Q1 2025 Ranpak Holdings Corp Earnings Call
Speaker Change: Good morning and welcome to the Ranpak Holdings Corp. 1st quarter 2025 earnings call.
Speaker Change: All participants aren't a listen-only mode. After the speech remarks, we will conduct a question and answer session.
Speaker Change: To ask a question, you'll need to press star followed by the number one on your telephone keypad. As a reminder, this conference call is being recorded. I would now like to turn the call over to Sara Horvath, General Counsel. Please go ahead.
Speaker Change: Thank you and good morning everyone. Before we begin, I'd like to remind you that we will discuss forward-looking statements as defined under the Private Security's litigation reform act of 1995.
Speaker Change: Actual results may differ materially from those forward-looking statements as a result of various factors including those discussed in our press release and the risk factors identified in our Form 10K and our other filings filed with the SEC.
Speaker Change: Some of 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. Ranpak assumes no obligation and does not intend to update any such forward-looking statements.
Speaker Change: You should not place undue reliance on these forward-looking statements, all of which speak to the company only as of today.
Speaker Change: The earnings release we issued this morning and the presentation for today is called, are posted on the Investor Relations section of our website. A copy of the release has been included in a form 8K that we submitted to the SEC before this call.
Speaker Change: We will also make a replay of this conference call available via webcasts on the company website.
Speaker Change: For financial information that is presented on a non-GAF basis, we have included reconciliation to the comparable GAF information.
Speaker Change: Please refer to the table and slide presentation accompanying today's earnings release.
Speaker Change: Lastly, we'll be filing our 10Q with the SEC for the period ending March 31, 2025.
Speaker Change: The 10Q will be available through the SEC or on the Investor Relations section of our website.
Speaker Change: With me today, I have Omar Asali, our chairman and CEO , and Bill Drew RCFO. Omar will summarize our first quarter results, and Bill 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 Omar.
Omar Asali: Thank you, Sara, and good morning, everyone. Thank you for joining us today.
Omar Asali: Today, I'll start by discussing the first quarter, which at this point feels a lot less relevant, given everything that has transpired over the past six weeks.
Omar Asali: I will also discuss the impact global trade discussions are having on our business.
Omar Asali: and what we are doing to adapt to the current environment.
Omar Asali: Dearly speaking, the diversity of our business geographically and across end users as well as a strong momentum with enterprise accounts.
Omar Asali: gives me a great deal of comfort that we're in a solid position to whether the likely disruptions and slower near-term outlook as the trade discussions ripple throughout global economies.
Omar Asali: Regarding our results, our volume momentum continued as we began 2025 with our 7th quarter in a row of volume growth.
Omar Asali: Consolidated net revenue increased 8.8% on a constant currency basis for the quarter, including a 0.9% non-cash headwind from the Amazon Warrants.
Omar Asali: Draven by 12% volume growth as e-commerce activity drove outsize growth in North America.
Omar Asali: Our North America business continued its strong growth and was the key driver of top line performance with sales up 33% and volumes up more than 40% over Q1 of 2024.
Omar Asali: Similar to the fourth quarter, we saw a broad-based top-line strength in Q1, as enterprise accounts contributed excellent growth consistent with what we saw in 2024.
Omar Asali: and end-users in our distribution channel experience increased demand as well. Our team continues to execute well with the wrap-up of these larger accounts, and we believe that has well positioned us to continue to grow with these critical customers in 2025.
Omar Asali: We're deepening relationships with the biggest players in e-commerce and retail, setting us up well for further growth in 2025 in North America. Of course, our future growth potential here is subject to those macro factors that I just mentioned.
Omar Asali: Europe and Asia-Pacific started off the first two months of the year up slightly in terms of volume, but experienced a weaker than expected march, which led to a challenge stop line and volume contribution for the quarter.
Omar Asali: As the quarter went on, the environment in Europe deteriorated with activity slowing meaningfully in March.
Omar Asali: April , so stabilization as volumes were upwards is the prior year, but overall activity in Europe does feel worse compared to where we started the year.
