Ranpak Holdings Corp.: Form 10-Q for the period ended Jun 30, 2021

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Statements that are not historical facts are forward-looking statements. Our forward-looking statements include, but are not limited to, statements regarding our or our management team’s expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to estimates, projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking.

The forward-looking statements contained in this Quarterly Report on Form 10-Q are based on our current expectations and beliefs concerning future developments and their potential effects on us taking into account information currently available to us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks include, but are not limited to: (i) our inability to secure a sufficient supply of paper to meet our production requirements; (ii) the impact of the price of kraft paper on our results of operations; (iii) our reliance on third party suppliers; (iv) the COVID-19 pandemic and associated response; (v) the high degree of competition in the markets in which we operate; (vi) consumer sensitivity to increases in the prices of our products; (vii) changes in consumer preferences with respect to paper products generally; (viii) continued consolidation in the markets in which we operate; (ix) the loss of significant end-users of our products or a large group of such end-users; (x) our failure to develop new products that meet our sales or margin expectations; (xi) our future operating results fluctuating, failing to match performance or to meet expectations; (xii) our ability to fulfill our public company obligations; and (xiii) other risks and uncertainties indicated from time to time in filings made with the SEC.

Should one or more of these risks or uncertainties materialize, they could cause our actual results to differ materially from the forward-looking statements. We are not undertaking any obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. You should not take any statement regarding past trends or activities as a representation that the trends or activities will continue in the future. Accordingly, you should not put undue reliance on these statements.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis is intended to help the reader understand our business, financial condition, results of operations, liquidity and capital resources. You should read this discussion in conjunction with the sections entitled “Risk Factors” and “Forward-Looking Statements,” and our financial statements and related notes included in this Quarterly Report on Form 10-Q as well as the section entitled, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of Ranpak included in our 2020 10-K, filed with the SEC on March 4, 2021. Capitalized terms used and not defined herein have the meanings disclosed elsewhere in the Quarterly Report on Form 10-Q.

The following discussion contains forward-looking statements that reflect future plans, estimates, beliefs and expected performance. The forward-looking statements are dependent upon events, risks and uncertainties that may be outside of the Company's control. The Company’s actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the sections titled “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” included elsewhere in this Quarterly Report on Form 10-Q.

Overview

Ranpak is a leading provider of environmentally sustainable, systems-based, product protection solutions for e-commerce and industrial supply chains. Since inception in 1972, we have delivered high quality protective packaging solutions, while maintaining commitment to environmental sustainability. We assemble our protective packaging systems and provide the systems and paper consumables to customers, which include direct end-users and its network of exclusive paper packaging solution distributors, who in turn place the systems with and sell paper to commercial and industrial users for the conversion of paper into packaging materials. We operate manufacturing facilities in Concord Township, Ohio; Kansas City, Missouri; Raleigh, North Carolina; and Reno, Nevada in the United States, in Heerlen, the Netherlands and Nyrany, Czech Republic. We have a dedicated Ranpak Automation facility in Kerkrade, the Netherlands and an automation research and development facility in Christiansburg, Virginia. We also maintain sales and administrative offices in Sao Paulo, Brazil; Shanghai, China; Laoshan, China; Paris, France; Tokyo, Japan; and Singapore. We are a global business that generated approximately 61.0% of our net revenue for the fiscal year 2020 outside of the United States.

As of June 30, 2021, we had an installed base of approximately 123.6 thousand protective packaging systems serving a diverse set of distributors and end-users. We generated net revenue of $177.7 million and $129.5 million in the six months ended June 30, 2021 and 2020, respectively.

Effect of Currency Fluctuations. As a result of the geographic diversity of our operations, we are exposed to the effects of currency translation. Currency transaction exposure results when we generate revenue in one currency at one time and incur expenses in another currency at another time, or when we realize gain or loss on intercompany transfers. While we seek to limit currency transaction exposure by matching the currencies in which we incur revenue and expenses, we may not always be able to do so.

In addition, we are subject to currency translation exposure because the operations of our subsidiaries are measured in their functional currency which is the currency of the primary economic environment in which the subsidiary operates. Any currency balances that are denominated in currencies other than the functional currency of the subsidiary are re-measured into the functional currency, with the resulting gain or loss recorded in the foreign currency (gains) losses line-item in our condensed consolidated statements of income. In turn, subsidiary income statement balances that are denominated in currencies other than the U.S. dollar are translated into U.S. dollars, our functional currency, in consolidation using the average exchange rate in effect during each fiscal month during the period, with any related gain or loss recorded as foreign currency translation adjustments in other comprehensive income (loss). The assets and liabilities of subsidiaries that use functional currencies other than the U.S. dollar are translated into U.S. dollars in consolidation using period end exchange rates, with the effects of foreign currency translation adjustments included in accumulated other comprehensive income (loss).

We do not currently hedge our foreign currency transaction or translation exposure. As a result, significant currency fluctuations could impact the comparability of results between periods, while such fluctuations coupled with material mismatches in net revenue and expenses could also adversely impact our cash flows. See “Qualitative and Quantitative Disclosures About Market Risk.”

Seasonality. Approximately 34.9% of our net revenue in 2020, either directly or to distributors, was destined for end-users in the e-commerce sectors, whose businesses frequently follow traditional retail seasonal trends, including a concentration of sales in the holiday period in the fourth quarter. Our results tend to follow similar patterns, with the highest net revenue typically recorded in the fourth fiscal quarter and the slowest sales in the first fiscal quarter of each fiscal year. We expect this seasonality to continue in the future, as a result of which our results of operations between fiscal quarters in a given year may not be directly comparable.

