Ranpak Holdings Corp. (PACK) on Q4 2021 Results - Earnings Call Transcript
Operator: Hello, and welcome to the Ranpak Holdings Fourth Quarter and full-year 2021 Earnings Call. My name is Emily, and I will be coordinating the call today. During the presentation, you will have the opportunity to ask a question . I will now hand the call over to our host, Sara Horvath, General Counsel. Please go ahead.
Sara Horvath: Thank you. And good morning, everyone. Before we begin, I would 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 a 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 slides presentation accompanying today's earnings release. Lastly, we'll be filing our 10-K with the SEC for the period ending December 31st, 2021. The 10-K 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 fourth quarter results, provide an update on our growth strategies, and issue our outlook for 2022. Bill will provide additional detail on the financial results before we open up the call for questions. With that, I'll turn the call over to Omar.
Omar Asali: Thank you, Sara. And good morning, everyone. I hope everybody is staying safe and healthy. Ranpak had a strong fourth quarter and robust results for the calendar year 2021. I'm extremely pleased with our overall results and the execution of our team members, who delivered strong growth in our topline and meaningfully grew our profitability against a tough Q4 2020 comparison. We've accomplished a tremendous amount this year, not only in the financial results, but also in advancing key initiatives for our company. We had a number of significant projects going on in 2021. In prior calls, we mentioned our digital transformation and investments in technology. The most impactful component of which was upgrading to our new ERP platform, SAP. This is the project that stretched across the entire organization and took one year for us to implement. We went live with the new system in January of this year and I'm genuinely impressed with the hard work and dedication I witnessed by our global team to accomplish this gargantuan task. It took and dedication from all involved, working late-nights, weekends, and holidays to accomplish. As we get up the learning curve associated with an ERP system as sophisticated as this one, we expect that the benefits for the organization will be tremendous in terms of better processes, access to data, and visibility into the business. It also significantly improves our ability to scale the business globally and onboard acquired companies as we pursue a more robust M&E strategy going forward. IT infrastructure does not always get the limelight. But given the critical role it can play in the successful growing organization, improving this area has been a priority of mine. I'm pleased to report Ranpak now has world-class ERP, CRM, Financial Planning, Human Resources, and Data Analytics Software and Information Systems. It's been a tremendous undertaking to get all of these systems implemented and talking to each other. And most of this activity has taken place in the past year, while the team has also been focused on executing and growing the business. I could not be more excited about our new systems and processes, as well as the efficiencies we will hopefully extract due to our additional insights. My hat is off to the global team that really drove these processes. Overall, the theme for us the past couple of years has remained the same; stay focused on executing in the short term, while investing in the business for the long term. Capital allocation decisions are critical to the long-term success of any company and creating shareholder value. Our mindset is always focused on maximizing value for the long term, but we are also cognizant of maintaining strong performance along the way. It's a balancing act as we weigh the sequencing and debts of investments due to the impact on near-term results, while making sure we are being aggressive enough to really pursue the opportunities that provide maximum upside for shareholders in the next five years. This year, we have been very prudent in our strategic decision-making the past two years. And as we will discuss later in the call, our guidance for 2022 shows that this year, we plan to continue to take a more aggressive approach to investing in the business to support our growth objectives. We finished the year with solid momentum in the business and with the acquisition of Recycold, a manufacturer of sustainable gel packs. These drink - safe and plant-based gel packs are a great addition to our cold chain offerings. And we're excited to plug Recycold into the Ranpak network to help expand the business and bringing these solutions to the United States. Now, a few words on the quarter. I'm pleased to report consolidated net sales on a constant currency basis increased 21% driven by broad-based growth in all product lines, bringing full-year sales to up 26% on a constant currency basis. Europe and APAC experienced exceptional demand in the quarter, exiting the year with good momentum. Net revenue on a constant currency basis was up 24% driven by strong growth across all product lines. Our North America business also delivered excellent top-line results at 18% for the quarter, marking the third quarter in a row of double-digit growth. Overall, I'm really pleased with the activity levels we see in the region and believe that in 2022, North America is on a real path to sustainable growth. Adjusted EBITDA of $35.7 million was up 8.2% in constant currency terms year-over-year, and resulted in a very strong margin of 32.6%. Our growth in adjusted EBITDA was due to higher sales compared to a year ago, offset somewhat by increased input costs and investment in personnel. For the year, constant currency adjusted EBITDA was up 26% to $117.8 million, and in line with our revenue growth. Overall, really excellent performance to finish the year in the face of a challenging supply chain environment and inflationary headwinds. I'm very proud of what we have accomplished in 2021, and I'm even more excited about 2022 and beyond. We continue to navigate well, and believe we are well-positioned for further success. The additional investments in the business are beginning to pay off, and we look forward to an even greater impact going forward. The backdrop for 2022 is a positive one for Ranpak as Ranpak's three key structural tailwinds remains in place. E-commerce activity remains robust as the share gain from brick and mortar appear structural. Sustainability continues to gain momentum globally, and increased wages and labor shortages drive the need for further automation and efficiencies. We'll take you through our guidance for 2022 after Bill's remarks. But to summarize, we're focused on achieving double-digit growth again this year and will further invest in the business to position ourselves to maximize the opportunity over the long term. With that, let me turn the call over to Bill, who will give you further details related to the quarter and full-year 2021.