Omar Asali: Automation started the year up slightly on a constant currency basis, versus 2024, as some projects move from Q1 to Q2 due to customer delays, but overall we feel very good about our ability to grow this business being equally and in line with our previously shared expectations.
of 50% growth.
Omar Asali: Are differentiated solutions and expected strong payback profiles for high-volume customers makes for a strong value proposition.
Omar Asali: On a constant currency basis, adjusted EBITDA declined 7.8% for the quarter, including an uncaching fact of the Amazon warrants, which contributed a 4.2% headwind to our reported figures.
Omar Asali: Excluding the impact of the Amazon warrants, adjusted EBITDA declined 3.6% year-over-year.
Omar Asali: Overall profitability was negatively impacted by increased input costs year over year and lower sales volume in Europe and Asia Pacific, as well as negative mix impact of outsized contribution of enterprise accounts in North America and temporary production inefficiencies.
Omar Asali: The input cost environment continues to vary by geography. In the US, pricing has moved up given the greater demand in the market for craft paper, which became increasingly tight in the fourth quarter and led to some mild disruptions that lasted into Q1.
Omar Asali: Challenges with longer leotons at the mills led to short-term inefficiencies in areas like freight and logistics, and as a result, we invested in more inventory in the first quarter to protect against further disruption.
Omar Asali: We have taken price in the second quarter in order to offset some of this increase and improve our margin profile.
Omar Asali: and utilized longer lead times to enhance our planning and runtime, which will benefit margin beginning in Q2 as well. In Europe , the energy market's remain volatile about pricing for Dutch Nat gas is down roughly 40% from its February peak.
Omar Asali: Our paper pricing for the first two quarters is consistent with Q4 2024 but is up slightly year over year.
Omar Asali: We are seeing some males look to race pricing for the back half of 25, but we are taking steps to mitigate the impact through greater raw material purchases in the second quarter.
Omar Asali: Overall though, in Europe and in Asia Pacific, we believe we are well-positioned to maintain our attractive margin profile we clawed back post-COVID.
Omar Asali: We'll take you through the death impact, what we're seeing, and steps we are taking to improve our financial profile in this environment after Bill's remarks.
Omar Asali: We are tightly managing our business in the near term while maintaining focus on the long-term health and potential of our company.
Omar Asali: Our focus is on driving volumes and winning share, reducing our structural costs and maximizing cash. We have moved quickly to address areas of inefficiency and to reduce costs to better align our cost structure with the current outlook.
With that, here's Bill, with more info on the court.
Bill Drew: Thank you, Omar. In the deck, you'll see a summary of some of our key performance indicators. We'll also be filing our 10Q, which provides further information on Ranpak's operating results.
Bill Drew: Overall net revenue for the company in the first quarter increased 8.8% year over year on a constant currency basis driven by exceptional volume growth in North America, offset by top line headwinds in Europe and APAC.
Bill Drew: For the quarter in the Europe and APAC reporting division, combined revenue decreased 6% on a constant currency basis during by lower PPS volumes in March and timing of automation projects compared to the prior year.
Bill Drew: Admission Sales in Amia. We're in line with expectations and we expect to achieve meaningful automation growth in the region in 2025.
Bill Drew: North America posted another excellent net revenue quarter driven by 45% PPS volume growth, which led to net revenue growth of 33.5% of the quarter.
Bill Drew: The momentum in North America and a prize account remains excellent as our execution continues to deliver strong results in PPS, and we believe we have the potential for substantial automation growth in North America in the second half of the year.
Bill Drew: Gross Profit declined 2.5% in the quarter on a constant currency basis.
Bill Drew: as lower volumes in Durpin APEC combined with higher input costs.
Bill Drew: Drove a 6% decline in gross profit in the region, an unfavorable mix in inefficiency in North America, contributed to a lower overall margin profile for no end.
Bill Drew: As Omar mentioned, we took action in order to claw back input cross headwind in North America in the second quarter. Believe the efficiencies due to paper market lead time disruption will be resolved into two.
