Ranpak Holdings Corp.

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. RAMPAC 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 earnings release we issued this morning and the presentation for today's call are posted on the investor relations section of our website. Copy of the press release has been included in the 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-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 30, 2022. The 10Q will be available through the SEC or on the investor relations section of our website. With me today, I have Omar Asli, our chairman and CEO, and Bill Drew, our CFO. Omar will summarize our second quarter results and provide commentary on the operating landscape. And Bill will provide additional details 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, and good morning, everyone. I appreciate you all joining us. We return to top line growth in the second quarter on a constant currency basis. We have now turned positive year to date on a constant currency basis against extremely challenging volume comparisons versus the first and second quarters a year ago, where volumes were up more than 30% in each quarter. Even in a normal operating environment, those would be meaningful challenges to surpass. So with all the macro headwinds we are currently facing, to be positive on the top line on a constant currency basis is a testament to the effort of the team as they continue to drive new business opportunities. Unfortunately, the macro backdrop has deteriorated meaningfully since we spoke a few months ago, and it's certainly more challenging than we initially anticipated. As the year has progressed, we have experienced less demand in certain end markets, particularly in e-commerce, as economies have opened up and spending patterns among consumers have shifted to more experiential areas, such as travel and restaurants, rather than purchasing goods to be delivered to their home. This dollar shift has been further exacerbated by lower disposable income available to consumers due to increased fuel and food costs eating into their budgets. Activity in Europe slowed down, and the economic effects of the energy crisis on the continent are having an impact. The quarter's performance in the region was also somewhat impacted by some distributors reducing their levels of inventory to manage their working capital more tightly in an uncertain economic environment and to reflect our shortened lead times. On a positive note, top-line PPS results were up or flat in each region, and we continue to see solid new business activity. Trials and closes have ramped up over the past few months, increasing sequentially in Q2 compared to Q1, which is an encouraging sign. In North America, sustainability is starting to gain traction as regulatory activities are gaining steam and companies are anticipating further changes down the road. shareholders are also increasingly using their voting power to advocate for less plastic in the supply chain ecosystem and holding companies accountable to hitting targets. In June, Canada banned the manufacture and importation of single-use plastics by the end of the year in a major effort to combat plastic waste and address climate change. In the U.S., Maine and Oregon have passed extended producer responsibility laws in 2021, and now we are seeing at least 10 more states, including California and New York, pursuing similar measures to hold producers accountable for end of life management of plastic packaging. Notably, on June 30, California passed the largest EPR law in the history of the United States, and has another bill that is circulating, which is focused mostly on e-commerce packaging. While the details of the California bill are still being worked out and understood, the momentum is clear. Voters, legislators, and shareholders want less plastic impacting our environment. This stopped down momentum, plus an increased focus on trial and close activity in the U.S. has helped to drive sequential improvement in closes in the second quarter compared to Q1 this year and being up meaningfully versus Q2 2021. Closes in Europe in the second quarter trended upward from Q1 as well, as the team has done a good job of driving activity in the field and converting new business wins, albeit at a slower rate compared to last year's frenetic pace. In APAC, trial activity improved from Q1 and saw a substantial increase of more than 50% versus the prior year, which was encouraging. We are pleased to share with you that we have selected Malaysia as the new site for our APAC localization production facility. With our APAC headquarters in Singapore a little over an hour's drive away, we feel Malaysia is better suited for us to establish our production capabilities given our management proximity. This will make us significantly more competitive in the region due to the lower production and logistics costs and will enable us to grow more rapidly in the region. Given the change in site selection, this project will now be functional in 2023 rather than the end of this year. So while we are facing some near-term headwinds in our top line from lower economic activity due to the impacts of inflation and consumers adjusting their spending patterns as economies open, We are encouraged over the medium and long term by what we see in terms of momentum on sustainability, especially in North America, and our position as the market leader in paper-based protective packaging leading to more clothes activity. As the year progresses, the impact of these clothes should build and offset some of the year-over-year declines we see in the existing fleet due to market pressures. I am pleased to share we have largely moved on from the operational issues we experienced with our new ERP system in Q1 as the team did an excellent job of embracing the system and getting more comfortable