Title

Presentation

Operator: Hello and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Ranpak Holdings Corporation Fourth Quarter 2022 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. I would now like to turn the conference over to Sara Horvath, General Counsel. Please go ahead.

Sara Horvath: 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 in 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 slide presentation accompanying today’s earnings release. Lastly, we’ll be filing our 10-K with the SEC for the period ending December 31, 2022.

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 2023. 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. Thank you for joining us today. We had a challenging fourth quarter leading to a weak finish to a very frustrating year. Our team battled headwind after headwind throughout the year culminating in a disappointing last quarter. Soft consumer and business demand, biting interest rates, inflationary pressures, switch in spending from hard goods to experiences, and volatile energy markets especially in Europe, took its toll on our business. Despite our best efforts, we could not translate our activities into better results. We are determined to do so in 2023 and I fully expect us to deliver better results as a company. The quarter started off fairly in line with expectations, but deteriorated as we got into the thick of the holiday season.

Unfortunately, much of the bump in activity that we typically see in the fourth quarter did not materialize in 2022. Making the situation worse, it also appeared many customers were intent on finishing the year lean, with as little inventory on hand as possible, delaying shipments into the New Year, which exacerbated the already lower demand environment. Consolidated net revenue on a constant currency basis decreased 22% driven by pressure in both regions as a really weak holiday season with low industrial activity unfolded across the globe compared to a massive Q4 2021. From a full year perspective, net revenue was down 9% on a constant currency basis, driven largely by the weakness we experienced in the second half. Europe and APAC finished on a softer note relative to Q3, down 23% on a constant currency basis.

Performance in the region was driven by lower economic activity, as well as destocking activity. Net revenue on a constant currency basis was down 9% for the year, driven by pressure in OPTS product lines as destocking meaningfully dragged on results and uncertainty due to the war, inflation, energy and the general economy created a cautious industrial and retail operating environment. Our North America business also experienced meaningful softness at the finish of the year, with sales down 21%, driven by pressure in void-fill and wrapping as e-commerce activity meaningfully surprised with a downside. Full year results were down 8% in North America driven by a reset of the void-fill and wrapping business after an outsized 2021 and were only partially offset by growth in cushioning.

Many of the new business wins we achieved throughout the year were much slower to get ramped up and unfortunately were not enough to offset the general malaise in the areas of e-commerce that we serve. Adjusted EBITDA of $12.9 million was down 64% in constant currency terms year-over-year and resulted in a margin of 15%. Our decline in EBITDA was due to lower sales volumes compared to a year ago, exacerbated by higher input costs, inventory revaluations and investment in personnel. For the year adjusted EBITDA was down 43% to $66.8 million. Overall, it was a quarter and a year that were fraught with many headwinds. The impact of many of these were further exacerbated by some of the investments we made to enhance the business over the long-term, but left us more vulnerable to these disruptions in the short-term.

We went live with the sophisticated new ERP platform as war and an energy crisis engulfed our largest geography, upending our forecast and causing us to meaningfully adjust our paper sourcing. Our input costs skyrocketed to what we believed were unsustainable levels. Many of our largest customers invested in too much inventory and then quickly had targets to work it down to a conservative level to reflect the uncertain economic environment, while at the same time general consumption behavior shifted from the purchase of goods to experiences as I’ve already stated, as economies opened up prolonging the destocking pain . Fortunately, as we enter 2023, it’s a different operating environment from what we experienced in 2022. As many of these headwinds, in particular, our input costs and destocking were unique events and have turned from headwinds to tailwinds already this year.

Some of the pressure we experienced to finish 2022 has translated into a more robust start to the year than we were anticipating. From a top topline perspective, January and February combined are where we were in January and February of 2021, which was peak activity levels for Ranpak. This of course comes with a lower margin profile than 2021, given we are at the beginning of the move down in paper pricing, but I thought it was relevant to share what we are currently seeing. Now, do I think the demand environment has completely turned around and is back to breaking records? No, of course not. I don’t expect 2023 to be 2021, but I also don’t believe the weakness you saw in our Q4 results reflects the operating environment. In my opinion, viewing it together with the start of 2023 is more appropriate to get a feel for the trajectory of the business.

Given the jarring nature of Q4 results, I think it is important to share some color on the start to the year. We will take you through our guidance for the rest of 2023 after Bill’s remarks. Now to summarize, we’re focused on getting back to growth this year, improving our execution on margin profile, and finishing many of the investments we have been discussing for the past couple of years, and beginning to harvest some of the benefits. While I’m deeply disappointed in 2022, I do not believe it’s an accurate depiction of where we are or where we are going as a company. Now, here’s Bill with more info on the quarter.

William 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 increase, albeit at a slower rate, up 4.4% year-over-year to over 139,100 machines globally. Cushioning systems increased 0.3%, Void-Fill installed systems grew 5.3% and Wrapping continued its expansion growing 8.3% year-over-year. Net placements slowed down a bit to finish the year as activity was lower and we have been actively trying to retrieve machines from the field that we believe are being underutilized, with the goal of ideally refurbishing them and putting them back out in the field, eventually improving utilization and saving on CapEx. Overall, net revenue for the company in the fourth quarter was down 22% year-over-year on a constant currency basis, driven by a softer finish to the year in all regions, and full year results were down 9% on a constant currency basis.

