Ranpak Holdings Corp.: Form 10-Q for the period ended Sep 30, 2024

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:

• our inability to secure a sufficient supply of paper to meet our production requirements;
• the impact of rising prices on production inputs, including labor, energy, and freight on our results of operations;
• the impact of the price of kraft paper on our results of operations;
• our reliance on third party suppliers;
• geopolitical conflicts and other social and political unrest or change;
• the high degree of competition and continued consolidation in the markets in which we operate;
• consumer sensitivity to increases in the prices of our products, changes in consumer preferences with respect to paper products generally or customer inventory rebalancing;
• economic, competitive and market conditions generally, including macroeconomic uncertainty, the impact of inflation, and variability in energy, freight, labor and other input costs;
• the loss of certain customers;
• our failure to develop new products that meet our sales or margin expectations or the failure of those products to achieve market acceptance;
• our ability to achieve our environmental, social and governance (“ESG”) goals and maintain the sustainable nature of our product portfolio and fulfill our obligations under evolving ESG standards;
• our ability to fulfill our obligations under new disclosure regimes relating to ESG matters, such as the European Sustainability Disclosure Standards recently adopted by the European Union (“EU”) under the EU’s Corporate Sustainability Reporting Directive (“CSRD”);
• our future operating results fluctuating, failing to match performance or to meet expectations;
• our ability to fulfill our public company obligations; and
• 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 2023 10-K, filed with the SEC on March 14, 2024. 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 and end-of-line automation solutions for e-commerce and industrial supply chains. Since our inception in 1972, we have delivered high quality protective packaging solutions, while maintaining commitment to environmental sustainability. We provide our paper-based Protective Packaging Solutions (“ PPS”) systems and paper consumables to distributors and certain select end-users. We operate manufacturing facilities in the United States and Europe. For our Automation product lines, we currently have dedicated facilities in Shelton, Connecticut and the Netherlands. R Squared Robotics, a division of Ranpak, uses three-dimensional computer vision and artificial intelligence technologies to improve end-of-line packaging and logistics functions. We also maintain sales and administrative offices in Brazil, France, the Czech Republic, China, Japan, and Singapore. We are a global business that generated approximately 59% of our 2023 net revenue outside of the United States.

As of September 30, 2024, we had an installed base of approximately 143.6 thousand PPS systems serving a diverse set of distributors and end-users. We generated net revenue of $263.9 million and $245.9 million in the nine months ended September 30, 2024 and 2023, respectively.

Key Performance Indicators and Other Factors Affecting Performance

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

PPS Systems Base — We closely track the number of PPS 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 PPS systems also drives our capital expenditure budgets. The following table presents our installed base of PPS systems by product line as of September 30, 2024 and 2023:

(in thousands)

Paper and Other 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 historically have negotiated 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 inflationary pressures, 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. Although we look to pass increased market costs on to our customers to mitigate the impact of these costs, we are unable to predict our ability to pass these costs on to our customers and how much of these increases we will be able to pass on to our customers. As such, we expect some continued pressure on our gross margin in the medium term relative to our historical margin profile.

Effect of Currency Fluctuations. As a result of the geographic diversity of our operations, we are exposed to the effects of currency translation, which has affected the comparability of our results of operations between the periods presented in this report and may affect the comparability of our results of operations in future periods. Currency transaction exposure results when we generate net 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 sales 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 Unaudited Condensed Consolidated Statements of Operations. In turn, subsidiary income statement balances that are denominated in currencies other than USD are translated into USD, our reporting 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 USD are translated into USD in consolidation using period end exchange rates, with the effects of foreign currency translation adjustments included in accumulated other comprehensive income (loss).

We hedge some of our exposure to foreign currency translation with a cross-currency swap. Refer to Note 8 — Derivative Instruments to the Unaudited Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q for additional information. 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.”