in the new operating environment. A lot of the heavy lifting on the operational difficulties we had in Q1 have been worked through. While it won't happen overnight, Instead of initial troubleshooting, we are now in the phase of the project where we can focus on becoming more efficient and begin extracting efficiencies by becoming better users of the system. Our paper sourcing continues uninterrupted in all geographies in the quarter. Our vendor relationships are strong and we believe we have the ability to continue to source the paper we need to fulfill our customer demand. We have great relationships with our suppliers and are a steady buyer of paper in good times and in challenging environments. This has helped us secure additional funds from our supplier group as we continue to reduce paper acquired from Russia and have no plans to purchase from that mill beyond shipments received in July. At this point, we are heavy on paper, particularly in Europe, given our cautious approach to insulate ourselves from possible disruptions in supply. We will reduce that throughout the year to free up working capital, but we'll be doing so at a measured pace given recent reports of energy restrictions on the continent. Overall, we feel very good about our sourcing plan for the remainder of the year, with the remaining wild card being the energy situation impact on mill production. I'm pleased with the ability to secure the supply of paper, But unfortunately, like the rest of the industry, the cost of our key input, craft paper, remains elevated and has put pressure on our growth margins. On the Q1 call, we shared that we took pricing in North America that more closely aligns our pricing to our costs towards the end of the quarter. We are now in a better spot in North America in terms of price and cost, but have not gone so far as to attempt to completely recoup our margins at this time. Given the weaker environment that has evolved over the past couple of months and pricing fatigue in the market, we are in a holding pattern to see how things unfold on the price of the commodity. We are optimistic that given the lower box shipments we have seen and increased paper supply coming online at the end of the year, we could see some stabilization and perhaps relief in pricing in the second half in North America. In Europe, the energy price environment remains volatile and subject to substantial swings based on headlines regarding the impact the Russia-Ukraine war is having on gas supplies in the continent. We discussed that we pushed through a price increase following the first quarter, but it was not enough to compensate for the increased gas price environment encountered following the start of the war and that our second quarter margins in Europe would remain under pressure. We took additional pricing as of July 1 to improve our positioning and claw back some of the pressure we experienced for the first half of the year. These actions have improved our price slash cost compared to what you saw in the first half of 2022, but will not close the gap completely to get our margins back to where we have been historically until we get some relief on the paper side. I think given the weaker operating environment, pushing too much on price right now risks further hurting demand, which we are not willing to do. While it is painful in the short term, I expect the lower demand environment we are seeing impact our top line, beginning to flow through to the input costs. We believe that this kind of mismatch cannot persist indefinitely. To be clear, we're not standing idly by on the margin front waiting for paper pricing to provide relief. We are attacking costs throughout our P&L, making adjustments across the board to protect ourselves in this more challenging operating environment. We have closely looked at all of our forward spending and investment plans to ensure we are deploying capital to the most productive areas. Our gross margins in the near term will largely be driven by our paper costs and pricing action, so we have focused our efforts more on our G&A to achieve immediate cost savings. We slowed our hiring velocity meaningfully and kept it focused on only these areas we deem critical. We have also reduced headcount through targeted reductions where we can consolidate roles or activities and or were warranted through performance reviews. We have reduced our projected headcount spent for the remainder of the year by a net of $2 million when taking into account expected new hires and identified an additional $2 million in planned deferrals. We have also removed approximately $2 million of planned discretionary spend from the remainder of the year. We continue to optimize our spend and evaluate areas for further efficiencies. We are monitoring the macro environment closely and are prepared to take further steps necessary to make sure our overhead costs are right size for this environment. There's no sugarcoating it. It is a challenging environment where input costs remain elevated at the same time demand is lower. Inflationary pressures in food, fuel, and now housing costs have reduced consumers' buying power and eroded consumer confidence in both Europe and the US to levels below the global financial crisis. Rocketing gas prices and uncertain energy supply in Europe may lead to further slowdown or business closures. Manufacturing activity in the second half of the quarter clearly took a leg down as well. as rising input costs and the increased wage spiral have driven companies to focus on reducing OPEX and capital spend to protect their margins and balance sheets. This lower overall activity level is impacting utilization of our existing fleet in the near term. We believe the resilience of our model will come through again as eventually lower economic activity should result in some commodity price relief. We have a strong