Ranpak Holdings Corp. Q2 2026 Earnings Call

Hello everyone. Thank you for joining us and welcome to the Ranpak Holdings Second quarter 2020 earnings call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Sara Horvath, Chief Legal and HR officer. Please go ahead.

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 Securities Litigation Reform Act of 1995. 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 10-K and our other filings filed with the SEC. 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. You should not place undue reliance on these forward looking statements, all of which speak to the company only as of today. The. Release we issued this morning and the presentation for today's call are posted on the Investor Relations section of our website. A copy of the release has been included in a form 8-K that we submitted to the SEC. Before this call. We will also make a replay of this conference call available via webcast on the company website.

For financial information that is presented on a non-GAAP basis. We have included reconciliations to the comparable GAAP information. Please refer to the table and slide presentation accompanying today's earnings release Lastly, we'll be filing our 10-q with the SEC for the period ending June 30th, 2026. The 10-q will be available through the SEC or on the Investor Relations section of our website. With me today, I have Omar Asali, our chairman and CEO, and Bill Drew, our CFO Omar will summarize our second quarter results and market conditions, 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.

Thank you Sarah. Good morning, everyone, and thank you for joining us today. We are pleased with our second quarter results and how we have started the year as we continue to effectively navigate a dynamic environment. Our investments in automation are paying off as we experience an exceptionally strong quarter in both North America and Europe. Automation. Another quarter of strong growth with revenue increasing 139% year over year on a constant currency basis and excluding the impact of warrants. The momentum has continued to build across North America and Europe. In North America, we continue to experience strong activity with Walmart and Medline and are expanding the breadth of customers at a solid clip to start the year In Europe, we are more established in that market as our automation product line began. There, and continue to experience broad based activity. We believe automation will be a strong growth engine for us for years to come. PES volumes increased 2.4% year over year, marking growth in 11 out of the last 12 quarters. Europe was. The outperformer again, as anticipated, weakness following the start of the war has not Immediately materialized to the extent we were concerned about.

The trends. We experienced in North America in the first quarter were large enterprise outperformed. While the distribution channel faced a challenging comparison Persisted into Q2, but did improve somewhat in the latter part of the quarter. Overall, we continue to expect to see improved performance in the distribution channel in the second half as the comparison normalizes and our new product initiatives in cushioning, vaudeville and wrapping take hold. We're getting great receptivity to our new products, such as Guardian 24, which has a smaller footprint relative to other units and provides meaningful cost savings versus foam. Now. More on to our results Consolidated net revenue increased 12.2% on a constant currency basis for the quarter, or 12.6%, excluding the impact of warrants driven by an outstanding growth in automation equipment sales on a constant currency basis. We also benefited from a currency tailwinds in the quarter, which added 1.8 percentage points to top line growth on a reported basis in the quarter, bringing reported top line growth to 14% for the quarter and 12.5% on a year to date basis. Adjusted. EBITDA increased 2.6 million to 19.1 million on a reported basis, and was up 13.9% in constant currency terms, excluding the impact of warrants.

Adjusted EBITDA increased 15.8% on a constant currency basis and roughly in line with growth in sales and gross profit. Ex depreciation on a constant currency basis. Now. Moving on to the market environment and how Ranpak is positioned, the macro backdrop through the second quarter was noisy to say the least. We saw oil prices hit multi-year highs in April and then fall back. Consumer confidence plummet, and then recover. And geopolitical tensions that started to fade have now heightened once again Against that volatility, the quarter ended in a better place than it started several months in Demand seemed generally okay, but we see that customers remain understandably nervous about the impact higher oil and gas prices will have on input costs, and the consumer and are therefore being conservative and focused on cost reduction. The consumer at the lower end of the K. Economy is stretched as gas and energy prices remain elevated, and other inflationary pressures for consumer goods persist Recent improvement in consumer confidence is encouraging, but we would like to see it stabilize and also see it flow through to more durable sectors like housing and industrial activity, before getting really bullish. In the near term.