Bill Drew: 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-K, which provides further information on Ranpak's operating results. Machine placement continued its steady and broad-based increase, up 13.5% year-over-year to over 133,000 machines globally. systems increased 4.8%. Void Fill installed systems grew 14%. And wrapping continued its expansion path, grown really well at 29.7% year-over-year. Overall net revenue for the company in the fourth quarter was up 21% year-over-year on a constant currency basis, driven by strong double-digit growth in all regions. For the quarter, combined revenue in our Europe and APAC reporting division increased 24% on a constant currency basis, bringing full-year 2021 combined revenue in those regions to 34% on a constant currency basis. Europe and APAC finished the year on a strong note, experiencing robust growth across all categories versus the prior year. North America posted another strong quarter of double-digit top-line growth reported net revenue of $45.8 million, which was up 18% versus the comparable period in 2020, bringing full-year results top 15%. For the quarter, all categories were up double-digit percentages exiting 2021 with solid momentum. Execution in North America continues to improve and sustainability is growing in importance. We have bolstered the team with key talent across-the-board and provided additional resources to enhance growth and improve the way we serve customers. Reported gross margins of 35.6% for the quarter were lower versus 42.1% in the prior year, as we experienced incremental input and production costs that surpassed our year-to-date pricing actions, contributing more than 3.5 points of the decline. We're implementing targeted pricing actions in the first half of 2022 to claw back a significant portion of the increased input and production cost we absorbed in the last few months. Additionally, we took a one-time write-off of consumables related to our SAP conversion, which represented another roughly 1.8 points or 1.9 million of pressure. Important to clarify, the consumables write-off was purely a new accounting mechanism that we are adopting going forward that will expense these items directly versus carrying them in inventory and then expanding them. Also, it is helpful to keep in mind that from a profitability standpoint, the fourth quarter of 2020 was exceptionally strong as kraft paper pricing was extremely favorable, volumes were robust, and staffing levels at our company was significantly leaner as there were still gaps to fill for key initiatives. Now, let me elaborate on our input cost and margins. In response to rising cost of kraft paper, freight, labor, and pallets, we have taken pricing actions at various points throughout the year in different parts of the globe. We have been strategic in our actions, triangulating between accelerating top-line to grow share, reserving margins, as well as being mindful of how and when pricing might get passed on in different geographies. Fortunately, the volume elasticities have been better than expected following our price increases in 2021 as many businesses are experiencing similar inflationary pressures. Given how dynamic the commodity markets have been, we did face a bit more pressure in Q4 than prior periods as our pricing actions lagged the movement in Kraft paper and energy markets to finish the year. Already in 2022, we have announced additional pricing actions to recover some of the margin pressure we experienced in Q4. And as always, we continue to analyze weather conditions warrant further increases in the future. To support growth initiatives, SG&A continued to build last year driven by increasing headcount from approximately 645 to finish the year at around 850. As Omar mentioned, we added talent in senior management, sales, operations, and finance personnel, as well as begin building out our internal automation effort, resulting in an increase of $2.9 million year-over-year for the quarter. Many of our team members have been dedicated to SAP over the past year. So, we're looking forward to integrating them back in their roles and some of the efficiencies they may be able to bring as the year progresses. As expected and consistent with seasonality in years past, the fourth quarter was our largest net revenue from adjusted EBITDA standpoint. Although it was a challenging comparison and we had our largest input cost headwinds for the year, the team did a great job managing the P&L, achieving meaningful constant currency adjusted EBITDA growth of 8.2% on top of last year's exceptional results, and bringing full-year constant currency adjusted EBITDA up 25.7% versus 2020. Moving to the balance sheet and liquidity. We completed 2021 with a strong liquidity position including a cash balance of $104 million and no drawings on our revolving credit facility, bringing our net leverage ratio to 2.6 times on an LTM basis. We are pleased with the continued progress on our capital structure in 2021 as we paid down debt and reduce our interest expense, and leave our cash balance, and conservative leverage profile provide us with excellent flexibility to pursue growth initiatives and M&A. With that, I'll turn it back to Omar before we move on to questions.