Inflationary Pressures and Other Costs. We have continued to experience inflationary pressures in 2024, which have adversely impacted some of our end-users, such as automotive companies; distributors; electronic manufacturers; machinery manufacturers; home goods manufacturers; e-commerce and mail order fulfillment firms; and other end-users that are particularly sensitive to reductions in business and consumer spending by their respective customers, and which in turn have impacted our net revenue. Higher costs due to inflation were partially offset by price increases, which mitigated the impact on our operating results. However, our ability to predict or further offset inflationary cost increases in the future or during economic downturns or recessions may be limited or impacted by heightened competition for net revenue, an unwillingness by our customers to accept price increase or pressure to reduce selling prices if end-users reduce their volume of purchases. Inflationary pressures and associated higher interest rates and borrowing costs may also impact the ability of some of our end-users and suppliers to obtain funds for operations and capital expenditures, which could negatively impact our ability to obtain necessary supplies as well as the sales of materials and equipment to affected end-users. This could also result in reduced or delayed collections of outstanding accounts receivable from end-users, which could impact our cash flows. As a result, to the extent inflationary pressures continue, we expect additional pressure on our net revenue and gross margin. We will continue to evaluate the impact of inflationary pressures on our profitability and cash flows as well as our end-users.

Seasonality. Approximately 30% of our net revenue in 2023, 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 our fourth fiscal quarter and the slowest sales in our first fiscal quarter of each fiscal year. We expect this seasonality to continue in the future and, as a result, our results of operations between fiscal quarters in a given year may not be directly comparable.

Results of Operations

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 constant currency adjusted EBITDA (“Constant Currency AEBITDA”), which are non-GAAP financial measures. We have included EBITDA and Constant Currency AEBITDA 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 Constant Currency AEBITDA can provide a useful measure for period-to-period comparisons of our primary business operations. Adjusting AEBITDA for comparability for constant currency also assists in this comparison as it allows a better insight into the performance of our businesses that operate in currencies other than our reporting currency. Before consolidation, our Europe/Asia financial data is derived in Euros. To calculate the adjustment that we apply to present AEBITDA on a constant currency basis, we multiply this Euro-derived data by 1.15 to reflect an exchange rate of 1 Euro to 1.15 USD, which we believe is a reasonable exchange rate to use to give a stable depiction of the business without currency fluctuations between periods, to calculate Europe/Asia data in constant currency USD. An exchange rate of 1.15 approximates the average exchange rate of the Euro to USD over the past five years. We also present non-GAAP constant currency net revenue and derive it in the same manner. We believe that EBITDA and Constant Currency 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 Constant Currency AEBITDA do not reflect all cash capital expenditure requirements for such replacements or for new capital expenditure requirements;
• EBITDA and Constant Currency AEBITDA do not reflect changes in, or cash requirements for, our working capital needs;
• Constant Currency AEBITDA does not consider the potentially dilutive impact of equity-based compensation;
• EBITDA and Constant Currency 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;
• Constant Currency AEBITDA does not take into account any restructuring and integration costs;
• Constant Currency AEBITDA is presented on a constant currency basis and gives effect to the impact of currency fluctuations
• while EBITDA for all periods herein has been reported without giving effect to constant currency adjustments, we have previously presented EBITDA on a constant currency basis, which reduces its usefulness as a comparative measure to certain of our historical results that are not presented in this report; and
• other companies, including companies in our industry, may calculate EBITDA and Constant Currency AEBITDA differently, which reduces their usefulness as comparative measures.

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

Constant Currency AEBITDA — Constant Currency 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; as further adjusted to reflect the performance of the business on a constant currency basis.

In addition, in our discussion below, we include certain other unaudited, non-GAAP constant currency data for the three and nine months ended September 30, 2024 and 2023. 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 nine months ended September 30, 2024 and 2023.

The following tables set forth our results of operations for the three and nine months ended September 30, 2024 and 2023 with line items presented in millions of dollars.