We are focused on driving our value and sustainability proposition. We're getting good traction with our cushioning offerings versus foam in place, and would expect that product to inflect soon in North America. The paper market has gotten somewhat tighter for the second half, as producers try to push price increases. But from a competitive standpoint, we believe we remain well positioned against plastic and resin. Where we saw meaningful price increases flow through in the second quarter. We continue to be aggressive in pushing the sales team to accelerate the plastic to paper transition, as this is a dynamic we have not seen in North America in years. In. Dutch nat gas pricing has been volatile since the start of the conflict, moving from more than €60 per megawatt hour at the end of Q1. Back down to 40. And now back in the mid 50s, paper producers in Europe have been passing on price since the beginning of Q2, and we in turn took steps to protect our margins through a temporary surcharge. We continue to be transparent with our customers, and when conditions normalize, we will remove the surcharge from a commercial perspective in Europe. We continue to emphasize the advantages we see for paper versus plastic as resin costs and availability in the region are experiencing greater pressures than what we are currently seeing flow through in the paper markets Conditions seem to be changing daily, but overall, we believe they remain manageable.

Just as we are doing internally. Companies everywhere are extremely focused on costs to minimize inflationary impact. We remain disciplined on our spend and focused on improving our margin profile. We also see great pockets of opportunity that we are attacking with vigor, which we believe will be the bedrock for growth in years to come. While the. Near-Term is somewhat uncertain, I remain very excited by Ranpak offerings and positioning in the marketplace. With. That here is Bill with more info on the quarter.

Thank you. Omar. In the deck you'll see a summary of some of our key performance indicators. We'll also be filing our 10-q, which provides further information on Ranpak operating results. Overall. Net revenue for the company in the second quarter increased 12.2% year over year on a constant currency basis, or an increase of 12.6%. Excluding the impact of warrants driven by accelerating growth in automation. Volume strength in EMEA, APAC, and solid e-commerce growth in North America. Our. North America revenues increased 8.5% in the quarter, were up 9.4%. Excluding the impact of warrants driven by more than 250% growth in automation. Excluding warrants. While PES was a slight detractor as channel continued to face a tougher comp and we lapped 14.8% volume growth in the prior year Traction with automation in North America continues to build, so we are excited about the outlook there in Europe. And APAC. Net revenue increased 15.4% on a constant currency basis, driven by 103.7% growth in automation. And 4.2% volume growth in PES, driven largely by strength in EMEA, which is highly encouraging. Gross. Increased 17.6% on a constant currency basis in the quarter, and would have increased 18.6%, excluding the 1.7 million noncash provision for warrants We continue to be very focused on improving our margin profile through the back half of the year, and are pleased to report 150 Bips improvement in gross margin versus Q2 of last year.

In. And no amps where margins have been most pressured. We made continued progress through our efficiency gains and improved more than 250 Bips. Excluding depreciation versus the prior year. In. EMEA, there was some pressure due to the timing of the implementation of the surcharge versus when our input costs increased. But I feel good about what we were doing there. We. Continue to be pleased with the actions the teams are taking to take cost out and get more efficient. A note on the consolidated gross margin. Automation being a larger contributor mask. Some of the progress you're making overall, given the lower margin profile of that product line. But we do expect to continue to improve the margin of that product line as we scale as. We have shared before, automation is a sale of capital goods. So there's minimal CapEx required to expand our sales. We've invested in the facilities already and can serve as 100 million plus in revenue in our existing footprint over time. As automation becomes a larger component of our revenue profile. We expect you will see CapEx as a percentage of sales in Ranpak decline as a excluding RSU expense was down 3% on a constant currency basis versus the prior year.

Consistent with what we've shared previously. We continue to prioritize cost, discipline and margin expansion, keeping spend lean and putting our G&A investments to work against our fixed overhead is where we're focused. Getting. To break even on an adjusted EBITDA basis remains a key goal for us, and we believe we have line of sight to that as we approach 60 million in revenue this year. As Omar mentioned, adjusted EBITDA increased 13.9% year over year on a constant currency basis, or up 15.8%. Excluding the impact of warrants. As greater sales and gross profit flowed through, with slightly lower G&A. The constant currency calculation is based on a rate of 1.1323, which was last year's average rate for the quarter. Beginning in Q3 of last year, there was considerable movement in the euro. So next quarter. If rates stay as they are, we will have a slight rate headwind for comparisons as the average euro USD for Q3 2025 was 1.169, compared to 1.14 today. So please note that for the remainder of the year. Moving to the balance sheet and liquidity. We completed Q2 2026 with a strong liquidity position with a cash balance of 43.2 million and no drawings on a revolving credit facility.