Omar Asali: Thank you, Bill. Over the past year, we made a strategic decision to invest further in accelerating share gains to hopefully emerge with more momentum as market disruptions lessen. In 2022, we plan on maintaining this approach and accelerate our investment in some areas to maximize opportunities in 2023 and beyond. This year, on a constant currency basis, we are anticipating revenues of $425 million to $445 million, reflecting top-line growth in the area of 13% to 18% and adjusted EBITDA growth of 9% to 12%, implying a range of a $128 million to $132 million. Our expected outsize top-line growth for the year reflects our expectations of continued volume growth as we expand our business, as well as 2021 pricing actions and planned increases for 2022. Our growth in adjusted EBITDA of 9% to 12% reflects investments in key areas such as automation, as well as our expectation that some of the input cost inflation pressures we experienced in Q4 to persist in the first quarter and then our offset through additional pricing action. In earlier calls, we shared our plans for meaningful investments in capacity related to automation. This involves our new European headquarters, which will consolidate our PPS and automation operations in the Netherlands, as well as the new automation and R&D facility being built in Shelton, Connecticut. Both of these facilities are new-builds, and we anticipate them opening hopefully in Q4, 2022. From a capacity standpoint, these investments will increase our ability to produce automation equipment by 3 to 4 times what it is today. For 2022, we're targeting more than $20 million in sales, which is more than 50% above last year, and which maxes out the capacity of our current facility. This implies the ability for automation to contribute $60 million to $80 million in top-line as we ramp up activity at our new facility and gain some efficiencies in our processing. To position ourselves to hit the ground running when we open our facilities, we are ramping up our hiring in 2022 in areas such as engineering, sales, assembly, installation, and service to achieve greater scale in 2023 as quickly as possible. 2022 is a pivotal year for Ranpak. We're investing in the infrastructure that will enable us to continue to grow organically and should we decide to do so, scale up through M&A over the next number of years. These investments are in the form of renovation of our headquarters in Concord, and three new facilities, one new automation center in Connecticut, our new headquarter and automation center in The Netherlands and lastly, a new production facility in China. The second leg of our investments in our IT infrastructure, including SAP, CRM, and other business apps, as well as a number of operational projects to enhance our capabilities. All in, these projects, which I consider to be non-recurring, will be roughly $35 million to $40 million in 2022, bringing total CapEx closer to $75 million for the year, including our converter spend. These one-time investments in real estate and technology will enable us to target growth in future years and capitalize on the strong end-user demand we continue to see in our business. Overall, I'm very excited about the business for 2022 and beyond. With MPPS, Europe continues to execute well and benefit from a strong sustainability tailwind. The further push to replace plastic and foam that initially began in Northern Europe continues to spread throughout the rest of the continent. In North America, many of the enhancements we have made over the past couple of years in sales, engineering and digitalization are taking hold, resulting in improved performance, as well as the passionate workforce and GRI invigorated network of distributors and end-users. Encouragingly, sustainability is showing signs of increasing in importance in the decision-making process in North America, as companies are feeling pressure from boardrooms, employees, and shareholders to reduce their plastic output. In Asia-Pacific, the team continues to expand and further penetrate the region. We are thrilled to be opening up a production facility in China in the second half of '22, which will reduce our lead times as well as our freight and logistics costs. Removing the additional cost burden from serving this region out of Europe will enable us to be significantly more competitive and help us drive growth. On automation, I mentioned earlier our goal for this year to surpass $20 million in sales, which is the max capacity of our facilities. We expect that much of this growth will be within Europe, where the majority of our existing automation infrastructure is. But we have ramped up hiring plans in North America, focused