Ranpak Holdings Corp. Q3 FY2025 earnings call

Key managerial messages and operational highlights include: Entered into a strategic and economic partnership with Walmart with potential for up to $700 million in total spend over 10 years, with over $100 million towards automation equipment and services and $200 million focused on PPS products. Entered into a multiyear enterprise sales agreement with Medline to provide Decision Tower and right-sizing solutions for up to 14 of their distribution centers. Consolidated net revenue increased 4.4% on a constant currency basis, with North America sales up 10.9% driven by volume increase and automation revenue growth. Automation increased 56% on a constant currency basis in the quarter. North America PPS had strong void-fill demand, wrapping had mid-single digits growth, and cushioning expected boost from new products. Europe and APAC had challenging operating environments, but Europe is focused on driving growth through new sales leadership and talent hiring, and APAC is ramping up local production. Gross margins increased to 34.5% and adjusted EBITDA increased 3.5% on a constant currency basis. Focus on margin enhancement initiatives and deleveraging to 2.5x target.

In terms of segment performance, North America was a key driver of top line performance with sales up 10.9%, driven by an increase in volume and an increase in automation revenue of 140% over Q3 of last year. Automation increased 56% on a constant currency basis in the quarter versus last year, keeping on track to achieve the expected full year automation revenue of $40 million to $45 million. In the Europe and APAC reporting segment, combined revenue decreased 0.6% on a constant currency basis, driven by 2.5% PPS volume headwinds, offset somewhat by price/mix and 34.5% growth in automation revenue. North America PPS had underlying demand strong in void-fill throughout the year with each quarter up double digits, wrapping had mid-single digits growth after a softer Q2, and cushioning was down year-over-year in North America but expecting boost from new Guardian product line. In Europe, industrial activity weighed on cushioning, and the region is focused on driving volume growth through new sales leadership and talent hiring. Asia Pacific production continues to ramp up with locally-sourced paper and production expected to make the region more competitive, having just qualified its first local paper vendor.

Management's forward-looking guidance includes: Expect to achieve full year automation revenue of $40 million to $45 million. Expect to come in at the low end of the second half revenue guide of $216 million to $230 million and expect profitability to be robust to achieve the lower end of the second half adjusted EBITDA guide of $44.5 million to $54.5 million. Target to grow to $800 million in revenue organically within the next 5 years and have automation be at least 15% of that total revenue. For 4Q, expecting fairly consistent with the current quarter with enterprise accounts driving solid volumes in North America and EMEA and APAC being a bit down year-over-year. Expect automation to continue with 50% plus growth trajectory and cash balance to end the year at approximately $65 million to $70 million. Expect CapEx for 2026 to be around $35 million.

Risks include: Volatile operating environment in Europe and APAC due to factors like trade tensions. Automation revenue being lumpy as it's driven by sale, deployment, and installation of equipment. Uncertainty in paper sourcing environment which could impact CapEx and costs.

Q: Going back to the guide, just wanted to make sure I understand all the kind of the puts and takes. So, it sounds like relative to the last update, really no change in automation, no change in North America, a little bit of a slowdown or weaker results in kind of Europe and APAC. Is that right? Anything else that you want to point out?

A: No, you got it right. I think we continue to feel excellent about automation globally, by the way. In North America, we continue to see very robust volumes, including up to now. Europe and Asia Pacific are a little bit inconsistent. So, just to be clear, we will be within the guide. It's just given the inconsistency in those businesses, we expect to be on the lower end of the range. And that's the thing that we're monitoring. And honestly, Europe continues to start and showed some pattern of improvement. The hesitation we have around that, Greg, is things are changing fast in Europe, and we would like to see a trend continue over a longer period of time before we build our confidence on the business there. But that's basically the summary. You got it right in terms of the building blocks.

Q: Just sort of building on the last question as it relates to 2025, I mean, obviously, a lot going on with the macroeconomic environment in Europe, U.S. and of course, your internal initiatives, et cetera. What is a reasonable baseline for volumes for 4Q? And how would that disaggregate between your 2 major regions?

A: Ghansham, this is Bill. So, for 4Q, I think we're expecting fairly consistent with what you saw this quarter just based on what we're seeing out of Europe and then continued strength in North America. So, we continue to see the enterprise accounts drive solid volumes in North America. We do think we'll get more of a contribution from the distribution channel as well in North America, which should help to improve things and also contribute favorably to the margin. EMEA and APAC, given that the environment there remains a little bit more challenging and harder to call. So, we are expecting to be a little bit down there year-over-year and also taking into account some of the destocking in APAC. But overall, as we exit the year, we're looking to get back to growth in that area as well.