Bringing our reported net leverage to 4.5 times on an m basis, which is down 0.2 turns from Q1. On cash, the first half of the year is typically a draw on cash, and, as previously shared, we made a $10 million follow on investment in pickle in Q1. We do expect cash to improve meaningfully in the back half of the year due to seasonality and our ability to free up some working capital. Our goal remains to achieve between two and a half to three turns, which we believe we can do over the next 24 months. Our cash. OpEx for the quarter was 6.6 million, which is 3.2 million lower from prior year. As we remain disciplined on spend. But continue investing in further production capacity to drive growth in key products and upcoming years in areas like cold chain and related to the growth plans for our enterprise customers. With that, I'll turn it to Omar.

Thank you Bill. Before I close, I want to touch on a few of our key initiatives and ask some color on the rest of the year and into 2027. Over the past several years, our strategy has been to build a best in class portfolio of end of line automation solutions and to partner with others who play key roles in the flow of goods through the warehouse. We believe there is tremendous value in Ranpak having as many touch points in the warehouse as possible. It maximizes efficiency for our customers and gives us deep, sticky relationships with the most sophisticated customers in the world. From my perspective, there are few bigger areas of opportunity than removing bottlenecks in the warehouse between our own solutions and our partnerships with Pickled Robot and others. We now have the pieces in place across vision, physical AI, and end of line automation. That means we can help companies maximize throughput, reduce labor dependency, and improve accuracy at every step in the process. How are we different in the industry? We've been building an integrated intelligence ecosystem to address these warehouse pain points, and we and our partners have access to some of the largest physical data sets in the world.

We believe that high quality data cannot just be simulated in a model with the same impact, and is exactly what you need to win with physical AI. We believe our ecosystem is genuinely unique and strategically advantaged in our pursuit of warehouse orchestration. In the public realm. I don't know if anyone else who's doing what we are doing These are the steps that have positioned us so well with our large enterprise customers, and increasingly separate us in the industry. We're very focused on partnering with our large enterprise customers at scale to deliver value added and differentiated solutions, while reducing our exposures to products we view as more commoditized and lower growth. The packaging needs of these players are changing rapidly, and Ranpak is pivoting to serve the opportunities we think can scale meaningfully and carry more value Let me turn to a few specifics for the second half. In automation, we believe we are on track to hit the roughly 60 million in revenue this year. That was my single biggest goal coming into 2026. Automation has real momentum in both North America and Europe. And I believe it is a business that should command a higher multiple in the public markets relative to protective.

In North America, we're pruning the PES portfolio somewhat to improve the margin profile. And given the warrant relationship, we are trying to be mindful of where and how we participate in the consumables area. In the second half, that means you could see us do less of the lower margin business where we have been providing warrants to a level we are more comfortable with Our capacity. Additions and development work. We have been doing sets us up well to be able to participate in size for the larger and more attractive initiatives that we believe will begin to scale in 2027 and help us achieve our longer term goals. We continue to expect to meet our guidance for the year. We remain very confident in our outlook and the capacity we are building in the second half of 2026 positions us well to achieve our longer term revenue targets, while adjusting our portfolio more towards value added solutions Talking about positioning for 2027, we're also building out more cold chain capacity in the second half. We believe that product line has hit an inflection point with our climate liner Plus offering as an alternative to EPS foam. The feedback in the marketplace has been outstanding, and we think it is poised for a step change in growth.

Sustainable cold chain is one of the great opportunities out there right now. And like automation, it gives us another scalable revenue stream with low ongoing capital intensity. I'm extremely. Pleased with where we are and where we are headed. It is never a straight line, but I have not been this excited about our product pipeline at any point in my time at Ranpak I think we have some real game changers in the portfolio, and they will help drive us toward our goal of 800 million in topline by 2030. We remain focused on growth while staying very disciplined on costs and operations to strengthen our margin profile. And I believe everything we are doing right now moves us in that direction. With that, we'd like to open the line up for questions. Operator.

We will now begin the question and answer session. Please limit yourself to one question and one follow up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question for optimum sound quality and if muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Ghansham Panjabi with Baird. Your line is open. Please go ahead Thank you. Operator. Good morning everyone.

Good morning. Ghansham. Ghansham.

Morning., you know, I guess first off on the automation momentum, you know, that you're seeing so far this year, obviously two Q built on one Q., can you just give us a sense of Omar as it relates to whether these are existing customers that are proliferation Proliferating the technology through their enterprises and production networks? Is it new customers? How would you have us think about the split between the two?

Yeah, it's actually both.

Ghansham, which which.

Is quite exciting from RC.

