Ranpak Holdings Corp. 2026 Q3 Earnings Call

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 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 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 8-K that we furnished 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 September 30, 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 third 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, Sara. Good morning, everyone, and thank you for joining us today. We are pleased to continue to grow top line and adjusted EBITDA in the third quarter and on a year-to-date basis while operating in a volatile macro environment. Our automation product line delivered another quarter of strong growth, with revenue increasing 26.9% year-over-year on a constant currency basis and excluding the impact of warrants. We continue to build strong momentum in automation equipment sales in both North America and Europe and are pleased it is becoming the growth engine we expected. We continue to expect to achieve $60 million in net revenue in this area for 2026, which would be 50% growth versus 2025. The pipeline is strong, and based on what we are seeing, we expect strong growth to continue next year.

Our automation product line is serving as a differentiator for us in our discussions with customers and as a diversified revenue stream that is less correlated to the short-term macro sentiment relative to the PPS business. As anticipated, we experienced improved performance in the distribution channel in North America in the third quarter as the challenging first half comparison normalized and our new product initiatives in cushioning, void fill, and wrapping are gaining traction. Cushioning, in particular, in North America had a really strong quarter as our Guardian 24 is experiencing strong adoption, and we are having success going against foam in place. Channel performance drove North America volumes up 1.8%, while Europe and APAC were softer after a strong Q2, leading overall volumes to be lower by 2.5%.

Europe in particular was an outperformer in Q2 but gave some of that back this quarter, as it looks like the channel worked through some pre-buy relative to the surcharge and lowered inventory levels to reflect lower lead times in EMEA and in APAC as our localization goals are being achieved. Now, more on to our results. Consolidated net revenue increased 3.4% on a constant currency basis for the quarter, or up 3.8% excluding the impact of warrants, driven by 23.5% growth in automation equipment sales on a constant currency basis. Currency was a headwind in the quarter, which detracted 1.1 percentage points on a reported basis in the quarter, bringing reported top-line growth to 2.3% for the quarter and 8.9% on a year-to-date basis. Adjusted EBITDA increased $1.1 million to $22.5 million on a reported basis and was up 6.1% in constant currency terms.

Excluding the impact of warrants, adjusted EBITDA increased 7.7% on a constant currency basis and roughly in line with growth in gross profit on a constant currency basis. On a year-to-date basis, adjusted EBITDA increased $5.3 million to $60.5 million on a reported basis and was up 6% in constant currency terms. Excluding the impact of warrants, adjusted EBITDA increased 8.8% on a constant currency basis. Now moving to the market environment and how Ranpak is positioned. The macro backdrop through the third quarter took a step back as volatility in the energy markets and rates increased markedly. Oil prices climbed back above $100 a barrel as the conflict in the Middle East re-escalated. Refinery shortages are driving diesel costs to record highs. Consumer confidence is at multi-decade lows, and the Fed raised rates in September with expectations of more hikes on the way.

Against that backdrop, I would say demand has held up reasonably well, although Q3 saw some softness outside of North America. Customers are cautious given the pressure higher energy costs are putting on both their input costs and consumer spending. Most folks we talk to are expecting a peak season similar to last year, and we are still seeing strong demand for automation solutions. In North America, the paper market continues to tighten as producers try to push increases, which we are passing on to protect our margin profile. In Europe, Dutch gas is now above €90 per megawatt hour and driving paper pricing higher. But there, we have implemented a surcharge, which we adjust as needed, given the volatility in energy to protect our gross profit. As we said last quarter, we believe the surcharge is temporary, and we will remove it as energy costs normalize.

Conditions evolved rapidly, but overall, we believe we are managing the environment very well at Ranpak through our pricing actions and the momentum we are seeing in automation. With energy costs climbing again and rates moving higher, our customers are scrutinizing every dollar of packaging spend, which we believe plays to our value proposition of lowering their total cost of packaging. Internally, we hold ourselves to the same standard, and this quarter, 110 bps gross margin improvement and 10.5% reduction in constant currency SG&A, excluding the RSU expense, show that discipline is paying off. We have enhanced our operational talent and capabilities over the past year and are finding opportunities to enhance our profile through the implementation of operational and continuous improvement projects to drive our KPIs. The team is invigorated by the early progress we are seeing and excited about further improvements we are pursuing.

Procurement, in particular, is an area where we see upside as we can utilize our increased scale and global reach to find efficiencies that reduce our material cost and time to build our equipment. Overall, I believe we are on the path to a much more efficient platform in 2027. Beyond the near term, our automation and coaching product lines are where we are concentrating our investment, and we believe they will be the foundation of our growth in the years ahead. While the macro backdrop is somewhat uncertain, we believe Ranpak is well-positioned heading into peak season and 2027. With that, here's Bill with more information 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's operating results. Overall net revenue for the company in the third quarter increased 3.4% year over year on a constant currency basis, or an increase of 3.8%, excluding the impact of warrants, driven by strong momentum and automation and volume growth in the distribution channel in North America. Our North America revenues increased 6.9% in the quarter, or up 7.9%, excluding the impact of warrants, driven by more than 47% growth in automation excluding warrants, while PPS also contributed positively to the top line as the channel comparisons normalized and returned to growth as expected, with strong performance in cushioning.

Traction with automation in North America also continues to build as we land new logos in the region, so we remain excited about the outlook there. In Europe and APAC, net revenue increased 0.5% on a constant currency basis, driven by 18.1% growth in automation on a constant currency basis, as well as pricing actions, partially offset by 4.9% volume decline in PPS as EMEA channel customers worked down inventory and APAC adjust to shorter lead times and lower e-commerce sales. Gross profit increased 7.3% on a constant currency basis in the quarter and would have increased 8.2%, excluding the $1.2 million non-cash provision for warrants. Our margin initiatives are delivering, and we are pleased to report 110 bps improvement in gross margin versus Q3 of last year and 280 bps improvement sequentially from Q2.