Comparison of Third Quarter of 2024 to Third Quarter of 2023

Net Revenue

The following tables and the discussion that follows compare our net revenue by geographic region and by product line for the third quarter of 2024 and 2023 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 detail:

Net revenue for the third quarter of 2024 was $92.2 million compared to $82.8 million in the third quarter of 2023, an increase of $9.4 million or 11.4% year over year. Net revenue was positively impacted by an increase in void-fill, wrapping, and other net revenue, partially offset by a decrease in cushioning. Other net revenue includes automated box sizing equipment and non-paper revenue from packaging systems installed in the field, such as systems accessories. Cushioning decreased $3.2 million, or 9.0%, to $32.5 million from $35.7 million; void-fill increased $9.7 million, or 28.4%, to $43.9 million from $34.2 million; wrapping increased $0.4 million or 4.9% to $8.5 million from $8.1 million; and other sales increased $2.5 million, or 52.1%, to $7.3 million from $4.8 million for the third quarter of 2024 compared to the third quarter of 2023. The increase in void-fill was primarily due to increased volume from e-commerce activity in North America. The increase in net revenue is quantified by an increase in the volume of sales of our paper consumable products of approximately 14.7% and a 2.9% increase in sales of automated box sizing equipment, partially offset by a 7.0% decrease in the price or mix of our paper consumable products. Constant currency net revenue was $94.7 million for the third quarter of 2024, a 10.5% increase from $85.7 million from the third quarter of 2023.

Net revenue in North America for the third quarter of 2024 totaled $40.3 million compared to $34.9 million in the third quarter of 2023. The increase of $5.4 million, or 15.5%, was primarily attributable to an increase in void-fill and other sales, partially offset by decreases in wrapping and cushioning.

Net revenue in Europe/Asia for the third quarter of 2024 totaled $51.9 million compared to $47.9 million in the third quarter of 2023. The increase of $4.0 million, or 8.4%, was driven by increases in void-fill, wrapping, and other sales, partially offset by a decrease in cushioning. Constant currency net revenue in Europe/Asia was $54.4 million for the third quarter of 2024, a $3.6 million, or 7.1%, increase from $50.8 million for the third quarter of 2023.

Cost of Goods Sold

Cost of goods sold for the third quarter of 2024 totaled $57.8 million, an increase of $6.5 million, or 12.7%, compared to $51.3 million in the third quarter of 2023. Cost of goods sold as a percentage of net sales increased to 62.7% in the third quarter of 2024 compared to 62.0% in the third quarter of 2023. Cost of goods sold as a percentage of net sales increased primarily due to a decrease in product price mix and higher labor and freight costs, partially offset by lower material costs and lower depreciation expense related to our leased machines.

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

SG&A for the third quarter of 2024 was $28.8 million, an increase of $7.9 million, or 37.8%, from $20.9 million in the third quarter of 2023. The change in SG&A was primarily due to an increase in stock-based compensation expense of $6.9 million compared to the three months ended September 30, 2023. This change was due to increased expense of $0.4 million from our RSU and PRSU awards for the three months ended September 30, 2024 and the reversal of $6.5 million of expense related to our 2021 LTIP PRSU awards during the three months ended September 30, 2023. We incurred an additional $0.7 million in employee compensation and $0.5 million of operating lease expense during the three months ended September 30, 2024 compared to the same period in the prior year.

Depreciation and Amortization

Depreciation and amortization expense for the third quarter of 2024 was $8.2 million, an increase of $0.1 million, or 1.2%, from $8.1 million in the third quarter of 2023. The increase in depreciation and amortization expense was due to an increase in the amortization of our finance leases of $0.1 million compared to the same period in the prior year.

Other Operating Expense, Net

Other operating expense, net for the third quarter of 2024 was $1.6 million, an increase of $0.7 million from $0.9 million in the third quarter of 2023. The increase was due to an increase in research and development expense of $0.5 million and increased loss on the disposal of property, plant, and equipment of $0.2 million for the third quarter of 2024 compared to the third quarter of 2023.

