Hello. My name is Jean-Louis. Welcome to the Ranpak Holdings Q1 2023 Earnings Call. [Operator Instructions] I would now like to turn the conference over to Sara Horvath, General Counsel.

Thank you, and good morning, everyone. Before we begin, I’d like to remind you that we will discuss forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those forward-looking statements as a result of various factors, including those discussed in our press release and the risk factors identified in our Form 10-K and our other filings filed with the SEC. Some of the statements and responses to your questions in this conference call may include forward-looking statements that are subject to future events and uncertainties that could cause our actual results to differ materially from these statements. Ranpak assumes no obligation and does not intend to update any such forward-looking statements. You should not place undue reliance on these forward-looking statements, all of which speak to the company only as of today. The earnings release we issued this morning and the presentation for today’s call are posted on the Investor Relations section of our website. A copy of the release has been included in the Form 8-K that we submitted to the SEC before this call. We will also make a replay of this conference call available via webcast on the company website. For financial information that is presented on a non-GAAP basis, we have included reconciliations to the comparable GAAP information. Please refer to the table and slide presentation accompanying today’s earnings release. Lastly, we’ll be filing our 10-Q with the SEC for the period ending March 31, 2023. The 10-Q will be available through the SEC or on the Investor Relations section of our website. With me today, I have Omar Asali, our Chairman and CEO; and Bill Drew, our CFO. Omar will summarize our first quarter results and provide commentary on the operating landscape, and Bill will provide additional details on the financial results before we open up the call for questions. With that, I’ll turn the call over to Omar.

Thank you, Sara, and good morning, everyone. I appreciate you all joining us. Our first quarter financial results were mostly in line with our expectations as we expected top line in the first half of the year to be more subdued with volumes projected to pick up more in the back half of 2023. We shared an update with you on our fourth quarter call that January and February top line results were tracking in line with 2021, and that is roughly how we finished the quarter. Our top line results of $84.8 million on a constant currency basis is just shy of the $85 million from 2021 and slightly above where we were in Q1 of last year. North America sales were up 1% in the quarter versus last year. I would characterize activity levels in the region as decent in the quarter, but not robust given the macro. The manufacturing sector remains sluggish as evidenced in the PMI data and on the consumer side, e-commerce activity related to more discretionary purchases of goods remained slow as consumers allocate more to services and essentials. You can see this environment reflected in the trucking and container data where volumes are clearly down. I believe the impact of the higher rate environment, bank stresses and increasing unemployment concerns have impacted consumer confidence and warrant a cautious outlook in the near term in North America. While the shorter-term macro is a challenge on a positive note, we are making inroads with many key accounts that have historically been plastic only. These are longer sales cycle processes, but we can feel the momentum in discussions throughout these organizations shifting towards paper. I believe it is only a matter of time before the volumes in North America start to reflect this. Europe and APAC…

Thank you, Omar. In the deck, you’ll see a summary of some of our key performance indicators. We’ll also be filing our 10-Q, which provides further information on Ranpak’s operating results. Machine placement increased 3.8% year-over-year to over 139,600 machines globally. Cushioning systems declined 1%, while void-fill installed systems increased 5% and wrapping increased 7% year-over-year. Growth in the machine field population has been lower this year due to a combination of lower activity levels generally and our efforts to optimize our fleet. To maximize capital efficiency, we are focused on getting underutilized converters back and redeploying them to more productive areas. Overall, net revenue for the company in the first quarter was up 1% year-over-year on a constant currency basis, driven by increased price and contribution from automation, offset by slightly lower volumes. North America net revenue increased 1% year-over-year with cushioning and void-fill up versus the prior year, offset by continued headwinds in wrapping. Cushioning demand remained fairly steady. While e-commerce activity as it relates to more discretionary merchandise remained lower due to inflationary pressures and the pull forward of purchases we have discussed previously. In Europe and APAC, net revenue on a constant currency basis was up 1% year-over-year with all categories up slightly in the quarter. Volumes were down slightly in the region year-over-year, but we are pleased with the base level of activity given the volatility of energy and remaining inflationary pressures in the region. Automation sales increased 6% year-over-year and represented approximately 5% of sales on a constant currency basis as we continue to get traction in the space with our box customization and automated dunnage solutions. Our gross profit increased 15% on a constant currency basis, implying a margin of 34% compared to 29.8% in the prior year. The prior year comparison had…