Bill Drew: Overall, we believe we can improve the gross margin profile as we get more efficient with our operations and our cost reduction actions take hold.
Bill Drew: PestGNA, excluding RSU expense of 28.9 million with up to 0.4% versus prior year.
Bill Drew: We've chosen to defer most spend until conditions improve and have identified structural cost reductions of $8 million which we are implementing to improve our financial profile.
Bill Drew: Lower Gross Profit, Promiya, and APAC Bond decline in slightly higher GNA, COVID decline in Adjusted EBITDA of 7.8% in the quarter on a constant currency basis.
Bill Drew: This reflects a non-cash impact of 0.8 million or 4.2% from the reporting impact of the Amazon Warrants.
Bill Drew: Excluding the impact of warrants, adjusted the EBITDA would have declined 3.6%.
Moving to the balance sheet and the quiddity.
Bill Drew: We completed the first quarter with a strong liquidity position and recently refinanced credit facility. We had a cash balance of $65.5 million and no drunks on our revolving credit facility. Bring a reported net leverage to 4.3 times on an LTM basis and 3.9 times according to our bank leverage ratio.
Bill Drew: Since the start of the year, we invested in more than 10 million of additional paper inventory to reduce the impact from the lead times and potential disruptions and ensure we can satisfy our customers demand, particularly as the large customers ramp up.
Bill Drew: As the year progresses and we get more comfort in the operating environment, we expect to work this inventory level down.
Bill Drew: A credit facility is all USD, so we utilize cross currency swaps to hedge $210 million over capital structure.
Bill Drew: These swaps reduce our USD exposure with your own exposure, reducing our currency risk as it relates to debt service, and also enabling us to save on interest expense by swapping our silver exposure with Eurobore, giving us roughly 130 basis points on the hedged portion annually.
Bill Drew: We generate more than half of revenue when adjusted EBITDA in Europe and APAC, so to the extent the euro continues to rise against the dollar. Our profits and cash generated there can be a powerful tool to help us be levered.
Bill Drew: Our CAPEX for the quarter was $7.5 million in line with expectations and largely related to the PPS Converter Spent.
Bill Drew: Capital expenditures are the area most roughly impacted by the evolving tariff landscape.
Bill Drew: Our spend on converters for use in Europe and APAC is not impacted, but the converters we purchase and build for the US market rely on parts in units sourced from China and other Asia-Pacific countries.
Bill Drew: We're closely evaluating our spending plans in light of recent developments in focusing our efforts on minimizing the impact through alternative sourcing and an even greater focus on refabrication and refurbishment of older converters in the field.
Bill Drew: Again, William I've been around this is obviously uncertain, but with paper sourcing perspective we expect minimal impact as we source locally in our production areas.
Bill Drew: One final area to mention is that this is the first quarter in which we see the impact of the Amazon warrants blow through. Again, as you see us report going forward, there will be some noise related to the revenue associated with Amazon as the value of the warrants are recognized.
Bill Drew: That means each period there will be a non-cash decrease to our reported revenue figures which will flow down through the income statement to gross profit and just give it a net income.
Bill Drew: The third quarter, the impact of this was $0.8 million, which impacted our sales comparisons by 0.9% and a majority of the data by 4.2%
Bill Drew: In our earnings release, when we file our TNQ, you will see the impact of this clearly in the statement of cash flows, where it gets added back into the cash flow of operations, as well as in the footnotes, where we will break out the value for the period.
Omar Asali: When evaluating our performance, we recommend also looking at our income statement figures on an adjusted basis by adding those revenue offsets in to understand our performance. With that, I'll turn it to Omar.
Omar Asali: Thank you, Bell. Now to come back to what we are seeing on the ground in the 50 plus countries we operate in and what we are doing to improve our position.
Omar Asali: To provide some clarity on the impact of tariffs, I'd like to point out we have a diverse global business with more than 50% of our net revenue.
Omar Asali: Generated in regions where our cost of goods sold and capital expenditures are not directly impacted by tariffs, outside of what it does to business and consumer confidence.