on automation as well and are pushing to expand rapidly in this market as quickly as possible. We are celebrating Ranpak's 50th anniversary this year. Our BTS business has been the consistent high-margin growth engine for Ranpak over our first five decades. With our focus on R&D and innovation, as well as sustainability tailwinds, I believe EPS will continue to be a critical growth driver and robust cash generator for Ranpak going forward. For Ranpak, the structural demand I see unfolding for automated solutions provides what I believe is the biggest opportunity to step change growth over the next decade. Although in the near-term it impacts profitability, we believe allocating the capital and resources to this area, including the build-out of service, assembly, and installation organizations will provide us the best opportunity to more rapidly execute on our plan to expand our automation platform when our facilities open. And now, just a moment to share with you something that we are seeing on the sustainability front. Globally, we continue to see approach to tackle the plastic waste crisis. Later this year, world officials will meet at a United Nations Environment Assembly Conference, also known as you UNEA 5.2 to start negotiations on aligning UN member states on legally binding policies to address plastic pollution. This includes initiatives that are both upstream and downstream with goals of reducing the use of operation plastic and speeding up the transition to a circular global economy. More than 70 signatories, including many of the world's biggest brands, have joined this effort to come up with systemic solutions to stop plastic leakage into nature. Initiatives such as this one as well as continued roll out of EPR laws in Europe and now in the United States, including in California, could do wonders for the environment and for demand for paper-based protective packaging solutions. We at Ranpak are very excited about being part of the solution and doing our part to deliver a better world. This is a special journey that we're on. In closing, I will reiterate that we are proud of what we did in 2021, and are excited about our plans for 2022. Thank you all again. At this point, we'd like to open the line for questions. Operator.
Operator: Our first question today comes from Ghansham Panjabi from Baird. Your line is open.
Ghansham Panjabi: Thank you. Good morning, everybody.
Bill Drew: Morning.
Ghansham Panjabi: First off on the paper consumable volumes of 5.5% in the fourth quarter, up almost 17 in 3Q, can you just give us some color on what's going on with that dynamic? Was there a pre -buy ahead of price increases? And if so, what are you seeing for paper consumable volumes for the current quarter and how much of -- how much volume are you assuming for consumables as it relates to your top-line growth guidance for '22?
Omar Asali: So, in terms of what we saw in the last quarter, we've had a number of closes, Ghansham, that helps drive quite a bit of growth. So, there was a number of organic growth that drove part of that volume. Given the SAP and the ERP announcement, we believe with some of our partners, there was a little bit of buying just to make sure that whatever they got in terms of supply in January of this year was seamless. And then what we've seen since then and since implementing the new system is a pickup back again to just normal rates of volume and growth. And frankly, a continued growth in our trials, which hopefully will lead to further closes that will continue to drive sort of the volume going forward. So, we continue to see strong trends in terms of volume and in terms of end-user demand. Bill, I don't know if you want to add some color to that.
Bill Drew: Yeah, and Ghansham, the other thing I'd point out just on the volume side is, the fourth quarter of last year was an extremely frenetic environment from an e-commerce perspective. So, I think you have a pretty dramatic increase last year. So, a little bit of a challenging comparison on the volume side, year-over-year.
Ghansham Panjabi: Got it. And for 22, what are you baking in for volumes?
Bill Drew: We're looking at roughly -- if you look at our guidance, Ghansham, we're looking at roughly 50-50 in terms of price volume contribution on the top-line there.
Ghansham Panjabi: Okay. Perfect. And then for my second question, Omar, maybe for you on automation and a lot of companies, including those in our coverage, they’re talking about ramping up their investments there. Can you just share specifically about how Ranpak is differentiating itself, from a competitive standpoint on specific to automation? What capabilities are you bringing to the table for your customers?