Interest Expense

Interest expense for the third quarter of 2024 was $9.3 million, an increase of $2.5 million, or 36.8%, from $6.8 million in the third quarter of 2023. The increase was due to the expiration of our interest rate swap in the second quarter of 2024, partially offset by a $0.1 million decrease in interest expense from fluctuations in interest rates associated with our First Lien Credit Facilities during the third quarter of 2024 compared to the third quarter of 2023.

Foreign Currency (Gain) Loss

Foreign currency loss for the third quarter of 2024 was $0.2 million, an increase of $0.9 million, from foreign currency gain of $0.7 million in the third quarter of 2023 due to the volatility in Euro exchange rates compared to USD.

Other Non-Operating Income, Net

Other non-operating income, net for the third quarter of 2024 and 2023 was $3.1 million and $0.1 million, respectively. The change is primarily due to an unrealized gain on our investment in Pickle Robot Co. of $3.1 million.

Income Tax Benefit

Income tax benefit for the third quarter of 2024 was $2.5 million, or an effective tax rate of 23.2%. Income tax benefit was $1.1 million in the third quarter of 2023, or an effective tax rate of 26.0%. The fluctuation in the effective tax rate for the three months ended September 30, 2024 and 2023 was due to the difference in pre-tax loss as well as tax expense of $0.5 million from a stock-based compensation shortfall recognized in the three months ended September 30, 2023 and no impact from stock-based compensation for the same period of 2024. The effective tax rate is less than the U.S. federal statutory rate for the three months ended September 30, 2024 due primarily to the amount of the pre-tax loss. The effective tax rate for the three months ended September 30, 2023 is consistent with the combined federal and state statutory rates.

Net Loss

Net loss for the third quarter of 2024 increased $4.8 million to $8.1 million from a net loss of $3.3 million in the third quarter of 2023. The change was due to the reasons discussed above.

EBITDA and AEBITDA

EBITDA for the third quarter of 2024 was $12.6 million, a decrease of $6.2 million, or 33.0%, compared to $18.8 million in the third quarter of 2023. AEBITDA for the third quarter of 2024 and 2023 totaled $20.5 million and $18.0 million, respectively, an increase of $2.5 million, or 13.9% year over year.

Comparison of Nine Months Ended September 30, 2024 to Nine Months Ended September 30, 2023

Net Revenue

The following tables and the discussion that follows compare our net revenue by geographic region and by product line for the nine months ended September 30, 2024 and 2023 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 detail:

Net revenue for the nine months ended September 30, 2024 was $263.9 million compared to $245.9 million in the nine months ended September 30, 2023, an increase of $18.0 million or 7.3% year over year. Net revenue was positively impacted by increases in void-fill and other net revenue, partially offset by decreases in cushioning and wrapping. Cushioning decreased $5.1 million, or 4.6%, to $104.8 million from $109.9 million; void-fill increased $19.2 million, or 20.1%, to $114.7 million from $95.5 million; wrapping decreased $0.3 million, or 1.2%, to $25.5 million from $25.8 million; and other sales increased $4.2 million, or 28.6%, to $18.9 million from $14.7 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The increase in void-fill was primarily due to increased volume from e-commerce activity in North America as we see more companies shifting from plastic to paper solutions. The increase in net revenue is quantified by an increase in the volume of sales of our paper consumable products of approximately 9.6% and an increase of 1.7% in sales of automated box sizing equipment, partially offset by a 4.4% decrease in the price or mix of our paper consumable products. Constant currency net revenue was $272.8 million for the nine months ended September 30, 2024, a 6.9% increase from $255.1 million for the nine months ended September 30, 2023.

Net revenue in North America for the nine months ended September 30, 2024 totaled $109.9 million compared to $98.2 million in the nine months ended September 30, 2023. The increase of $11.7 million, or 11.9%, was primarily attributable to an increase in void-fill and other sales, partially offset by decreases in cushioning and wrapping.