Impact of the COVID-19 Pandemic. The COVID-19 pandemic has resulted in rapid changes in market and economic conditions around the world as COVID-19 continues to spread. We derive a significant portion of our revenue from sales of Void-Fill, Cushioning and Wrapping solutions to e-commerce end-users and demand from these end-users has been strong, offsetting reductions in demand for these products from customers in other industries. However, social distancing and similar measures adopted in many jurisdictions around the world have impacted our ability to demonstrate and install our protective packaging systems and Automation products and, as a result, such demonstrations and installations have been delayed. If social distancing measures continue for an extended period of time, growth in our protective packaging system base, acquisition of new customers and sales of Automation products may be adversely affected. We believe that these impacts are not unique to us and that our industry competitors have been impacted in a similar fashion. We are deemed an essential business under the Memorandum on Identification of Essential Critical Infrastructure Workers During COVID-19 Response issued by the United States Cybersecurity and Infrastructure Security Agency and pursuant to state decisions in states where our domestic production and distribution facilities are located. We continue to operate our production and distribution facilities, both domestically and internationally, albeit subject to social distancing and other measures to promote a safe operating environment. While we have experienced limited delays in receiving certain supplies we use to assemble our packaging systems, to date, these measures have not materially impacted the cost of producing and distributing our products, the cost and availability of raw materials and components, and we have encountered minimal disruption in our ability to fulfill customer orders. We continue to monitor our liquidity position closely and have extended payment terms to certain of our customers when necessary, while correspondingly seeking extended terms from our key suppliers. While we do not currently expect COVID-19 to have a material impact on our business, results of operations, financial condition or liquidity, at the time of this filing, we cannot predict the extent to which we will ultimately be impacted due to the evolving and highly uncertain nature and duration of the COVID-19 pandemic. See “Risk Factors” in the 2020 10-K. We will continue to evaluate the nature and extent of the impact to our business, results of operations, financial condition, and cash flows.

Key Performance Indicators and Other Factors Affecting Performance

We use the following key performance indicators and monitors the following other factors to analyze business performance, determine financial forecasts, and help develop long-term strategic plans.

Protective Packaging Systems Base — We closely track the number of protective packaging systems installed with end-users as it is a leading indicator of underlying business trends and near-term and ongoing net sales expectations. Our installed base of protective packaging systems also drives our capital expenditure budgets. The following table presents our installed base of protective packaging systems by product line as of June 30, 2021 and 2020:

(in thousands)

Paper Costs. Paper is a key component of our cost of goods sold and paper costs can fluctuate significantly between periods. We purchase both 100% virgin and 100% recycled paper, as well as blends, from various suppliers for conversion into the paper consumables we sell. The cost of paper supplies is our largest input cost, and we negotiate supply and pricing arrangements with most of our paper suppliers annually, with a view towards mitigating fluctuations in paper cost. Nevertheless, as paper is a commodity, its price on the open market, and in turn the prices we negotiate with suppliers at a given point in time, can fluctuate significantly, and is affected by several factors outside of our control, including supply and demand and the cost of other commodities that are used in the manufacture of paper, including wood, energy and chemicals. The market for our solutions is competitive and it may be difficult to pass on increases in paper prices to our customers immediately, or at all, which has in the past, and could in the future, adversely affect our operating results. In recent months, the cost of paper has increased, though we have not experienced the full impact of the increases to date because of existing purchase arrangements. However, as we renegotiate our paper purchase arrangements in the ordinary course over the coming months, we expect our cost of goods sold to increase. Freight costs are also increasing, which we expect will further impact our cost of goods sold. Where we can, we will look to pass these increased market costs on to our customers to mitigate the impact of these costs. We are unable to predict how much of these increases that we will be able to pass on to our customers and our ability to pass these costs on to our customers. As such, we expect some pressure on our gross margin.

Results of Operations

The following tables set forth our results of operations for the three and six months ended June 30, 2021 and 2020 with line items presented in millions of dollars.

Our condensed consolidated financial statements are prepared in accordance with GAAP. We have, however, also presented below Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) and adjusted EBITDA (“AEBITDA”), each on a constant currency basis, which are non-GAAP financial measures. We have included EBITDA and AEBITDA on a constant currency basis because they are key measures used by our management and Board of Directors to understand and evaluate our operating performance and trends, to prepare and approve our annual budget and to develop short- and long-term operational plans. In particular, the exclusion of certain expenses in calculating EBITDA and AEBITDA can provide a useful measure for period-to-period comparisons of our primary business operations. Adjusting these non-GAAP measures for comparability for constant currency also assists in this comparison as allows a better insight into the performance of our businesses that operate in currencies other than our reporting currency. Before consolidation, our Europe/Asia data is derived in Euros. We multiply this Euro-derived data by 1.15 to reflect an exchange rate of 1 Euro to 1.15 U.S. dollars (“USD”), which we believe is a reasonable figure to use to give a stable depiction of the business without currency fluctuations, to calculate Europe/Asia data in constant currency USD. We combine the constant currency USD data for Europe/Asia with the USD North America data to create combined constant currency figures and adjust our non-GAAP figures by the respective amounts. In sum, we believe that constant currency EBITDA and AEBITDA provide useful information to investors and others in understanding and evaluating the Company’s operating results in the same manner as our management and Board of Directors.