Omar Asali: Business in Europe and APAC reporting units is conducted largely in Euros, which has appreciated meaningfully against the dollar, providing us with a benefit against our USD term loan.
Omar Asali: We are in cast generation mode in these regions, to best position ourselves, to benefit from the stronger Euro currency.
Omar Asali: In the US, the impact of tariffs is largest to our capital expenditures of our PPS converters.
Omar Asali: Some of which are purchased from manufacturers in China, or in the case of machines we assemble and manufacture ourselves in North America, contain parts and components from China and other Asian countries.
Omar Asali: We're taking steps to minimize the potential impact of these staffs by evaluating alternative parts and global suppliers, as well as stepping up our efforts to refabricate and refurbage existing machines in our fleet to reduce cost.
Omar Asali: At this time, we are focused on minimizing our converters spend by getting units back from the field and refurbishing them to minimize spend.
Omar Asali: In automation, our box customization equipment is currently made in Europe and shipped to the U.S., and thus will be subject to the European terror threat.
Omar Asali: The majority of parts used to assemble those machines are European as well, so we do not have much exposure to tariffs on Asian countries for our box customization solutions.
Omar Asali: We are focused on cost-out and efficiencies to minimize the impact to our customers and believe that the value proposition of our equipment to our customers remains extremely compelling, even with the current additional tariffs.
Omar Asali: We believe this could also provide an opportunity for us to take share versus the more expensive three-dimensional box customization technologies, which is more expensive and is also manufactured in Europe .
Omar Asali: Our automated dungage insertion solutions and decision towers are assembled in the U.S. with some parts coming from Asian countries that are currently in the 90-day reprieve window.
Omar Asali: At this point, we do not expect the tariffs to meaningfully impact the man for our solutions given the strong performance and payback which is becoming even more critical in this environment.
Bill Drew: As Bill pointed out, our largest input cost, which is craft paper, is not currently impacted by tariffs, as we source paper locally for use in our different regions.
Bill Drew: Given the operating environment uncertainty, we are tightly managing our business in the near term while maintaining focus on the long term health and potential of our company.
Bill Drew: Our focus is on driving volumes and winning market share, reducing our structural costs and maximizing cash.
Bill Drew: We have a world class platform and strong momentum in many areas of the business.
Bill Drew: We are thankful for the investments we have made and feel like they position us well to continue to drive the business forward, even in this challenging environment.
Thank you all again.
Bill Drew: At this point, we'd like to open the line up for questions. Operator?
Speaker Change: Thank you. As a reminder to ask a question, please press star followed by the number one on your telephone keypad to withdraw any questions press star one again. We'll pause for just a moment to compile the Q&A roster.
Speaker Change: Our first question comes from Greg Palm from Craig Hallum. Please go ahead, your line is open.
Speaker Change: Yeah, thanks. This is Danny Agerich on For Greg. Today appreciate you taking the questions.
Speaker Change: Hoping to kind of dig in a little more on the geographies. Obviously sounds like North America was good in the corridor and continues to be so. But maybe a little more color on what exactly you saw.
Speaker Change: in March in kind of the Emia APAC regions and, you know, now that you've seen some some stabilization here in April , maybe what your confidence level is in the region, I guess kind of in the months ahead.
Sure, yeah, good morning, Danny.
Speaker Change: So just to go geographically, as you outline, North America is very robust, continues to sort of exhibit a very strong funnel of growth and great trial activity for us, and a lot of it is driven by the large enterprise accounts.
Speaker Change: and we frankly see that continuing for the rest of the year. In Europe , let me take that first before Asia-Pacific, I would say...
Speaker Change: Southern Europe feels stronger than Northern Europe for our business. The Nordic region was a little bit weaker and then in central Germany was a bit weaker as consumers and frankly CEOs and companies were a little bit more cautious.
Speaker Change: So we saw a little bit of softness there and we saw a bit more strength.
in the southern part of the continent.
Speaker Change: In April , we saw some good stabilization. We'll see how things go from here. Frankly, it's very tough.
to assess where Europe is going on the one hand.
Speaker Change: with some of the legislations that are happening and stimulus in Germany and some of the discussion around defense industry, etc.