team who remains focused and resilient. With that, let me turn it over to Bill for some financial detail for 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 10Q, which provides further information on RAMPAC's operating results. Machine placement increased 10.4% year-over-year to over 136,500 machines globally. Another saw a double-digit performance, but at a lower rate than last year due to some slowing end-market demand. Cushioning systems grew 2.6%, while void fill and solid systems increased 11.4%, and wrapping increased a robust 21.7% year-over-year. Overall, net revenue for the company in the second quarter was up 4% year-over-year on a constant currency basis, driven by positive price contribution offset by lower volumes of product shift due to slower end-market demand. North American net revenue decreased 3.9% year-over-year, largely driven by the timing of a chunky automation sale in the quarter last year, which detracted roughly 3.5 points from the top-line comparison. Pushing and growth in North America was up double digits in the quarter, but the overall book of business was slower than anticipated in North America as e-commerce activity experienced a decline in their usage compared to the significant activity we saw last year. As Omar mentioned, we continue to see solid new business activities and are experiencing good momentum on the closed front, which we believe should help performance in the back half. In Europe and APAC, net revenue on a constant currency basis was up 9.5% year over year, driven by higher price in the region and partially offset by lower volumes against a record Q2 last year, driven by exceptional e-commerce demand and industrial bounce back. Overall, cushioning was a bright spot in the quarter at 8.6% on a constant currency basis, as we continue to see strong demand for our offering, as we can demonstrate real cost savings, along with a much friendlier environmental footprint compared to things like foam. Void fill was up in the quarter as well, while we saw wrapping take a step back against a really challenging comparison. Automation sales increased a little under 20% this quarter on a constant currency basis and represented approximately 5% of sales as we continue to make inroads with our automated tonnage solutions that reduce touches at the end of the line, as well as our box customization solutions that reduce labor costs and reduce the cost of shipping boxes. On a constant currency basis, our gross profit decreased 14.4%, implying a margin of 32.6% compared to 39.7% in the prior year. Excluding depreciation, gross margins on a constant currency basis declined from 50.1% to 43.8%. Margin headwinds were driven primarily by increased input costs, which represented 8.1 points of pressure, as well as increased depreciation, which contributed 70 bps of pressure in the quarter. We got some offset on the margin side through lower freight costs and better labor and overhead. Overall, North American margins were down roughly 5.7 points in the quarter, driven by increased material costs and depreciation. Europe in APAC was more challenging from a margin standpoint, down 7.9 points on a constant currency basis as our material costs were up meaningfully without corresponding price actions to offset the inflation in the quarter, contributing roughly 8.7 points of margin pressure. Constant currency adjusted EBITDA declined 28.9% year-over-year to 18.2 million, implying a 20% margin. The decline was driven by lower gross profit coupled with higher G&A, as we have added more than 100 people to the organization over the past year to drive growth initiatives in PPFs and automation, as well as support a digital infrastructure transformation. There are two key items within G&A I want to flag, as I think it is helpful when looking at the year-over-year comparison. One is the roughly $3.1 million in cloud computing implementation costs that include $700K of amortization and hyper-care outside help that will come down over the course of the year as we get stood up. And the other is the LTIT performance share in realization of roughly $4 million per quarter, which was based on the roughly $25 share price at the time of the grant. The LTIT is strictly performance-based and best on achieving EBITDA targets north of $135 million in years 2023 through 2025. Capital expenditures for the quarter were $13 million, driven largely by converter placement, as well as increased investment in technology infrastructure and our ongoing real estate projects. Moving briefly to the balance sheet and liquidity, on the cash side, our cash balance at the end of the quarter was $59.2 million. Lower profitability and significant investment in working capital and capex in the quarter drove our cash balance lower, but we expect that to level out as the year progresses as we turn the inventory that we've invested in to start the year into cash. Overall, our inventory levels are up 17 million compared to the same quarter last year, so we will look to work that down as the year progresses and turn that to cash. Fortunately, our inventory is largely paper and converters, so we feel very good about our ability to reduce that level over time in normal course. We've meaningfully dialed back our CapEx assumption to start the year and now anticipate spending roughly $50 million in CapEx compared to the $75 million to start the year. As we lowered our converter spend and a number of our real estate projects have been delayed due to supply chain issues or to us choosing a different location in the case of APAC localization. Our net leverage based on a reported LTM adjusted EBITDA standpoint was just under three and a half times at the end of the quarter and 3.1 times based on the definition of bank adjusted EBITDA in our credit facility. With that, I'll turn it back to Omar before we move on to questions.