However, EBITDA and AEBITDA have limitations as analytical tools, and you should not consider them in isolation or as substitutes for analysis of our results as reported under GAAP. In particular, EBITDA and AEBITDA should not be viewed as substitutes for, or superior to, net income (loss) prepared in accordance with GAAP as a measure of profitability or liquidity. Some of these limitations are:

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and EBITDA and AEBITDA do not reflect all cash capital expenditure requirements for such replacements or for new capital expenditure requirements;

EBITDA and AEBITDA do not reflect changes in, or cash requirements for, our working capital needs;

AEBITDA does not consider the potentially dilutive impact of equity-based compensation;

EBITDA and AEBITDA do not reflect the impact of the recording or release of valuation allowances or tax payments that may represent a reduction in cash available to us;

AEBITDA does not take into account any restructuring and integration costs; and

other companies, including companies in our industry, may calculate EBITDA and AEBITDA differently, which reduces their usefulness as comparative measures.

EBITDA — EBITDA is a non-GAAP financial measure that we present on a constant currency basis and calculate as net income (loss), adjusted to exclude: benefit from (provision for) income taxes; interest expense; and depreciation and amortization.

AEBITDA — AEBITDA is a non-GAAP financial measure that we present on a constant currency basis and calculate as net income (loss), adjusted to exclude: benefit from (provision for) income taxes; interest expense; depreciation and amortization; stock-based compensation expense; and, in certain periods, certain other income and expense items.

In addition, in our discussion below, we include certain other unaudited, non-GAAP constant currency data for the three and six months ended June 30, 2021 and 2020. This data is based on our historical financial statements included elsewhere in this Quarterly Report on Form 10-Q, adjusted (where applicable) to reflect a constant currency presentation between periods for the convenience of readers. We reconcile this data to our GAAP data for the same period under “Presentation and Reconciliation of GAAP to Non-GAAP Measures” for the three and six months ended June 30, 2021 and 2020.

Comparison of Three Months Ended June 30, 2021 to Three Months Ended June 30, 2020

Net Revenue

The following tables and the discussion that follows compare Ranpak’s net revenue by geographic region and by product line for the three months ended June 30, 2021 and 2020 on a GAAP basis and on a non-GAAP constant currency basis as described above and in the discussion below. See also “Presentation and Reconciliation of GAAP to Non-GAAP Measures” for further:

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Net revenue for the three months ended June 30, 2021 was $90.0 million compared to net revenue of $66.1 million in the three months ended June 30, 2020, an increase of $23.9 million or 36.2% year over year. Net revenue was positively impacted by increases in cushioning, void-fill, wrapping, and other sales. Cushioning increased $12.5 million, or 48.4%, to $38.3 million from $25.8 million; void-fill increased $6.7 million, or 23.3%, to $35.5 million from $28.8 million; wrapping increased $4.2 million, or 53.2%, to $12.1 million from $7.9 million; and other sales increased $0.5 million, or 13.9%, to $4.1 million from $3.6 million, for the three months ended June 30, 2021 compared to the three months ended June 30, 2020. Other net revenue includes automated box sizing equipment and non-paper revenue from packaging systems installed in the field. Constant currency net revenue was $87.5 million for the three months ended June 30, 2021, a $19.7 million, or 29.1%, increase from constant currency net revenue of $67.8 million for the three months ended June 30, 2020. The increase in net revenue was a result of an increase in the volume of our paper consumable products of approximately 32.0 percentage points (“pp”), partially offset by a 3.0 pp decrease in the price or mix of our paper consumable products.

Net revenue in North America for the three months ended June 30, 2021 totaled $35.7 million. Net revenue in North America was $28.2 million in the three months ended June 30, 2020. Net revenue in North America increased $7.5 million, or 26.6% attributable to an increase in cushioning, void-fill, wrapping, and other sales.

Net revenue in Europe/Asia for the three months ended June 30, 2021 totaled $54.3 million. Net revenue in Europe/Asia was $37.9 million in the three months ended June 30, 2020. Net revenue in Europe/Asia increased $16.4 million or 43.3% driven primarily by increases in cushioning, void-fill and wrapping product categories, partially offset by a decline in automation revenue. Constant currency net revenue in Europe/Asia was $51.8 million for the three months ended June 30, 2021, a $12.2 million, or 30.8%, increase from constant currency net revenue of $39.6 million for the three months ended June 30, 2020.

Cost of Goods Sold

Cost of goods sold for the three months ended June 30, 2021 totaled $54.3 million. Cost of goods sold was $39.1 million in the three months ended June 30, 2020. Cost of goods sold increased $15.2 million or 38.9% due to higher volumes associated with higher paper sales, as well as increased freight costs, increased production costs and an increase in depreciation of $2.0 million over the prior year. Constant currency cost of goods sold increased by $12.7 million, or 31.7%, to $52.8 million in the three months ended June 30, 2021 from $40.1 million for the three months ended June 30, 2020. As a result, on a constant currency basis, net revenue minus cost of goods sold as a percentage of net revenue decreased by 1.2 pp to 39.7% in the three months ended June 30, 2021 from 40.9% for the comparable period in 2020.

Selling, General and Administrative Expenses (“SG&A”)

SG&A expenses for the three months ended June 30, 2021 was $24.6 million, an increase of $3.9 million, or 18.8%, from $20.7 million in the three months ended June 30, 2020. Constant currency SG&A expenses increased by $3.0 million, or 14.2%, to $24.1 million in the three months ended June 30, 2021 from $21.1 million for the comparable period in 2020, largely due to increases in headcount and associated compensation. As a percentage of constant currency net revenue, constant currency SG&A decreased to 27.5% in the three months ended June 30, 2021 from 31.1% in the three months ended June 30, 2020.

