Ranpak Holdings Corp. (PACK) Earnings Call Transcript & Summary

Thank you. Hello everyone, thank you for joining us and welcome to the RANPAC Holdings second quarter 2026 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 1 to raise your hand. draw your question, press star one again. I will now hand the conference over to Sarah 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. 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. NAMPAC assumes no obligation and does not intend to update any such forward-looking statements. should not place under reliance on these forward-looking statements, all of which speak to the company only as of today. The earnings 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 8K 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 gap basis, we have included reconciliations to the comparable gap information. Please refer to the table and slide presentation accompanying today's earnings release. Lastly, we'll be filing our 10Q with the SEC for the period ending June 30, 2026. The 10Q will be available through the SEC or on the investor relations section of our website. With me today, I have Omar Asili, 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 delivered another quarter of strong growth with revenue increasing 139% year over year on a constant currency basis and excluding the impact of force. 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. TPS volume is 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, where 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, void fill 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 phone. Now, more onto 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 profit, ex-depreciation on a constant currency basis. Now moving on to the market environment and how Rampback 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 seems 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. 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 we 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 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 Europe, Dutch net gas pricing has been volatile since the start of the conflict, moving from more than 60 euros 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 Rampax offerings and positioning in the marketplace. With that, here is Bill with more info on the quarter. Thank you, Omar.

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 RAMPAC's 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. For North America revenues increased 8.5% in the quarter, or up 9.4% excluding the impact of warrants, driven by more than 250% growth in automation, excluding warrants. While PPS was a slight detractor as channel continued to face a tougher comp and we lapped at 14.8% volume growth in the prior year. Action 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 PPS, driven largely by strength in EMEA, which is highly encouraging. Gross profit increased 17.6% on a constant currency basis in the quarter and would have increased 18.6% excluding the 1.7 million non-cash 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 bps improvement in gross margin versus Q2 of last year. In NOAA and PPS, where margins have been most pressured, we made continued progress through our efficiency gains and improved more than 250 bps 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 costs out and get more efficient. Just a note on the consolidated gross margin. Automation being a larger contributor, mass some of the progress we'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 RAMPAC decline. SG&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 automation 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. Bring our reported net leverage to 4.5 times on an LTM 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, 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 capex 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 in 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 add 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 RAMPAC having as many touchpoints 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 a few bigger areas of opportunity than removing bottlenecks in the warehouse. Between our own solutions and our partnerships with Pickle 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. public realm, I don't know of 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 RAMPAC 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 PPS 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 Climaliner 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 RAMPAC. I think we have some real game changers in the portfolio and they will help drive us toward our goal of 800 million in top line 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 1 to raise your hand. To withdraw your question, press star 1 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 Gansham Punjabi with Baird. Your line is open. Please go ahead.

Thank you, operator. Good morning, everybody. Good morning, Gancho. Good morning. I guess first off on the automation momentum that you're seeing so far this year, obviously 2Q built on 1Q. Can you just give us a sense, Omar, as it relates to whether these are existing customers that are 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?.

Yes, it's actually both, Gansham, 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 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, a couple of key partnerships with integrators. One of them is one of the largest integrators in ASRS, 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 the year, Gansha, most of the revenue and our confidence in hitting the 60 million is contracted and our funnel and pipeline that we're building for 27 and frankly for 2028 is quite robust.

like the activity and how we're positioned in automation. Okay, that's helpful. And then what is the impact on EBITDA, specific to automation in 2026, as it relates to the breakeven that you called out for the end of the year? And then if I could, on the paper business and the variability between the EMEA and North America, just your thoughts as it relates to what's going on there. Did EMEA benefit by ahead of price increases, as they have done in the past, you know, during the.

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 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 PPS variability, I would say there's a couple of components here between Europe and the US. One, in the US, we continue to see tremendous strength on the enterprise side and large customers. The distribution channel has been a bit softer than we like. Frankly, our experience expectation 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. Europe, we're seeing better broader strength. There was some pre-buy earlier on, but our channel checking right now, Gansham, show very, very low levels of inventory, stocks, et cetera. 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 demands. 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 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, perfect. Thank you so much. Thank you. Your next question comes from the line of Greg Palm with Craig Hallam. Your line is open. Please go ahead.