Net revenue in Europe/Asia for the nine months ended September 30, 2024 totaled $154.0 million compared to $147.7 million in the nine months ended September 30, 2023. The increase of $6.3 million, or 4.3%, was driven by increases in void-fill, wrapping and other net revenue, partially offset by a decrease in cushioning sales. Constant currency net revenue in Europe/Asia was $162.9 million for the nine months ended September 30, 2024, a $6.0 million, or 3.8% increase from constant currency net revenue of $156.9 million for the nine months ended September 30, 2023.

Cost of Goods Sold

Cost of goods sold for the nine months ended September 30, 2024 totaled $165.5 million, an increase of $8.8 million, or 5.6%, compared to $156.7 million in the nine months ended September 30, 2023, driven by an increase in sales volume. Cost of goods sold as a percentage of net sales decreased to 62.7% in the nine months ended September 30, 2024 compared to 63.7% in 2023. Cost of goods sold as a percentage of net sales improved, primarily driven by lower material costs and lower depreciation expense related to our leased machines, partially offset by higher labor, overhead and freight costs and a decrease in product price mix.

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

SG&A for the nine months ended September 30, 2024 was $84.0 million, an increase of $19.6 million, or 30.4%, from $64.4 million in the nine months ended September 30, 2023. The change in SG&A was primarily due to an increase in stock-based compensation expense of $16.4 million compared to the nine months ended September 30, 2023, driven by the reversal of expense of $19.5 million related to our 2021 LTIP PRSU awards during the nine months ended September 30, 2023 and a decrease of expense of $3.1 million related to our RSU and PRSU awards during nine months ended September 30, 2024 compared to the same period in the prior year. We incurred an additional $3.5 million in employee compensation and $0.9 million in temporary labor costs, partially offset by lower professional fees of $1.3 million during the nine months ended September 30, 2024 compared to the same period in the prior year.

Depreciation and Amortization

Depreciation and amortization expense for the nine months ended September 30, 2024 was $24.9 million, an increase of $0.7 million, or 2.9%, from $24.2 million in the nine months ended September 30, 2023. The increase in depreciation and amortization expense is primarily due an increase of $0.5 million of amortization related to our finance leases.

Other Operating Expense, Net

Other operating expense, net for the nine months ended September 30, 2024 was $3.7 million, an increase of $0.2 million from $3.5 million in the nine months ended September 30, 2023. The increase in other operating expense, net was due to a $0.2 million increase in research and development expense during the nine months ended September 30, 2024 compared to 2023.

Interest Expense

Interest expense for the nine months ended September 30, 2024 was $20.8 million, an increase of $2.4 million, or 13.0%, from $18.4 million in the nine months ended September 30, 2023. The effects of our cross currency and interest rate swaps offset an increase in interest rates associated with our First Lien Credit Facilities and additional expense of $0.6 million from deferred financing costs during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.

Foreign Currency (Gain) Loss

Foreign currency gain for the nine months ended September 30, 2024 was $1.1 million, a change of $1.3 million from foreign currency loss of $0.2 million in the nine months ended September 30, 2023 due to the volatility in Euro exchange rates compared to USD.

Other Non-Operating Income, Net

Other non-operating income, net for the nine months ended September 30, 2024 was $21.0 million and primarily represents $16.1 million in litigation proceeds and a $5.4 million gain on the sale of patents, partially offset by a $0.4 million unrealized loss on our strategic investment in Pickle Robot Co.. Other non-operating income, net for the nine months ended September 30, 2023 was $0.8 million and represents the unrealized gain on our investment in a money market fund.