Thank you, Bill. In closing, I’m pleased with the improvements our company has made over the past few years and continue to believe our investments have put us on a sustainable long-term growth trajectory. We have a lot of work to do to get back to where we want to be financially, but I believe we are moving in the right direction. We are very well positioned to capitalize on the opportunities ahead of us from the global focus on sustainability as well as customers’ elevated interest in automation. We have developed various new offerings being released over the next 12 months in void-fill, wrapping, cold-chain and automation that we believe further establish us as industry leaders in these areas. We are pleased with our organic growth opportunities and ability to scale our existing business. I firmly believe we are in the right spot and have the right team and tools to be successful. It has been a long journey to get to this point and one filled with a lot of change for the organization. Our employees transitioned from being a 45-year-old private company with a certain way of operating to being a public company, which obviously brings a different level of operating requirements. We also made up for years of underinvestment in systems, processes and people, which also brought about a whole new way of operating. At this point, I feel the company is finally in a spot where we can get back to basics without large distractions and really begin to execute on the vision. We’re confident in our strategy and believe we will unlock meaningful and profitable growth over the next number of years. With that, let’s open the call up for questions. Operator?

[Operator Instructions] Your first question comes from the line of Greg Palm from Craig-Hallum Capital Group.

I guess maybe starting with a little bit more on the commentary on what you’ve seen recently and maybe how that relates to the guidance that you put out last quarter. I don’t think you mentioned it at all. So I’m just kind of curious how you’re feeling about revenue and EBITDA in light of everything that’s occurred maybe over the last 4, 5, 6 weeks.

Greg, we continue to feel good about the guidance that we put out. So there’s no change there. As you know, with the cadence of our business, the first half of the year from a seasonality standpoint typically is softer than the second half of the year. Given what we’ve seen with destocking last year, given what we’ve seen in the environment, we think that pattern of seasonality is going to come back to fruition this year, again, i.e., we think ‘22 was an anomaly. Given that, our expectations continue to be the same vis-à-vis guidance on top line as well as EBITDA. The end of the first quarter here was a little bit softer and the beginning of Q2 was a little bit softer. Frankly, I think it has a lot to do with the macro environment and what we’re seeing with banks and what we all are reading in headlines. But it’s not changing our view. Our trials, our pipeline activity, our NPI activity with new products and then what we’re doing with automation, all that continues to be on track. So we continue to feel good about the rest of the year.

Got it. If I could just maybe dig in just a little bit further under the assumption that what you’ve seen over the last, again, 4, 5, 6 weeks if that continues or gets worse, does that put the guidance at risk? I guess I’m just trying to get a sense of what the current guidance sort of assumes from a macro environment standpoint.

Yes. The current guidance, just to give you a sense, assumes more or less, I’m going to say, flattish volume year-over-year. And we think that’s where we’re going to end up. To your point, if the macro environment weakens from here and weakens materially, yes, that could have an impact. So we did not assume a robust sort of macro environment to get to our guidance. And we also, frankly speaking, in our gross margins and in our COGS, have more cushion than what’s in the guidance, and we think that continues to be more favorable. So if the top line is weaker, that will have an impact. We do have a cushion in gross margin that would offset some of that softness. But the overall assumption that we’ve made on the economy and on the world is that the world more or less is where it is right now. We did not assume any robust recovery. We did not assume further weakening from here. If we’re going to start seeing more banks have issues, more consumers have issues, elevated unemployment, and if the world really takes a step back, of course, that will impact us because that’s not our base case assumption. I don’t know if that gives you a sense of sort of our thinking on the guidance.