Omar Asali: Sure. So, we're very focused on what we call all end-of-line activity for automation that is anything from frankly putting the item in the box, erecting the box, customizing the size of the box to labeling, and frankly, with some of our partnerships all the way to loading the truck, if you will. And we have solutions that can do all of that in an automated fashion, Ghansham. Or some solutions that let's say, are semi-automated and reduce the amount of labor that you do. The biggest challenges we have is in equipment that we make, which is box customization, pad insertion, robotics, and automated void-fill, is we've been hitting capacity in our existing physical footprint, and we've been saying for a while that we want to invest in real estate to expand that capacity because frankly the demand we're seeing from our existing customers as well as prospects surpasses our capacity quite a bit. So, we are working hard on expanding that in Europe as well as building our facility here in the U.S. I wish there was a way to do that even at a faster rate, given the robust demand that we need. And once we do that, this will enable us to basically increase our production by three to four times. For just that equipment, there's a number of other solutions we have, where we work with other external parties on subassembly and assembly that we're also increasing capacity there. And what that would put us is in a position to, we believe, be a leader in end-of-line solutions that our customers want. And that's really the focus and the investments that we're making in a fully robust organization from installation, project delivery, all the way to services and parts so that we can meet the demands of our customers.
Ghansham Panjabi: Thank you so much, Omar.
Operator: Our next question comes from the line of Adam Samuelson from Goldman Sachs. Your line is open.
Adam Samuelson: Yes. Thank you. Good morning, everyone.
Omar Asali: Good morning, Adam.
Adam Samuelson: First, I wanted to just make sure to follow by Ghansham's question on the revenue guidance and maybe think about it this way. So, the installed base at the end of the fourth quarter was about 13.5%. You had 12 points of price on your paper consumables. You're talking about incremental pricing actions moving forward. Pricing, you got some pretty easy comps on pricing, especially in the first half of the year. The 13%, 18% constant currency revenue guidance had I think if I took the automation piece that you talked about, that's like a point -- point-and-a-half of revenue growth. And so, I guess I'm trying to make sure why are implied volumes per machine in the installed base declining? Are you finding that those new add -- those new placements are considerably less productive from a throughput perspective than some of your legacy? Are you finding reduced throughput with existing customers? Because otherwise, I'm struggling to really figure how we get to that 13% to 18% constant currency revenue guidance.
Omar Asali: Sure. We watch our revenue per machine very, very closely. It's an important metric for us. One of the things that get lost when you do things at the overall company level is what type of converters and equipment are you investing in and growing? I'll give you an example. We see a lot of opportunity in wrapping. We see a lot of opportunity in ship from store. Some of that equipment is a smaller equipment, just by definition, has less revenue per machine compared to some of the larger industrial stuff. So, we're taking part of that as part of our capitalist. I think your numbers are generally correct where you were talking about a of automation. And then the rest of the growth, roughly speaking, this is not exact, we think it's a mix between price and between volume. One of the things I want to highlight on price, we've instituted some price increases. We will be doing some more. I would say, given the inflationary environment we're seeing and given a lot of noise out there with what could be transitory, what isn't transitory, we are asking for price increases. We're not pushing on that lever all the time as much as we can to continue to see where the world settles. So, we're being a little bit patient and you saw that in our numbers in Q4, and that's part of why we're giving the guidance that we're giving. Could there be some room for further price increase? Yes, potentially, but I think we're taking the position of let's see what happens in the inflationary environment and supply chains before we start doing that across our different markets.
Adam Samuelson: Okay. All right, that's helpful. A couple of maybe quick hit model questions, 1. What was the $5.6 million adjustment to adjusted EBITDA in the period? That was a big item that wasn't really defined or just aren't detailed in the press release. Second, what would the -- what would your reported revenue and EBITDA be for '22 at current exchange rates and then you just got constant currency? And then maybe if I could just finally -- just any thoughts on free cash conversion. I'm looking at 2021, just -- even just cash from operations versus your adjusted EBITDA. There's a very meaningful GAAP, and just how we should think about that into '22?