Speaker Change: We see some potential for a pickup in activity. On the other hand, I know tariffs are obviously weighing on them and weighing on consumer sentiment so we continue to monitor things very closely in Europe .
Speaker Change: In Asia Pacific, it's obviously a very broad region and there's a lot of varying sort of performance, the strongest.
Speaker Change: Regent for us all countries, Japan, which continues to exhibit quite a bit of momentum and we're excited about what we're seeing there in South Asia, it's a little bit more mixed.
Speaker Change: and then Australia is also a little bit more mixed, but our expectation for the rest of the year is quite constructive, sort of on Japan. If you summarize for our business.
Speaker Change: You basically have overall a very strong North America market for now.
Speaker Change: You have a pretty decent level of activity overall in A-PAC driven by Japan.
Speaker Change: And then Europe is the area that is exhibiting some softness that we're watching more closely. And then if you overlay that with our expectations of growth in automation that we think will deliver outsized numbers this year, we believe that overall the growth picture for us.
Speaker Change: You know, we'll continue to be robust. And frankly, you know, this is our seventh quarter in a row of showing decent volume growth and in almost five of those seven quarters.
Speaker Change: Our volume growth was double digit or north of 10%. And we think that will continue for the rest of the year.
Speaker Change: Okay, great, that's really helpful. Then you mentioned kind of the automation in there. I was hoping to maybe hit on some of the push outs you saw from Q1 to Q2.
Speaker Change: So do we expect those to all hit and cue two now, or is there any risk that that continues to push out just based on what we're seeing in the macro? I know you kind of said you're still confident that 50% growth rate, but just kind of see how you're thinking about that.
Speaker Change: Sure. Yeah. No, that's a great question because obviously automation is a big, is a big driver of growth and a big area of emphasis and investment for us. I would say we entered the year feeling very, very bullish.
Speaker Change: In automation, I will tell you because some of these projects are sizable. It's very tough to be precise
Speaker Change: that something is going to be signed before a particular quarter. So it's very possible that instead of signing something by end of March.
Speaker Change: It may slip to the middle of April , just given the nature of...
The integration and the documentation it takes to do
Speaker Change: We are working with some new accounts, but more importantly we're working with existing accounts about more and more installations and more equipment.
Speaker Change: and from everything I'm seeing after all the announcements and the uncertainty around tariffs, these projects continue and continue at a very good pace. So I'm confident in the 50% plus.
for the year.
Speaker Change: just given the visibility I have and the funnel I'm seeing and some of these deals that we're trying to sign. I think we're gonna sign a lot of them in Q2.
Speaker Change: Because some of them that slipped from the end of Q1, you know, they continue to sort of move at a good pace and some of them already signed in this quarter. So I feel with many of our customers that require big automation needs.
Speaker Change: things are on track. Now let me just interject here a little bit about the macro environment.
Speaker Change: Because obviously with the announcement around tariffs we all worried here is that going to delay some automation projects is that going to delay cap X how our customer is going to react and I'm going to simplify and tell you things fall into two buckets.
Speaker Change: The larger counts, and the large players in e-commerce, in retail, etc. And some even in industrial. We see them pushing forward on automation, if the ROI is there, if the payback is there, the feedback they've given us.
Speaker Change: These projects are very important, and they're not going to delay them because of tariffs.
Speaker Change: In particular, if these projects come with savings around labor, there is a big concern other than tariffs out there that we're seeing around the border policy, migration policy, etc. and what that may mean for warehouse workers, what that may mean for labor and tightness of labor market.
Speaker Change: So, we're actually quite enthusiastic about what we're seeing on that front. So, that's on the one hand the bullish side of what we're seeing in automation post the tariff discussion. On the other hand, there are some companies.
Speaker Change: I think Apparel, maybe Think Footwear, etc., some companies that are pretty hard around the tariffs and a lot of their product maybe comes from China, those companies.
Speaker Change: are deferring automation projects, but that is not a huge part of the universe of companies that we tackle. So if you put it all together, we remain very confident in sort of our growth trajectory in automation.