Income Tax Benefit

Income tax benefit for the nine months ended September 30, 2024 was $2.2 million, or an effective tax rate of 16.8%. Income tax benefit was $2.9 million in the nine months ended September 30, 2023, or an effective tax rate of 14.2%. The fluctuation in the effective tax rate between periods was primarily attributable to the litigation settlement and patent sale in the second quarter of 2024 and tax expense of $1.8 million related to stock-based compensation shortfall recognized for the nine months ended September 30, 2023.

Net Loss

Net loss for the nine months ended September 30, 2024 decreased $7.1 million to $10.7 million from a net loss of $17.8 million in the nine months ended September 30, 2023. The change was due to the reasons discussed above.

EBITDA and AEBITDA

EBITDA for the nine months ended September 30, 2024 was $57.3 million, an increase of $10.2 million, or 21.7%, compared to $47.1 million in the nine months ended September 30, 2023. AEBITDA for the nine months ended September 30, 2024 and 2023 totaled $61.1 million and $52.1 million, respectively, representing an increase of $9.0 million, or 17.3%.

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 nine months ended September 30, 2024 and 2023:

(see subsequent footnotes)

(1) Reconciliations of EBITDA and AEBITDA for each period presented are to net (loss) income, the nearest GAAP equivalent.

(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; costs associated with the implementation of the global ERP system; and other items deemed by management to be unusual, infrequent, or non-recurring.

(3) Represents amortization of capitalized costs related to the implementation of the global ERP system, which are included in SG&A.

Liquidity and Capital Resources

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 $69.5 million in cash and cash equivalents as of September 30, 2024 and cash flows from operations and other sources will provide us with sufficient resources to cover our current requirements over the next twelve months.

Our main liquidity needs relate to capital expenditures and expenses for the production and maintenance of PPS 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. We continue to evaluate our inventory requirements and adjust according to our volume forecasts. 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 from macroeconomic factors could make obtaining new equity or debt financing more difficult or expensive.

We had $69.5 million in cash and cash equivalents as of September 30, 2024 and $62.0 million as of December 31, 2023. Including finance lease liabilities and excluding deferred financing costs, we had $408.2 million in debt, $2.7 million of which was classified as short-term, as of September 30, 2024, compared to $407.4 million in debt, $2.5 million of which was classified as short-term, as of December 31, 2023. At September 30, 2024, we did not have amounts outstanding under our $45.0 million revolving credit facility, and we had no borrowings under such facility through October 31, 2024. The Revolving Facility includes borrowing capacity available for standby letters of credit of up to $5.0 million. Any issuance of letters of credit will reduce the amount available under the Revolving Facility. As of September 30, 2024, we had $1.5 million committed to outstanding letters of credit, leaving net availability under the Revolving Facility at $43.5 million.

The material terms of the Facilities are summarized in Note 7 — Long-Term Debt to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q and under the heading “Liquidity and Capital Resources - Debt Profile” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the 2023 10-K. The First Lien Term Facility matures in 2026 and the Revolving Facility matures in 2025. Borrowings under the Facilities, at our option, bear interest at either (1) an adjusted eurocurrency rate or, the secured-overnight financing rate (“SOFR”), or (2) a base rate, in each case plus an applicable margin. The applicable margin is 3.75% with respect to eurocurrency borrowings or SOFR borrowings, as applicable, and 2.75% with respect to base rate borrowings, in each case assuming a first lien net leverage ratio of less than 5.00:1.00, subject to a leverage-based step-up to an applicable margin equal to 4.00% for eurocurrency borrowings and SOFR borrowings, as applicable, and 3.00% with respect to base rate borrowings. The interest rate for the First Lien Dollar Term Facility as of September 30, 2024 and December 31, 2023, was 9.05% and 9.44%, respectively. The interest rate for the First Lien Euro Term Facility as of September 30, 2024 and December 31, 2023, was 7.36% and 7.86%, respectively.

The Facilities provide us with the option to increase commitments under the Facilities in an aggregate amount not to exceed the greater of $95.0 million and 100% of Consolidated Adjusted EBITDA (as defined in the definitive documentation with respect to the Facilities) for the four consecutive fiscal quarters most recently ended, plus any voluntary prepayments of the First Lien Term Facility (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.