Depreciation and Amortization

Depreciation and amortization expenses for the three months ended June 30, 2021 were $8.7 million. Depreciation and amortization expenses were $7.7 million in the three months ended June 30, 2020. Depreciation and amortization expenses increased $1.0 million, or 13.0% due to an increase in capital expenditures. Constant currency depreciation and amortization expenses increased by $0.7 million, or 9.0%, to $8.5 million in the three months ended June 30, 2021 from $7.8 million for the three months ended June 30, 2020. As a percentage of constant currency net revenue, constant currency depreciation and amortization expenses decreased to 9.7% in the three months ended June 30, 2021 from 11.5% in the three months ended June 30, 2020.

Other Operating Expense, Net

Other operating expense, net, for the three months ended June 30, 2021 was $1.3 million. Other operating expense, net was $0.7 million in the three months ended June 30, 2020. Other operating expense increased $0.6 million. Constant currency other operating expense, net, was not impacted by constant currency adjustments in the three months ended June 30, 2021. However, constant currency other operating expense, net was $0.9 million in the three months ended June 30, 2020. Other operating expense, net was largely driven by increases in research and development. As a percentage of constant currency net revenue, constant currency other operating expense, net, increased to 1.5% in the three months ended June 30, 2021 from 1.3% in the three months ended June 30, 2020.

Interest Expense

Interest expense for the three months ended June 30, 2021 was $6.0 million. Interest expense was $5.5 million in the three months ended June 30, 2020. Interest expense increased $0.5 million, or 9.1%. Interest expense increased due to the accelerated amortization of approximately $0.3 million of deferred financing costs in the June 2021 Prepayment and interest expense on new finance leases. Constant currency interest expense was $5.9 million in the three months ended June 30, 2021, an increase of $0.4 million, or 7.3%, over $5.5 million in the prior period. As a percentage of constant currency net revenue, constant currency interest expense decreased to 6.7% in the three months ended June 30, 2021 from 8.1% in the three months ended June 30, 2020.

Foreign Currency Loss

Foreign currency loss for the three months ended June 30, 2021 was $1.2 million. Foreign currency loss was $1.4 million in the three months ended June 30, 2020. Foreign currency loss decreased $0.2 million due to unfavorable movements in Euro exchange rates. Constant currency foreign currency gain was $0.9 million in the three months ended June 30, 2021 compared to $1.4 million for the three months ended June 30, 2020. As a percentage of constant currency net revenue, constant currency foreign currency gain decreased to 1.0% in the three months ended June 30, 2021 from 2.1% in the three months ended June 30, 2020.

Income Tax Benefit

Income tax benefit for the three months ended June 30, 2021 was $0.9 million, or an effective tax rate of 15.6%. Income tax benefit was $0.5 million in the three months ended June 30, 2020, or an effective tax rate of 5.7%. The fluctuation in the effective tax rate between periods was primarily attributable to a jurisdictional mix of income. The effective tax rate differs from the U.S. federal statutory rate due primarily to benefits derived from stock-based compensation and the U.S. foreign derived intangible income deduction, tax credits available in the U.S., and income in foreign jurisdictions that are taxed at different rates than the U.S. statutory tax rate.

Net Loss

Net loss for the three months ended June 30, 2021 decreased $3.3 million to $5.2 million from a net loss of $8.5 million in the three months ended June 30, 2020. Constant currency net loss was $5.1 million in the three months ended June 30, 2021 compared to constant currency net loss of $8.6 million for the three months ended June 30, 2020. The change was due to the reasons discussed above.

Constant Currency EBITDA and AEBITDA

EBITDA for the three months ended June 30, 2021 was $17.6 million. EBITDA was $11.5 million in the three months ended June 30, 2020. Adjusting for one-time costs, constant currency AEBITDA for the three months ended June 30, 2021 and 2020 totaled $25.6 million and $19.0 million, respectively, an increase of $6.6 million, or 34.7%.

Comparison of Six Months Ended June 30, 2021 to Six Months Ended June 30, 2020

Net Revenue

The following tables and the discussion that follows compare Ranpak’s net revenue by geographic region and by product line for the six months ended June 30, 2021 and 2020 on a GAAP basis and on a non-GAAP constant currency basis as described above and in the discussion below. See also “Presentation and Reconciliation of GAAP to Non-GAAP Measures” for further:

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Net revenue for the six months ended June 30, 2021 was $177.7 million. Net revenue was $129.5 million in the six months ended June 30, 2020. Net revenue increased $48.2 million or 37.2%. Net revenue was positively impacted by increases in cushioning, void-fill, wrapping, and other sales. Cushioning increased $23.7 million, or 43.6%, to $78.0 million from $54.3 million; void-fill increased $16.3 million, or 30.5%, to $69.8 million from $53.5 million; wrapping increased $7.9 million, or 50.0%, to $23.7 million from $15.8 million; and other sales increased $0.3 million, or 5.1%, to $6.2 million from $5.9 million, for the six months ended June 30, 2021 compared to the six months ended June 30, 2020. Other net revenue includes automated box sizing equipment and non-paper revenue from packaging systems installed in the field. Constant currency net revenue was $172.5 million for the six months ended June 30, 2021, a $39.9 million, or 30.1%, increase from constant currency net revenue of $132.6 million for the six months ended June 30, 2020. The increase in net revenue was a result of an increase in the volume of our paper consumable products of approximately 35.2 pp, partially offset by a 4.9 pp decrease in the price or mix of our paper consumable products and a decrease of approximately 0.3 pp in sales of automated box sizing equipment.