Speaker Change: Okay, appreciate that. Maybe if I could just sneak in one last quick one on margins, obviously you came in a little bit like this quarter, you kind of gave the factors that played into that. But now as you kind of initiate some of these pricing and you know...
Speaker Change: Cos Management Initiatives. How should we think about the benefits of those things flowing through Q2 and in the coming quarters? How should we think about Girls Marting Directory?
Sure, I'll let Bill take that.
Speaker Change: Sure. Thanks, Danny. So as far as the gross margin outlook, right? You know, in the prepared remarks, we had helped by some of the actions that we're taking to improve our margin profile.
Speaker Change: We're taking price. We're doing some operational initiatives, taking costs out right across the board. So we do expect gross margin to improve from Q1 to Q2 with the majority of the improvement coming Q3, Q4 as some of these costs initiatives take hold. But we would expect you to see a step up of a few points from Q1 to Q2 and then again into Q3.
All right, appreciate it. I will leave it there. Thanks
Thank you.
Operator: Our next question comes from here in the cave from Cancer Fitzgerald. Please go ahead, your line is open.
Karen McCabe: I'm Karen on for Troy Jensen. This is a follow-up to that last question. Maybe can you provide any kind of detail on the cost reduction outcomes you're taking as it doesn't operate any more efficiently and any kind of details you can provide on that.
Speaker Change: Yeah, sure. I'll start here and then I'll turn it over to build maybe for a bit more detail. So a couple of things. If you look at the Q1 and a little bit Q4 of last year, some of our suppliers.
Speaker Change: Just like us, frankly, we're a bit surprised with some of the growth in North America and some males ran into some operational issues getting us paper on time, frankly, an unrelated to even some of the volume friends, some of them have some...
Bill Drew: Equipment Issues and Maintenance Issues that limited their ability to produce.
You know, in time and in full for us. So that meant...
Bill Drew: in particular this quarter and a little bit in the prior quarter.
Bill Drew: We were buying products in the spot market, we were trying to sort of make sure we have enough.
inventory to sell to our customers.
Bill Drew: And when you do that last minute, clearly that came with some inefficiencies, not just in the cost.
Bill Drew: of the product, but in, you know, adjacent costs like warehousing and freight and all that.
So that impacted more just quite a bit.
Bill Drew: and part of the initiative is that you are seeing us do right now is better planning.
Bill Drew: Better forecasting. And frankly, that's already starting to have an impact in this quarter. And as Bill said, we think that will improve in the next quarter. So some operational efficiencies and cost outs around, you know, freight warehousing should help.
Bill Drew: We are also looking at the IFU and all the organization and looking at the team and where we have some redundancies, etc., we're being very prudent.
Bill Drew: in reducing costs and spend there. And then, you know, in automation, we're also investing quite a bit in some operational efficiencies, frankly driven by scale. So one of the things that we're doing is as we ramp up and win more and more accounts.
Bill Drew: and with some of that scale, we are becoming a more and better efficient operator and helping margin that way. So these are some of the cost initiatives that we're embarking upon, and then maybe both can have some color.
Sure. So, I mean, you know, the-
Bill Drew: Roughly half for the bulk of it, right, would come to...
Omar Asali, Sara Horvath
Omar Asali: As Omar mentioned, freight logistics of the key piece that we've been doing a lot of work on moving products between our different facilities. So there's good opportunity there to take cost out.
Omar Asali: outside storage, or certain things as we work down this peak grim inventory which we're well situated with at the moment will come into effect.
Omar Asali: and then other just areas that were just being extremely tight on given the environment is discretionary spend. So things that are nice to have, not need to have at the moment are just being put on pause and will evaluate at the year progresses.
Perfect. Thank you so much.
[inaudible]
Speaker Change: We have no further questions in queue. I'll turn the call back over to Bill Drew for closing remarks.
Omar Asali: Great, thank you Julian, and thank you all for joining us today. We'll see you next quarter.
Speaker Change: This concludes today's conference call. Thank you for your participation. You may now disconnect.
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