Share Repurchase Program

On July 26, 2022, the Directors authorized a general share repurchase program of our Class A common stock of up to $50.0 million, with a 36-month expiration. These Class A common stock repurchases may occur in transactions that may include, without limitation, tender offers, open market purchases, accelerated share repurchases, negotiated block purchases, and transactions effected through plans under Rule 10b5-1 of the Securities Exchange Act of 1934. The timing and actual amount of shares repurchased will depend on a variety of different factors and may be modified, suspended or terminated at any time at the discretion of the Directors. There have been no repurchases executed to date.

Cash Flows

The following table sets forth our summary cash flow information for the periods indicated:

Cash Flows Provided by Operating Activities

Net cash provided by operating activities was $34.9 million in the nine months ended September 30, 2024. Cash provided by operating activities was $23.0 million in the nine months ended September 30, 2023. The changes in operating cash flows are largely due to the decreased net loss for the current period compared with prior year, which was in part due to a patent litigation settlement of $16.1 million in the current period, and partially offset by increases in inventory, accounts receivable, and income tax receivables as of September 30, 2024.

Cash Flows Used in Investing Activities

Net cash used in investing activities was $24.7 million in the nine months ended September 30, 2024 and reflects cash used for production of converter equipment and purchases of machinery and equipment, and an additional investment in Pickle of $4.8 million. We had cash inflows from investing activities of $5.4 million from the sale of two patents. Net cash used in investing activities was $32.0 million in the nine months ended September 30, 2023 and reflects cash used for production of converter equipment and leasehold improvements for our facilities in Connecticut and The Netherlands, net of $2.9 million in proceeds from the sale of our building and land located in Heerlen, The Netherlands.

Cash Flows Used in Financing Activities

Net cash used in financing activities was $2.3 million in the nine months ended September 30, 2024 and reflects debt repayments, payments on finance lease liabilities, tax payments for withholdings on stock compensation, and payments on our equipment financing arrangement. Net cash used in financing activities was $1.4 million in the nine months ended September 30, 2023 and reflects debt repayments, payments on finance lease liabilities, tax payments for withholdings on stock compensation, and legal fees paid related to a modification of our debt facilities, partially offset by proceeds received from our equipment financing arrangement.

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 2023 10-K.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of September 30, 2024.

Critical Accounting Estimates

Our unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“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 2023 10-K.

Impairment of Goodwill, Indefinite-Lived Intangible Assets, and Long-Lived Assets

We periodically review goodwill and indefinite-lived intangible assets for possible impairment whenever there is evidence that events or changes in circumstances indicate that the carrying value of our goodwill reporting units or identifiable indefinite-lived intangible assets may be less than their fair values. Additionally, we review our long-lived asset groups whenever there is evidence that events or changes in circumstances indicate the carrying value of our asset groups may not be recoverable. If events or circumstances exist, including a continuation of current market conditions, that indicate that the carrying value of our goodwill reporting units or identifiable indefinite-lived intangible assets may be less than their fair values, or the carrying amount of our long lived-asset groups may no longer be recoverable, we may recognize a non-cash impairment of goodwill, identifiable indefinite-lived intangible assets, or long-lived asset groups, which could have a material adverse effect on our consolidated financial condition or results of operations in future periods. For additional information on our accounting principles with respect to goodwill, identifiable indefinite-lived intangible assets, and long-lived assets, please see “Management Discussion & Analysis – Critical Accounting Policies” in our 2023 10-K.

As of September 30, 2024, there were no indicators to suggest that it is more likely than not that the fair value of our reporting units and indefinite-lived intangible assets were below their carrying values. As of September 30, 2024, there were no indicators of impairment present for long-lived assets that required us to test for recoverability.

