, we anticipate being below the top line rage, we provided at the beginning of the year.

Continue to focus on achieving adjusted EBITDA within our original range.

We are pleased with the gross margin improvement and are working on volume initiatives to ensure the EBITDA and improved overall margin profile follows.

The account activity is extremely strong, particularly in North America sustainability is becoming a more entrenched in larger players. So I'm pleased with our outlook and how we are physician for the next number of years.

With that let me open the call up for some questions operator.

Edmund you want to open up the lines are the questions.

Edmund.

Apologies everybody it looks like the operators, having some technical difficulties will follow up with the with the analyst individually.

Guys be inconvenienced look forward to seeing you next work. Thank you.

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