Net revenue in North America for the six months ended June 30, 2021 totaled $63.8 million. Net revenue in North America was $55.3 million in the six months ended June 30, 2020. Net revenue in North America increased $8.5 million, or 15.4% attributable to an increase in cushioning, void-fill, wrapping; and other sales.

Net revenue in Europe/Asia for the six months ended June 30, 2021 totaled $113.9 million. Net revenue in Europe/Asia was $74.2 million in the six months ended June 30, 2020. Net revenue in Europe/Asia increased $39.7 million or 53.5% driven primarily by increases in cushioning, void-fill and wrapping product categories, partially offset by a decline in automation revenue. Constant currency net revenue in Europe/Asia was $108.7 million for the six months ended June 30, 2021, a $31.4 million, or 40.6%, increase from constant currency net revenue of $77.3 million for the six months ended June 30, 2020.

Cost of Goods Sold

Cost of goods sold for the six months ended June 30, 2021 totaled $105.7 million. Cost of goods sold was $75.7 million in the six months ended June 30, 2020. Cost of goods sold increased $30.0 million or 39.6% due to higher volumes associated with higher paper sales, as well as increased freight costs, increased production costs and an increase in depreciation of $4.1 million over the prior year. Constant currency cost of goods sold increased by $25.2 million, or 32.5%, to $102.7 million in the six months ended June 30, 2021 from $77.5 million for the six months ended June 30, 2020. As a result, on a constant currency basis, net revenue minus cost of goods sold as a percentage of net revenue decreased by 1.1 pp to 40.5% in the six months ended June 30, 2021 from 41.6% for the comparable period in 2020.

SG&A

SG&A expenses for the six months ended June 30, 2021 was $43.7 million, an increase of $3.4 million, or 8.4%, from $40.3 million in the six months ended June 30, 2020. Constant currency SG&A expenses increased by $1.8 million, or 4.4%, to $42.8 million in the six months ended June 30, 2021 from $41.0 million for the comparable period in 2020, largely due to increases in headcount and associated compensation. As a percentage of constant currency net revenue, constant currency SG&A decreased to 24.8% in the six months ended June 30, 2021 from 30.9% in the six months ended June 30, 2020.

Depreciation and Amortization

Depreciation and amortization expenses for the six months ended June 30, 2021 were $17.4 million. Depreciation and amortization expenses were $15.2 million in the six months ended June 30, 2020. Depreciation and amortization expenses increased $2.2 million, or 14.5% due to an increase in capital expenditures. Constant currency depreciation and amortization expenses increased by $1.7 million, or 11.0%, to $17.1 million in the six months ended June 30, 2021 from $15.4 million for the six months ended June 30, 2020. As a percentage of constant currency net revenue, constant currency depreciation and amortization expenses decreased to 9.9% in the six months ended June 30, 2021 from 11.6% in the six months ended June 30, 2020.

Other Operating Expense, Net

Other operating expense, net, for the six months ended June 30, 2021 was $2.1 million. Other operating expense, net was $1.0 million in the six months ended June 30, 2020. Other operating expense increased $1.1 million. Constant currency other operating expense, net, was not impacted by constant currency adjustments in the six months ended June 30, 2021. However, constant currency other operating expense, net was $1.4 million in the six months ended June 30, 2020. Other operating expense, net was largely driven by increases in research and development. As a percentage of constant currency net revenue, constant currency other operating expense, net, increased to 1.2% in the six months ended June 30, 2021 from 1.1% in the six months ended June 30, 2020.

Interest Expense

Interest expense for the six months ended June 30, 2021 was $11.6 million. Interest expense was $11.7 million in the six months ended June 30, 2020. Interest expense decreased $0.1 million, or 0.9%, due to decreased debt levels, offset by accelerated amortization of approximately $0.3 million of deferred financing costs in the June 2021 Prepayment and interest expense on new finance leases. The Exit Payment, which was accrued in 2020, was paid in the first quarter of 2021. Constant currency interest expense was $11.5 million in the six months ended June 30, 2021, compared to $11.7 million in the six months ended June 30, 2020. As a percentage of constant currency net revenue, constant currency interest expense decreased to 6.7% in the six months ended June 30, 2021 from 8.8% in the six months ended June 30, 2020.

Foreign Currency Gain

Foreign currency gain for the six months ended June 30, 2021 was $2.4 million. Foreign currency gain was $0.1 million in the six months ended June 30, 2020. Foreign currency gain increased $2.3 million due to favorable movements in Euro exchange rates. Constant currency foreign currency gain was $3.1 million in the six months ended June 30, 2021 compared to $0.1 million for the six months ended June 30, 2020. As a percentage of constant currency net revenue, constant currency foreign currency gain increased to 1.8% in the six months ended June 30, 2021 from 0.1% in the six months ended June 30, 2020.

Income Tax Benefit

Income tax benefit for the six months ended June 30, 2021 was $1.5 million, or an effective tax rate of 435.1%. Income tax benefit was $2.2 million in the six months ended June 30, 2020, or an effective tax rate of 15.7%. The fluctuation in the effective tax rate between periods was primarily attributable to a jurisdictional mix of income and a discrete adjustment related to an increase in value of the stock-based compensation. The effective tax rate differs from the U.S. federal statutory rate due primarily to benefits derived from stock-based compensation and the U.S. foreign derived intangible income deduction, tax credits available in the U.S., and income in foreign jurisdictions that are taxed at different rates than the U.S. statutory tax rate.

Net Income (Loss)

Net income for the six months ended June 30, 2021 increased $13.2 million to $1.1 million from a net loss of $12.1 million in the six months ended June 30, 2020. Constant currency net income was $1.0 million in the six months ended June 30, 2021 compared to constant currency net loss of $12.2 million for the six months ended June 30, 2020. The change was due to the reasons discussed above.