If we fail an impairment test, any non-cash impairment charge may have an adverse effect on our results of operations and financial condition. We will continue to monitor events and circumstances for indicators of impairment in our reporting units, indefinite-lived intangible assets, and asset groups.

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 Facilities. A hypothetical 100 basis point increase or decrease in the applicable base interest rates under our Facilities would have resulted in a $6.0 million impact on our cash interest expense for the nine months ended September 30, 2024. We use interest rate swap agreements to manage this exposure.

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.

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 USD, our reporting currency. See “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. Additionally, we hedge some of our exposure to foreign currency translation with a cross-currency swap. Refer to Note 8 — Derivative Instruments to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information.

For the nine months ended September 30, 2024, net revenue denominated in currencies other than USD amounted to $154.0 million or 58.4% 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 USD would have caused our reported net revenue for the nine months ended September 30, 2024 to increase or decrease by approximately $15.4 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 typically not directly exposed to market price fluctuations in paper purchase or sale prices as we historically have negotiated 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. However, due to global inflation and other macroeconomic factors, we may be subject to significantly more commodity price volatility than we have historically experienced.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to provide reasonable assurance that material information required to be disclosed in our reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required financial disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our CEO and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 of the Exchange Act. Based upon that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were not effective, due to the material weaknesses in internal control over financial reporting that are described in the 2023 10-K.

Notwithstanding such material weaknesses in internal control over financial reporting, our management, including our CEO and CFO, has concluded that our consolidated financial statements present fairly, in all material respects, our financial position, results of our operations and our cash flows for the periods presented in this Quarterly Report, in conformity with U.S. generally accepted accounting principles.

Remediation Plans

As previously described in Part II – Item 9A – Controls and Procedures of the 2023 10-K, we continue to implement a remediation plan to address the material weaknesses mentioned above. The deficiencies will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

The Company continues to make progress in its remediation of the material weaknesses described in the 2023 10-K. During the third quarter of fiscal 2024, management verified that changes were made to the design of certain controls that would be necessary for potential remediation. We assessed the design of these certain controls through detailed reviews of the process and related controls with process owners, who are responsible for implementing and monitoring our remediation plans. We have also taken the following actions, outlined below, in our effort to remediate our material weaknesses.

• Enhanced policies and procedures to improve our overall control environment and monitoring controls around timely evaluation and communication of internal control deficiencies to those parties responsible for taking corrective action, including senior management and the board of directors, as appropriate.
• Designed and implemented a continuous risk assessment process to identify and assess risks of material misstatement and ensure that the impacted financial reporting processes and related internal controls are properly designed and in place to respond to those risks in our financial reporting.
• Hired personnel for key positions within our technology, accounting, business operations and other support functions with appropriate qualified experience and ERP knowledge to enhance our risk assessment processes and internal control capabilities, allow for appropriate segregation of duties and change management, and provide appropriate oversight and reviews.
• Provided, and continue to provide, additional training and education programs for personnel responsible for the performance of key business processes throughout the Company to facilitate their understanding of the risks being

addressed by the controls they are performing as well as educate them in the documentation requirements of the internal control framework.

• Enhanced user access provisioning and monitoring controls to enforce appropriate system access and segregation of duties as well as controls supporting change management.

Although we have taken these actions, we have not remediated our material weaknesses as of September 30, 2024. For Management to consider a material weakness remediated the related controls are required to operate effectively as anticipated for a minimum period and we may not be able to demonstrate through testing that these controls have been operating effectively for a sufficient period of time to achieve remediation. As the Company continues executing its remediation plan in 2024, changes to the timing of remediation activities and delays may be experienced that could delay when the material weakness is considered remediated.

Changes in Internal Control Over Financial Reporting

In response to the material weaknesses described in the 2023 10-K, the Company reviewed the design of its controls and began remediation activities to alleviate the noted control deficiencies. Other than these items, there was no change in the Company’s internal control over financial reporting that occurred during the quarter ended September 30, 2024, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.