Your next question comes from the line of Ghansham Panjabi of Baird.

First off, following up on the last question. Relative to your previous guidance construct, is it fair to say that maybe the volumes outlook is a little bit murkier? Maybe it’s a little bit lower than you initially forecast, but that’s going to be offset by just the changed input cost environment. Is that sort of the right way to think about it?

I think that’s a fair way to think about it. I think, certainly, the environment, it’s not great from a volume standpoint. And of course, as I said earlier, if it weakens from here, that could have an impact on us. We feel a lot better about input costs. We feel a lot better about what we’re seeing sort of from a COGS standpoint. And frankly, given all the investments we’ve made, Ghansham, we feel a lot better about our execution ability and our ability to focus. I mean, we’re a company that has 850 employees. So in the last year dealing with the macro environment, dealing with putting in new technology systems and switching the way we operate, that was a lot. Right now, we don’t have to deal with these issues. We’re executing in a new environment with state-of-the-art technology. We’re more focused on being sharper in our execution, which I think will help. So this gives us some confidence on achieving our numbers on the top line and the volume trends. On the one hand, yes, the macro environment is a challenge. On the other hand, I will tell you, our trial activity, our pipeline is super robust. It’s pretty strong globally, and we have a number of dialogues in today’s environment with advanced large accounts that are talking about meaningful switches from plastic to paper. So all that, I think, could offset part of the macro weakness, if you will. And again, when you put it all together, we did not assume robust volume trends.

Okay. Great. And then in terms of just the operating environment at current, I mean, clearly, everybody is sort of thinking it across the consumer supply chain, industrial supply chain, et cetera. And I would assume that there’s going to be more of a focus on costs just like you’re doing at your level. Is mix an issue to keep in mind for the future as it relates to your customers’ decisions and maybe trading down a little bit just to kind of keep costs in check? Or is that not really a risk factor for you?

Honestly, costs and price has been an issue for a while, for a number of quarters. And we’re seeing a lot of customers focus on that. And part of what we’re doing with a lot of customers is making sure we’re very articulate and specific about where we’re helping them in terms of speed, reliability, total cost of ownership to make sure that we are helping them with their own bottom line. So that trend continues given the inflationary environment. We are seeing, in some cases, with mix, people trading down a little bit. Is it a big driver right now? Not really. I think for us, the biggest driver is just articulating how we’re helping these customers from an efficiency, speed and total cost of ownership, and that’s typically how we win. So I’m not expecting drastic moves on mix that could go against us. I do expect as we have more and more dialogue with some of these large customers that are in our pipeline about the switch from plastic to paper that they’re going to be very, very price sensitive in this environment. So they want sustainability, Ghansham, but they want to make sure it’s not coming at a premium for them.

Your next question comes from the line of Adam Samuelson of Goldman Sachs.

So I guess, the first question is maybe kind of continuing on something Ghansham was asking about. So I think about the installed base and it actually -- you did see some declines in the installed base on the cushioning side sequentially in the quarter. How do we think about you’re being more proactive in pulling machines from existing customers and better utilizing kind of the installed base of machines that you have out there or redeploying those to limit incremental capital spend in the near term?

Sure. I’ll start, and then I’ll have Bill chime in, Adam. So as you know, in the past 12, 14 months, we’ve continued to invest in CapEx and in converters and equipment and did not get the commensurate sort of volume help. Today, and sort of starting really at the beginning of this year, we’ve been laser-focused on just optimizing the fleet that we have. So in many cases, we see opportunities to move certain pieces of equipment from one account to another, where we think it could help the volume down the road. Also, we and our customers are learning in this environment that may be their new normal for the near term is lower than what we had expected a year ago or 6 months ago. So we’re adjusting accordingly. So we believe there continues to be an opportunity from here to drive our growth without just 100% incrementally investing in new CapEx and adding new converters. So part of the thing that you’re seeing from us is optimizing the existing fleet. The other part that we’re focused on is, as I mentioned, with new products, we’re investing in new products, and that will always drive increasing the fleet. So you will see, as we launch new products that maybe our fleet of equipment is increasing a little bit. But the existing footprint that we have with existing products, there’s still some room to optimize to drive the top line. Bill?