Bill Drew: Sure. Adam, I'll start with EBITDA PA add-backs. So, the biggest chunk of that is related to SAP and the digital transformation. Big chunk of that is related to the consumables write-off that I mentioned in the prepared remarks. There's also some backfill cost and extra professional fees associated with that. That was about 3.5 to 4 of that add-back. And then the others were largely driven by expenses related to the Recycold acquisitions, some other legal fees. So, its recognized as bigger than normal, but a lot of it was related to SAP. As far as the free cash flow conversion question, this year we did invest a lot more in our working capital. We've talked about that on a few of the calls where we were building up inventory of converters and paper to be ready to serve our customers, just given all the supply chain constraints that are going on in the world, so that I think was a big driver of the disconnect between EBITDA and the cash from operations. We expect that to normalize going forward, right as we built up sufficient safety stock and expect to be selling out of stock now rather than building up inventory. But for '22, we do expect to generate meaningful cash even with these investments that we're talking about, with $75 million of Capex and the growth profile that we have in the cash generation from our PPS business, we are expecting to generate cash going forward. And then on the EBITDA question, at current exchange rates, I'd have to get back to you on that. I don't have that handy in front of me, but we can follow up. Okay. All right. I appreciate all that color. Thank you.
Operator: Our next question is from Greg Palm from Craig-Hallum Capital Group. Greg, please go ahead.
Greg Palm: Yeah, thanks. Morning, everybody. I guess just wanted to dig in pricing just a bit more, just unclear. So, do these newly announced price increases, can that completely offset the input cost inflation or will there be a continued lag or headwind in 2022 based on what you're seeing today?
Bill Drew: Yes, Greg, this is Bill. I'll start with that. So there has been a lot of movement in the commodity markets recently and continue. So, we are constantly analyzing those and making sure that we're calling back margin where we see fit. You saw some impact in the fourth quarter. We’ve already announced some pricing actions to take place. I think if you're just thinking about the cadence of it, we do expect some of that pressure to persist in Q1 and then improve going forward as the announced pricing actions are implemented. Just given the transition to SAP, we were not able to implement those as quickly as we normally would. But we are expecting to claw back meaningful number of margins, particularly as the year progresses.
Omar Asali: The plan, Greg, is ultimately as the year goes on, you will see us implementing enough price increase to offset the inflationary environment that we're seeing. And one thing I want to highlight on that and you guys obviously know this, yes, paper price increases have occurred in the marketplace. There's inflation vis-a-vis labor, and labor costs and so on. From a competitive landscape standpoint, we actually are getting into an area where our competitors that are doing more with plastic and plastic substrates are facing more pricing pressure and asking for more price increases,
Bill Drew: And that is helping us from a competitive standpoint. So, when Bill says it's dynamic, we're watching it, we're trying to decide what to do, part of our capital is also -- is to balance that with what we want to do from a market share standpoint, and what we want to do from a volume standpoint. Do we want to push a bit more on volume and a little bit on price, because we have that choice or do, we want to just implement price increases to offset everything we're seeing? That's part of the stuff that where we're reacting to in the marketplace. Depending on what we're seeing out there. But from a competitive standpoint, it's important to highlight. We're seeing advantages. I'll give you one example with foam and the industrial channel. The price increases there have been significantly higher than paper, and that's an area that we're focused on gaining more market share in the industrial channel.
Greg Palm: Yeah, it makes sense. And I'm guessing some of these price increases for the alternatives don't even take into account the recent move in energy in crude prices, right?
Omar Asali: That's correct. So that's another added relative benefit, if you will, but this is why we're watching things and we're making decisions based on new data and based on what we're seeing out there and the market reaction from some of our customers and competitors.
Greg Palm: Yes. Makes a lot of sense. And then I'm curious, what do you think the current demand profile of automation is today? So, you're maxed-out right now. I'm guessing demand is quite a bit higher than the $20 million that you said you'd be able to fulfill this year. I guess better said, how much revenue do you think you'll generate this year if you had more capacity?
Bill Drew: I think if we have the capacity, we could have delivered double the machines that we have from a demand standpoint, honestly easily. The limitation has been us, our capabilities, our physical footprint. It has not been the end users. And that demand is robust, in Japan, in Korea, and Australia, in Europe and North America. So, the demand for Automation Solutions, I think it's quite large, by the way, for us and for our competitors. And the question is, who is going to be ready and crack the code to provide the right solutions at the right price and time. And that's the race that were in.
Greg Palm: Got it. So, we probably should be expecting just some growth next year as that capacity comes online, but pretty meaningful growth in automation.