Constant Currency EBITDA and AEBITDA

EBITDA for the six months ended June 30, 2021 was $46.1 million. EBITDA was $27.0 million in the six months ended June 30, 2020. Adjusting for one-time costs, constant currency AEBITDA for the six months ended June 30, 2021 and 2020 totaled $53.6 million and $37.1 million, respectively, an increase of $16.5 million, or 44.5%.

Presentation and Reconciliation of GAAP to Non-GAAP Measures

As noted above, we believe that in order to better understand the performance of the Company, providing non-GAAP financial measures to users of our financial information is helpful. We believe presentation of these non-GAAP measures is useful because they are many of the key measures that allow management to evaluate more effectively our operating performance and compare the results of our operations from period to period and against peers without regard to financing methods or capital structure. Management does not consider these non-GAAP measures in isolation or as an alternative to similar financial measures determined in accordance with GAAP. The computations of EBITDA and AEBITDA may not be comparable to other similarly titled measures of other companies. These non-GAAP financial measures should not be considered as alternatives to, or more meaningful than, measures of financial performance as determined in accordance with GAAP or as indicators of operating performance.

The following tables and related notes reconcile certain non-GAAP measures, including the non-GAAP constant currency measures, to GAAP information presented in this Quarterly Report on Form 10-Q for the three and six months ended June 30, 2021 and 2020:

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(see subsequent footnotes)

(1) Reconciliations of EBITDA and AEBITDA for each period presented are to net (loss) income, the nearest GAAP equivalent, and accordingly include the adjustments shown in the “Constant Currency” column to net (loss) income of each table.

(2) Adjustments are related to non-cash unusual or infrequent costs such as: effects of non-cash foreign currency remeasurement or adjustment; impairment of returned machines; costs associated with the evaluation of acquisitions; costs associated with executive severance; costs associated with restructuring actions such as plant rationalization or realignment, reorganization, and reductions in force; and other items deemed by management to be unusual, infrequent, or non-recurring.

(3) Effect of Euro constant currency adjustment to a rate of €1.00 to $1.15 on each line item is as follows:

Liquidity and Capital Resources

Liquidity describes the ability of a company to generate sufficient cash flows to meet the cash requirements of its business operations, including working capital needs, capital expenditures, debt service, acquisitions, other commitments and contractual obligations. We evaluate liquidity in terms of cash flows from operations and other sources and the sufficiency of such cash flows to fund our operating, investing and financing activities.

We believe that our estimated cash from operations together with borrowing capacity under the revolving portion of the Facilities will provide us with sufficient resources to cover our current requirements. Our main liquidity needs relate to capital expenditures and expenses for the production and maintenance of protective packaging systems placed at end-user facilities, working capital, including the purchase of paper raw materials, and payments of principal and interest on our outstanding debt. We expect our capital expenditures to increase as we continue to grow our business, expand our manufacturing footprint, and upgrade our existing systems and facilities. To the extent that we execute acquisitions or partnerships as part of our growth strategy, we would expect to fund those with a combination of cash on hand, borrowings, and issuances of equity. Our future capital requirements and the adequacy of available funds will depend on many factors, and if we are unable to obtain needed additional funds, we may have to reduce our operating costs or incur additional debt, which could impair our growth prospects and/or otherwise negatively impact our business. Further, volatility in the equity and credit markets resulting from the COVID-19 pandemic could make obtaining new equity or debt financing more difficult or expensive.

We had $125.3 million in cash and cash equivalents as of June 30, 2021 and $48.5 million as of December 31, 2020. We sold approximately 5.3 million shares of Class A common stock in the May 2021 Equity Offering for net proceeds of $103.4 million. We used $70.0 million of proceeds from the May 2021 Equity Offering to invest in a money market fund to generate short-term cash returns. Additionally, we prepaid $20.9 million of principal on the First Lien Dollar Term Facility in the June 2021 Prepayment.

Including finance lease liabilities and excluding deferred financing costs, we had $414.8 million in debt, $2.3 million of which was classified as short-term, as of June 30, 2021, compared to $439.8 million in debt, $1.7 million of which was classified as short-term, as of December 31, 2020. At June 30, 2021, we did not have amounts outstanding under our $45.0 million revolving credit facility, and we had no borrowings under such facility through July 29, 2021.

Debt Profile

The material terms of the Facilities are summarized in Note 7, “Long-Term Debt” to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

The aggregate commitment of the senior secured credit facilities consists of a $289.2 million dollar-denominated first lien term facility and a €140.0 million euro-denominated first lien term facility (with the ability to reduce the dollar-denominated first lien term facility and correspondingly increase the euro-denominated first lien term facility in an amount of up to €60.0 million), a $45.0 million revolving facility (including the right to bring in additional lenders to provide commitments with respect to the Revolving Facility in an amount of up to $30.0 million and additional borrowing capacity available for letters of credit in an amount of up to $5.0 million), a

$100.0 million first lien contingency term facility and a $100.0 million second lien contingency term facility. Our credit facilities are secured by substantially all of Ranpak’s assets.

Each of the First Lien Term Facility, and the first lien contingency term facility accrue interest at a rate of LIBOR plus 3.75% (assuming a first lien net leverage ratio of less than 5.00:1.00). The second lien contingency term facility accrues interest at a rate of LIBOR plus 7.50%. No amounts have been drawn on under the second lien contingency. The first lien term facility and first lien contingency term facility mature on the seventh anniversary of the date of the closing of the Ranpak Business Combination, June 3, 2026. The Revolving Facility matures on the fifth anniversary of the date of the Closing June 3, 2024. The second lien contingency term facility matures on the eighth anniversary of the date of the Closing, June 3, 2027 but was not available for us to borrow against at June 30, 2021.