Yes. I would just say from a gross shipments basis, right, so placing machines at new accounts and new account activity, those were actually in line with where we were in Q1 of ‘22. So from a gross shipments basis, still very solid activity. As Omar mentioned, we have been making a concerted effort to optimize the fleet, looking at lower-margin business and getting some of that equipment back. You brought up cushioning. Cushioning is one area actually where we’ve been trying to get machines back because there’s actually really, really solid demand in the industrial sector seeing how competitive we are from a pricing standpoint. So trying to get some of those machines back, refabricate those and get those deployed out to the field is a big effort of ours. So I would expect that to pick back up in the future quarters.

Okay. No, that’s really helpful. So -- and if I think about just for the year, where -- what should total CapEx be, both converter and some of the facility investments you’re making? And along the same lines, how should we think about cash operating expenses for 2023 at this point?

Sure. So CapEx for the year, we had said at the beginning of the year, that will be about $55 million all in CapEx. I think just given what we’re seeing in some of the discretionary spend, we’ll be taking that down a little bit, probably close to $50 million. If you think about the split between the converter spend, that’s going to be $25 million to $30 million of converters. Maybe we can do a little bit better than that, manage tighter, do better job of redeploying existing equipment. And then on the real estate investment front, that was running around $25 million. So the majority of those expenses related to the Eygelshoven facility, which opened up in April, that we’re operating currently and then the Shelton facility. So most of that will be complete by the end of Q2. Again, on the operating expense question. I think you were asking about kind of cash operating from a G&A perspective, that should be running around 25% of sales.

[Operator Instructions] A follow-up question from the line of Greg Palm of Craig-Hallum Capital Group.

Omar, I wanted to just follow up on the commentary about the progress you’re seeing in some of these plastic-only accounts. But can you just maybe give us a sense of where we’re at, what gives you the confidence that some of these might pivot to paper? Is it going to be 100%? Any -- I don’t know if you can quantify anything, but I just thought that commentary was especially interesting.

Yes. I think, Greg, look, last year, like any other year, we were chasing a number of these accounts. And of course, we were pushing the case for our products over plastics. And I would say we were doing a bunch of meetings, a bunch of discussions, but not exactly trials. What has changed this year is with a number of these accounts, our equipment is in their facilities. It’s being tried out. They are buying obviously small amounts from us right now to consume, pay for that equipment. We like sort of feedback that we’re hearing about these trials. In today’s environment, and I’ve said this before, trials take a little bit longer than we like, given the soft macro environment, so trials might be a little bit prolonged. However, the feedback that we continue to see on the ground with a number of these important accounts is they like the product. They are interested in the switch. I would not say the switch is going to be 100%. I think many of these accounts are trying to reduce plastic footprint and move to other substrates, we’re the beneficiary of that. But that’s incremental volume. And my expectation, given how we’re executing, given what I’m seeing in the size of the pipeline and then the feedback on the trials themselves, Greg, is that we will win our fair share, and that would be driving incremental volume. Now again, a lot of these large accounts because they may take longer, if what I’m saying will happen, you will see that in the second half of the year more than the first half of the year. But in the first half of the year, we have placed the equipment. We are in these warehouses and facilities, and they are using our product and trialing it. So this is why I feel pretty good about where we’re headed. And this is materially different than last year where we were not having the trials in action with some of these large accounts. It was more conversation. Now we’re seeing some action. And hopefully, that action will translate into business activity for us in the second half of this year.

There are no further questions at this time. I’ll now turn the call over to Bill for closing remarks.

Thank you. And thank you all for joining us today. We look forward to speaking again following Q2.

Thank you. This concludes today’s conference call. You may now disconnect.