Omar Asali: That's why we highlighted in our commentary just the capacity, the 3X-4X year and over that we are recruiting to get ready for that. As you can imagine, let's say, if all of our physical facilities are ready by end of '22, there will be a little bit of a ramp up period in early 23. We're hoping we would do enough planning, that ramp up period is short. And then you should start seeing us hopefully operating at a much meaningful, larger capacity, and try to meet the demand at those elevated levels.
Greg Palm: Great. And I hope best of luck going forward. Thanks.
Omar Asali: Thank you.
Operator: Our next question comes from Stefanos Crist from CJS Securities. Please go ahead.
Stefanos Crist: Omar and Bill, good morning.
Omar Asali: Morning, Stef.
Stefanos Crist: I want to address one of the previous questions you talked about, taking share from customers of plastic as oil prices are rising. Are you taking share from existing customers, who use both paper and plastic or is that helping you gain new customers?
Omar Asali: We are very focused on gaining share from customers that are utilizing plastic solutions today. That's a big part, both in industrial and in void fill, of where we're targeting some growth opportunities and helping them switch from plastic to paper-based solutions. Obviously, with sustainability being a key part of it, but frankly, trying to push on pricing where it makes sense, given what we discussed with the inflationary environment. So, our key focus is on switching a lot of customers over time from plastics to paper,
Bill Drew: And that is similar to what we've seen in Europe. And frankly, this is why we mentioned EPR regimes, the extended producer responsibility regimes, where that's been implemented in the state of Maine, in Oregon, there's discussions about it in New York and in California. If these regimes are implemented and implemented in a way where there are, let's call it more taxes or fees associated with virgin plastic and less with paper solutions given the high recycling grade of paper solutions, that's going to continue to help us shift more customers from plastic to paper and frankly, that's precisely what happened the last number of years in Europe
Omar Asali: With their EPR regime, and that's been something that you guys can see our numbers and what we delivered in terms of growth out of the European Continent. And we're hoping that that's something we can duplicate in North America in the upcoming couple of years. So, Stef, to answer you in a nutshell, there's a big focus on switching folks from plastics to paper.
Stefanos Crist: Great. Thank you. And then I just want to follow-up on cold chain. Can you give us a sense of what percentage of revenue that is currently and the potential of that end market?
Bill Drew: So right now, cold chain is below single-digits, right? But we see a lot of potential for this, and we're excited to invest in Recycold and package that with some of our existing Ranpak solutions. We think it's a really nice combination and a nice solution to offer to customers. We think that the growth opportunities there are meaningful, and we're continuing to invest and add solutions to our profile, add the summer profile to our current cold chain offering in the future and continue to grow there. So just the food and beverage, I think passive cold chain market alone, is roughly about a $5 billion market, growing high single-digits, 10% area. And then you can add some passive cold chain on pharma, but that's longer ways away. So, we think that there's meaningful opportunity to expand this business with our current offerings.
Stefanos Crist: Perfect. Thanks so much.
Operator: Next, we have a question from Alexander Leach from Berenberg. Your line is open.
Alexander Leach: Morning, everyone. Thanks for taking my question. I know you pricing , but given the volatility in pricing, can you discuss a little bit more the conversations you've been having with most recently? How are negotiations set for the grading prices for 2022, and how are you expecting much about the expectations pricing for the year?
Omar Asali: Yes. Listen, obviously, in the last few months many of our suppliers and mills have been very focused about the inflationary prices that they're enduring and that has been part of the conversations we're having with them, in particular, on the energy side. Where in addition to all other labor issues, etc. on the energy side, you've seen some quite a bit of pressure. We have secured the supply that we want for 2022, so we've negotiated on the volumes that we want. We have negotiated with folks’ prices that we feel good about. And as I said, with some price increases that we would be doing, that we feel we would be maintaining the financial profile. In some cases, we have a number of suppliers where we also agreed on indexing things based on like the grocery bag index, etc. But it's infrequent where it gets rerated. So, call it with some suppliers every six months or so, we may revisit depending on what's happening with some of the indices out there. And the reality that's just more a reflection of how volatile the world is. So maybe if things ease up, we see some favorable pricing. If not, it will be a mechanism for our mills to continue to get respectable margins. And that would be something that, if that happens and prices go up, and let's call it six months with some of the vendors, we would be adjusting for that in our own price increases with our customers. But in general, we feel very good about securing our supply for this year. And we've locked in, I think at rates that we're comfortable with that we'll maintain our financial profile.