So you have some of the large enterprises. Walmart, Medline which again we're helping them roll out in, in more facilities as well as new facilities. And that continues. And then what we're seeing is very decent activity with new customers. You know? So I'll highlight for you, we have formed,, you know, a couple of key partnerships with integrators. One of them is one of the largest integrators in, in Asser's. And we've signed a partnership with them the last few months and are rolling out ,, some of their key accounts for end of line packaging. So it's a mix of both. Clearly, the large enterprises will continue to drive a big part of the volume for the next couple of years. And that was part of our thinking., but we're seeing very good activity with,, with new accounts. And. By the way, for the rest of, for the rest of the year. Ghansham. Most of the revenue and our confidence in hitting the 60 million is contracted and our funnel and pipeline for,, you know, that we're building for 27 and frankly, for 2028 is quite robust. So we really like the activity and how we're positioned in automation.

Okay. That's helpful. And then what is the impact on EBITDA? You know, specific to automation in 2026? You know, as it relates to the breakeven, breakeven that you called out for, for the end of the year. And then if I could, on the paper business and the variability between the Mia and North America, just your thoughts as it relates to what's going on, there was, you know, did Mia benefit from any sort of pre-buy ahead of price increases?, as they have done in the past?, you know, during previous inflation cycles. Thank you.

Sure ..

So on automation and I'll start there just with EBITDA, we still think we're on track for, for getting to break even later this year. As you know, we're in the scaling phase. So as we scale more, which we're starting to get closer to that, we think the financial profile will improve significantly. And the plan is to be sort of EBITDA even towards the end of the year. And then,, starting next year, automation will be an EBITDA positive contributor. So that's still intact. And based on what we're seeing in terms of volume and what we just discussed with both existing new accounts and the pipeline,, we feel very, very confident that we're on track to hit that,, on PBS variability. I would say there's a couple of components here between Europe and US. One, in the US, we continue to see tremendous strong strength on the enterprise side and large customers. The distribution channel has been a bit softer than we like. Frankly, our expectations just from talking to them is that you're going to see a pickup in that channel in the second half of the year. So we're hoping to see some good activity there.

And inventory and stock levels. There are really, really small given just geopolitics, risk appetite in general, in Europe, we're seeing better, broader strength. There was some pre-buy earlier on, but our channel checking right now Ghansham show very, very,, you know, low levels of inventory stocks, etc. people are not stocked up., obviously people are trying to assess in Europe where the war is going and how that may impact energy prices and customer demand. So I think the consumer there, as well as some of our customers are being a little bit cautious., but, you know, as they get clarity on that, we'll see how volume trends behave, but we're not entering,, you know. Q3 with any high levels of stock or inventory at any of these customers. So we're expecting some decent activity, but frankly, the war is a bigger factor in Europe than it is in North America.

Okay. Terrific. Thank you so much.

Thank you.

Your next question comes from the line of Greg Palm with Craig-Hallum. Your line is open. Please go ahead.

Yeah. Thanks. Good morning everybody., can you expand a little bit on on the margins? I think, Bill, you mentioned that just there was a little bit of a time in between surcharge and input costs, but, you know, just given what we're seeing, inflationary input costs, basically everywhere, your ability to pass through some of that and maybe just confidence level that you'll see a better margin profile in the second half.

Yeah, sure. Happy to. Greg. So as, as we said in the prepared statements, we did improve gross margin by about 150 Bips year over year. So that was good to see ., there are some moving pieces related to that, right? In North America, we continue to make great progress., being more efficient and taking cost out. So the North America PBS business, we were able to improve margins by over 300 Bips., in EMEA, right. As you pointed out, the surcharge went in place in May., but our input costs did increase, you know, starting in April. Right. So there was a lag there,, that we had to absorb. You're also seeing in EMEA a little bit of a trade down., of customers going to, you know, lower dollar price, lower margin SKUs,, particularly as it relates to, to void fill, which creates a little bit of a mix headwind., but overall, I think, you know, we continue to operate more efficiently and I think we're doing a good job moving in the right direction., for the things that are within our control. And then just as the rest of the year goes, you know, we do expect to continue to improve the gross margins.

We'll continue to see improvement. We think in North America, as we get more efficient and pass on pricing. And in EMEA,, you know, we'll continue to, to work with the surcharge to make sure that we're covering, covering additional costs.

Greg if I may add, if I may add in the second half in North America, we think there is room for price increases in, in the marketplace, in particular, in light of where plastic and some of the resin based products are. So I think expect us to do something there that will help the margin profile And then I think, and I've said that in