Ranpak Holdings Corp. (NYSE:PACK) reported its first quarter 2024 results, showcasing continued progress on its strategic initiatives despite a mixed macroeconomic backdrop. The company delivered 4.4% constant currency revenue growth, a 400 basis point improvement in gross margins, and a 33.8% increase in adjusted EBITDA compared to the prior year period.

Business Overview

Ranpak is a leading provider of environmentally sustainable, systems-based, product protection and end-of-line automation solutions for e-commerce and industrial supply chains. The company operates manufacturing facilities in the United States and Europe, and maintains sales and administrative offices globally. As of March 31, 2024, Ranpak had an installed base of approximately 140,800 protective packaging systems (PPS) serving a diverse set of distributors and end-users.

Financials

For the full year 2023, Ranpak reported annual revenue of $336.3 million and a net loss of $27.1 million. The company generated $51.1 million in annual operating cash flow, but had negative $4.2 million in free cash flow.

In the first quarter of 2024, Ranpak's net revenue increased 4.4% year-over-year on a constant currency basis to $85.3 million. This was driven by a 2.6% increase in North America and a 5.4% increase in Europe/Asia, both on a constant currency basis. The revenue growth was primarily attributable to higher volumes in void-fill and automation, partially offset by declines in cushioning and wrapping.

Gross profit improved 16.7% on a constant currency basis, with gross margins expanding 400 basis points to 38%. This was driven by favorable paper pricing compared to the prior year period. Adjusted EBITDA increased 33.8% to $20.2 million, representing a 22.8% margin.

Segmental Performance

In North America, first quarter net revenue increased 2.6% year-over-year, with void-fill and automation up versus the prior year, offset by decreases in cushioning and wrapping. Europe/Asia net revenue on a constant currency basis was up 5.4% year-over-year, driven by void-fill, wrapping and automation, offset by lower cushioning revenue as the industrial sector in Europe remains pressured.

Liquidity

Ranpak ended the first quarter with $55.1 million in cash and cash equivalents and no borrowings under its $45 million revolving credit facility. The company's total debt stood at $403.0 million, with a leverage ratio of 4.4x.

Following the quarter, Ranpak received €20 million ($21.5 million) in cash proceeds from a litigation settlement and patent sale, further bolstering its liquidity position. Management expects leverage to decline below 4x by year-end 2024, with a long-term target of 3x or below.

Capital expenditures in the first quarter were $9.8 million, focused on converter placement and investments in the company's Malaysia production facility. Going forward, Ranpak expects annual capex to be less than $35 million, down from recent years, as it shifts its focus to generating cash flow.

Outlook

Ranpak continues to make progress on its strategic initiatives, including driving volume growth in its PPS business and scaling its automation solutions. The company saw a pickup in activity from its strategic account initiative in April, with many large accounts beginning the transition away from plastic to Ranpak's paper-based solutions.

Management expects automation revenue to grow over 50% in 2024, building on the momentum the company has established. Ranpak is also focused on maintaining its gross margin profile, working closely with suppliers to manage input cost pressures.

While the macroeconomic environment remains uneven, with softness in the industrial and manufacturing sectors, the company is optimistic about the long-term tailwinds from the shift from plastic to paper and the growing demand for warehouse automation. Ranpak reiterated its full-year 2024 guidance and believes it is well-positioned to execute on its strategic priorities and deliver improved financial performance.

Risks and Challenges

Ranpak faces risks from fluctuations in paper and other input costs, as well as potential softness in end-market demand due to macroeconomic conditions. However, the company's focus on sustainable packaging solutions, automation capabilities, and disciplined capital allocation position it well to navigate the current environment and capitalize on long-term growth opportunities.

Conclusion

Overall, Ranpak's first quarter results demonstrate the company's ability to execute on its strategic initiatives and improve profitability, despite the mixed macroeconomic backdrop. With a strengthened liquidity position, a clear path to deleveraging, and promising momentum in its core businesses, Ranpak appears well-equipped to deliver value for shareholders in the years ahead.