Alexander Leach: Okay. Great. You made some comments on M&A going forward in this year and next year. Could you just discuss a little bit about the pipeline that you're saying for '22?
Bill Drew: We continue to look at -- M&A right now is really largely driven by what we think our solution that our customers want. So, we continue to look for certain situations that beef up our automation capabilities. We will look for products that enhance our suite of offerings in PPS. The world is a little bit uncertain right now. I wouldn't say we are aggressively looking at anything. We are more always keeping our eyes and ears open and looking for things that our customers want, and we feel we can offer those products to them,
Omar Asali: Or those solutions to them. That's really what we're looking at. It's not different than what you've seen from us in prior year. The biggest difference is today, from a technology and platform standpoint, given all the digital investments that we highlighted, our company is a lot more robust to take on bigger M&A if an opportunity like that arises. But we all know M&A is dynamic, it's fluid, it depends on valuations and a lot of factors out there. We're going to be very, very disciplined. It's part of our allocation of capital strategy. And when we think something makes sense and in particular makes sense for our customers, we will pursue it. But in the meantime,
Bill Drew: You have a sense of what we've done, whether it was the investment in Pickle and Creapaper buying Recycold. These are all things that were driven by us trying to have better offerings for our customers, and we will continue with that strategy.
Alexander Leach: If I could just, several more in? How much of the benefit you're expecting from your digital transformation and margins? And I'm assuming that all the benefit will be used to reinvest back into the business as you scale. I'm just trying to get an idea of how much the leeway it's going to give you in terms of being -- to reinvest back in the business and maintaining the margin profile?
Omar Asali: Yes. It depends on the different areas that we're in. There's real opportunities when you implement a system like this in procurement. The data that we have on that is really attractive where we might be able to extract efficiencies meaningfully there, as well as number of our other process flows. We think that, going forward, this will provide us a nice opportunity to reinvest in the business to drive growth and maintain that 30% EBITDA margin profile that we like to target. As far as giving you specific numbers on what that margin opportunity is, it's hard to say at this point because we just implemented the system, but we think from the benchmarking data that there's real opportunity for savings here.
Alexander Leach: Great. Thanks, guys.
Operator: Next up, we have a follow-up question from Adam Samuelson from Goldman Sachs. Your line is open.
Adam Samuelson: Yes. Thank you. I just wanted to follow-up on the outlook for '22 on the base business. And is there's any delineation or distinction you draw in terms of the price volume outlook across the different parts of your installed base chain cushioning, Void Fill and Wrapping in terms of what areas where you're more optimistic on growth versus maybe a little bit more guarded? And the corollary, can you just disclose what your exposure -- direct exposure is in Russia and Ukraine?
Bill Drew: Sure. So, on the outlook, if you think about our major PPS categories with cushioning, wrapping and Void Fill, the outlook that we have on each one of those categories is attractive. Where we think there our real opportunities is to continue to grow that cushioning business, just what's going on in the foam and place market, we think that there's real opportunity for our paper solutions to expand there. So, we're optimistic about improving the growth rate within our cushioning solutions, Void Fill, e-commerce remains strong and the share shift from brick-and-mortar is real. So, we're continuing to see nice growth opportunities there, particularly in North America where we maybe a little bit more under-indexed and then wrapping, that's a product that gets great traction across the globe. So that -- the growth profile there, I think is consistent with what we've seen in the past.
Bill Drew: There’re real opportunities to expand that business, particularly as the ship from store opportunities expand.
Omar Asali: And on your Russia and Ukraine question, in terms of customer exposure, it's de minimis for us. Across the company, it's very, very small. I think the exposure is a few basis points of our revenue, so that's not really an area of concern for us. We do have some suppliers of paper out of Russia, we're monitoring that closely. We feel pretty good, again, about securing our supply and if needed, given our negotiations, we can flex with others. But we're watching that piece.
Alexander Leach: All right. That's really helpful. Thank you.
Omar Asali: Thank you.
Operator: We have no further questions, so I will hand back to the management team for any concluding comments.
Bill Drew: Thanks a lot, Emily. And thanks everybody for joining us today. We look forward to getting together in the first quarter.
Operator: Thank you, everyone, for joining us today. This concludes our call. Please now disconnect your lines.