The Revolving Facility includes borrowing capacity available for letters of credit of up to $5 million. Any issuance of letters of credit will reduce the amount available under the Revolving Facility.

In addition, the debt financing provides the borrowers with the option to increase commitments under the debt financing in an aggregate amount not to exceed the greater of $95 million and 100% of trailing-twelve months consolidated EBITDA, plus any voluntary prepayments of the debt financing (and, in the case of the Revolving Facility, to the extent such voluntary prepayments are accompanied by permanent commitment reductions under the Revolving Facility), plus unlimited amounts subject to the relevant net leverage ratio tests and certain other conditions.

The obligations of the borrowers under the debt financing and certain of their respective obligations under hedging arrangements and cash management arrangements are unconditionally guaranteed by the Guarantors, in each case, other than certain excluded subsidiaries and subject to other customary limitations set forth in the definitive documentation with respect to the debt financing. The debt financing is secured by a security interest in substantially all of the assets of the borrowers and the guarantors (and including a pledge of the equity interests of each borrower and of each guarantor and of their respective direct, wholly-owned restricted subsidiaries), in each case subject to customary exceptions.

The Revolving Facility requires the borrowers to maintain a maximum first lien net leverage ratio 9.10:1.00 based on the amount of the initial first lien term loans under the debt financing actually borrowed on the closing date based on providing at least a 35% cushion to consolidated EBITDA for the most recent four fiscal quarter periods ending prior to the date of the closing. This “springing” financial covenant is tested on the last day of each fiscal quarter, but only if on such date the sum of (i) the principal amount of outstanding revolving loans under the Revolving Facility, (ii) drawings on letters of credit under the Revolving Facility and (iii) the face amount of non-cash collateralized letters of credit under the Revolving Facility in excess of an amount to be set forth in the definitive documentation with respect to the debt financing exceeds 35% of the total revolving commitments under the Revolving Facility.

The senior secured credit facilities also contain a number of customary negative covenants. Such covenants, among other things, will limit or restrict the ability of each of the borrowers, their restricted subsidiaries, and where applicable, the direct parent holding companies of the borrowers, to:

incur additional indebtedness, issue disqualified stock and make guarantees;

incur liens on assets;

engage in mergers or consolidations or fundamental changes;

sell assets;

pay dividends and distributions or repurchase capital stock;

make investments, loans and advances, including acquisitions;

amend organizational documents;

enter into certain agreements that would restrict the ability to pay dividends;

repay certain junior indebtedness;

engage in transactions with affiliates; and

in the case of the direct parent holding companies of the borrowers, engage in activities other than passively holding the equity interests in the borrowers.

The aforementioned restrictions are subject to certain exceptions including (i) the ability to incur additional indebtedness, liens, investments, dividends and distributions, and prepayments of junior indebtedness subject, in each case, to compliance with certain financial metrics and certain other conditions and (ii) a number of other traditional exceptions that grant the borrowers continued flexibility to operate and develop their businesses. The senior secured credit facilities also contain certain customary representations and warranties, affirmative covenants and events of default.

Under the First Lien Term Facility agreement, our lower leverage ratio at December 31, 2020 required us to pay our lenders an $8.2 million exit payment fee (the “Exit Payment”), which was paid in the first quarter of 2021.

Amendment to First Lien Credit Facilities

On February 14, 2020, the U.S. Borrower, the Dutch Borrower, Holdings, certain other subsidiaries of Holdings, certain lenders party to Amendment No. 1 and the Administrative Agent entered into Amendment No. 1.

Among other things, the Amendment No. 1 amends the Facilities such that (x) the requirement of the Borrowers to apply a percentage of excess cash flow to mandatorily prepay term loans under the Facilities commences with the fiscal year ending December 31, 2021 (instead of the fiscal year ending December 31, 2020) and (y) the aggregate amount per fiscal year of capital stock of any parent company of the U.S. Borrower that is held by directors, officers, management, employees, independent contractors or consultants of the U.S. Borrower (or any parent company or subsidiary thereof) that the U.S. Borrower may repurchase, redeem, retire or otherwise acquire or retire for value has been increased to the greater of $10,000,000 and 10% of Consolidated AEBITDA (as defined in the Facilities) (increased from the greater of $7,000,000 and 7% of Consolidated AEBITDA) as of the last day of the most recently ended quarter for which financial statements have been delivered.

Borrower Assumption Agreement

On July 1, 2020, in the following order, (i) Rack Holdings Inc. merged with and into Ranger Packaging LLC, with Ranger Packaging LLC as the surviving entity of such merger and (ii) Ranger Packaging LLC merged with and into Ranpak Corp., with Ranpak Corp. as the surviving entity of such merger (clauses (i) and (ii) collectively, the “Reorganization”). Contemporaneously with the Reorganization, Ranger Packaging LLC, Ranpak Corp., Ranger Pledgor LLC, certain other subsidiaries of Ranger Pledgor LLC and Goldman Sachs Lending Partners LLC entered into the Borrower Assumption Agreement whereby, among other things, Ranpak Corp. assumed all obligations, liabilities and rights of Ranger Packaging LLC as the U.S. Borrower under the Facilities.

Permitted Exit Payment

On July 28, 2021, we entered into the Permitted Exit Payment to the Credit Agreement, which, among other things, would introduce additional exceptions to the negative covenant that restricts the ability of the Borrowers and their restricted subsidiaries from paying dividends and distributions or repurchasing capital stock. On July 28, 2021 the Permitted Exit Payment Amendment to the Credit Agreement became effective.

Cash Flows

The following table sets forth Ranpak’s summary cash flow information for the periods indicated:

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Cash Flows Provided by Operating Activities

Net cash provided by operating activities was $30.8 million in the six months ended June 30, 2021. Cash provided by operating activities was $22.3 million in the six months ended June 30, 2020. The changes in operating cash flows are largely due to cash earnings and increases in working capital.

Cash Flows Used in Investing Activities

Net cash used in investing activities was $26.8 million in the six months ended June 30, 2021. Cash used in investing activities was $18.6 million in the six months ended June 30, 2020. The changes are primarily due to cash used for capital expenditures for converter equipment.

Cash Flows Provided by (Used in) Financing Activities

Net cash provided by financing activities was $73.2 million in the six months ended June 30, 2021 and reflects the May 2021 Equity Offering net proceeds of $103.4 million, offset by the June 2021 Prepayment of $20.9 million, and the $8.2 million Exit Payment. Net cash used in financing activities was $0.7 million in the six months ended June 30, 2020 and reflects debt repayments.

Contractual Obligations and Other Commitments

We lease production and administrative facilities as well as automobiles, machinery and equipment. We have various contractual obligations and commercial commitments that are recorded as liabilities in our condensed consolidated financial statements. Other items, such as purchase obligations and other executory contracts, are not recognized as liabilities, but are required to be disclosed. There have been no significant changes outside the ordinary course of business to our “Contractual Obligations” table in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the 2020 10-K. Included in that table are operating lease obligations, which are now recorded on our condensed consolidated balance sheets as a result of the adoption of ASC 842, effective January 1, 2021. See Note 12 for further detail.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of June 30, 2021.

Critical Accounting Policies

Our unaudited condensed consolidated financial statements have been prepared in conformity with GAAP, which requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of our financial statements and the reported amounts of revenues and expenses during the reporting period. While we do not believe that the reported amounts would be materially different, application of these policies involves the exercise of judgment and the use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on experience and various other assumptions that we believe are reasonable under the circumstances. All of our significant accounting policies, including certain critical accounting policies and estimates, are disclosed in our 2020 10-K.

Recently Issued and Adopted Accounting Pronouncements

For recently issued and adopted accounting pronouncements, see Note 2, “Basis of Presentation and Summary of Significant Accounting Policies” to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Interest Rate Risk

Changes in interest rates affect the amount of interest income we earn on cash, cash equivalents and short-term investments and the amount of interest expense we pay on borrowings under the floating rate portions of our credit facilities. A hypothetical 100 basis point increase or decrease in the applicable base interest rates under our credit facilities would have resulted in a $3.3 million impact on our cash interest expense for the six months ended June 30, 2021. We use interest rate swap agreements to manage this exposure.

In March 2020, we entered into the Second Amended January 2019 Swap, which amended the Amended January 2019 Swap to a lower rate of 2.1% and extend its maturity to June 1, 2024. In July 2020, we entered into the Borrower Assumption Agreement, which details the Reorganization and the assumption of obligations, liabilities and rights under the Facilities. In July 2021, we entered into the Permitted Exit Payment to the Credit Agreement, which, among other things, would introduce additional exceptions to the negative covenant that restricts the ability of the Borrowers and their restricted subsidiaries from paying dividends and distributions or repurchasing capital stock. Refer to Note 7, “Long-Term Debt” and Note 8, “Derivative Instruments” to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information. There were no other changes to our debt and interest rate swap agreements from those disclosed in the 2020 10-K.

Foreign Currency Exchange Rate Risk

We are exposed to foreign currency exchange risk related to our transactions and subsidiaries’ balances that are denominated in currencies other than the U.S. dollar, our functional currency. See “—Factors Affecting the Comparability of Ranpak’s Results of Operations – Effect of Currency Fluctuations” in Item 2 previously for more information about our foreign currency exchange rate exposure. We seek to naturally hedge our foreign exchange transaction exposure by matching the transaction currencies for our cash inflows and outflows and maintaining access to credit in the principal currencies in which we conduct business. Currently, we do not hedge our foreign exchange transaction or translation exposure but may consider doing so in the future.

For the six months ended June 30, 2021, net revenue denominated in currencies other than U.S. dollars amounted to $119.0 million or 67.0% of our net revenue for the period. Substantially all of this amount was denominated in Euro. A 10% increase or decrease in the value of the Euro to the U.S. dollar would have caused our reported net revenue for the six months ended June 30, 2021 to increase or decrease by approximately $11.4 million.

Commodity Price Risk

While our business is significantly impacted by price fluctuations related to the purchase, production and sale of paper products, we are not directly exposed to market price fluctuations in paper purchase or sale prices as we negotiate prices with suppliers on an annual basis and negotiate prices with distributors reflecting competitive market terms. Our strategy has generally been to obtain competitive prices for our products and services and allow operating results to reflect market price movements dictated by supply and demand.

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in company reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our CEO and CFO, to allow timely decisions regarding required disclosure.

As required by Rules 13a-15 and 15d-15 under the Exchange Act, our management, with the participation of the CEO and CFO, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2021. Based on this evaluation of our disclosure controls and procedures, our management, with the participation of the CEO and CFO, concluded that our disclosure controls and procedures were effective as of June 30, 2021.

Changes in Internal Control Over Financial Reporting

There were no changes during the three months ended June 30, 2021 in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.