For the quarter, combined revenue in our Europe and APAC reporting division decreased 23% on a constant currency basis, bringing the full year 2022 combined revenue in those regions to a decline of 9% on a constant currency basis. The finish to the year was weaker than anticipated as December thus significantly reduced activity relative to years past. North America had a challenging quarter as the holiday season was weaker than anticipated at many of our e-commerce end users, leading to a decline of 22% versus the extremely robust quarter in the prior year, bringing full year results to a decline of 8% in the region. For the quarter, most of the pressure was in the wrapping and void-fill areas while cushioning was down slightly. Reported gross margins of 28.1% for the quarter were lower versus 35.6% in the prior year as the flow through of less volume drove the majority of the decline in our margins, offset by approximately mid-single-digit points of price.

We also experienced approximately 1.5 points of pressure due to inventory related items, including the markdown of the carrying value of paper inventory in Europe as lower energy costs flow through the industry landscape driving paper pricing lower. We believe the fourth quarter will be the trough in profitability as many of the gross profit headwinds that plagued 2022 are beginning to either dissipate or move in the other direction. This includes paper pricing, freight and logistics, energy among others. SG&A for the quarter on a reported basis declined $7.7 million year-over-year, largely due to lower RSU expense. We have continued to make progress sequentially, however, as our Q4 compensation and benefits were 11% lower than our Q2 peak.

Obviously, given the environment, we are keeping a tight lid on spending and only investing in areas that we feel can truly move the needle. As a result of the lower sales volumes and additional cost absorbed in the fourth quarter, adjusted EBITDA declined 64% in the quarter to $12.9 million on a constant currency basis or a 15% margin, bringing full year results to down 44% to $66.8 million, implying a 19% margin. Unlike most years where the fourth quarter is the most robust from an EBITDA contribution standpoint, unfortunately, it was our weakest quarter by far, driven largely by the deterioration we saw in demand as the quarter went on, particularly in December as well as the peak in our input costs. Moving to the balance sheet and liquidity, we completed 2022 with a strong liquidity position including a cash balance of $62.8 million and no drawings on our revolving credit facility, bringing our net leverage to 5.3 times on an LTM basis or 4.8 times according to the definition of adjusted EBITDA on our credit agreement, which again maxes out at 9.1 times, leaving us significant room to weather the storm.

While we have substantial room to maneuver, we recognize the importance of maintaining a strong cash and liquidity position and are focused on rapidly returning to our targeted leverage ratio of three turns or less. Fortunately, we entered 2022 with a strong balance sheet which provide us room to navigate the environment and invest in working capital, absorbs some short-short-term pain and margins to maintain strong customer relationships and fund key initiatives that we believe will maximize value over the longer-term. We are at a point now where our near-term CapEx investment cycle will end following the completion of our facilities, and the negative P&L impact of key investments will abate and hopefully start to pay dividends. We’ve made good progress on converting our paper inventories into cash in North America and we’ll continue to make progress on this front in Europe, and the safety stock levels on converters enable us to take a more measured approach on converter spend in 2023.

The paper price environment begins to benefit us in Q1 and while there was a lag of us passing through pricing on the way up, we expect there to be a lag on the way down as we recapture some of the margin we consciously let go of temporarily to preserve customer relationships.

12b-25: The audit process is nearly complete and we expect to file our 10-K by March 31st. In the Form 10-K we do intend to report a number of categories, material weaknesses, and our internal control over financial reporting, IT controls that had a pervasive impact on our various other controls over the financial reporting process, much of which stems from the transition to the new ERP and PPS systems. As a result, we will report that our internal control will reporting and therefore our disclosure controls and procedures were not effective at December 31, 2022. We plan on remediating these issues as promptly as possible and want to make clear that the ineffectiveness of these control processes are not expected to result in any changes to the financial information as of and for the year of December 31, 2022 included in today’s release. 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 in maintaining relationships and accelerating share gains to hopefully emerge with more momentum as market headwinds lessened. In 2023 we anticipate benefiting from these measures and have focused our remaining investment to focus on only those areas that are critical drivers to maximize value this year and beyond. This year on a constant currency basis, we’re anticipating revenues of $365 million to $385 million, reflecting top line growth in the area of 6% to 12%, and adjusted EBITDA growth of 14% to 29%, implying a range of $76 million to $86 million. Our top line growth for the year reflects our expectations of our return to volume growth as we lasted the destocking that we experienced throughout 2022, as well as increased demand driven by new products.

Our growth in adjusted EBITDA of 14% to 29% reflects the contributions from the expected volume increase, as well as positive operating leverage that we expect to come from gross margin improvements due to a more favorable input cost environment. 2023 is a pivotal year and turning point for Ranpak as we will finish the bulk of the infrastructure investments we have been discussing, putting our platform for growth and expansion fully in place by year end. The most important of which is our digital transformation, which is largely complete and in the benefit harvesting phase right now. We concluded the renovation of our global headquarters in Concord in 2022 and by middle of 2023 we will have a new European headquarters in the Netherlands, a new automation R&D and production facility in Connecticut, as well as paper production operations in Malaysia.

These projects have been a tremendous undertaking by the team over the past couple of years and put a lot of stress on the organization, but I believe they were essential in order for us to achieve our outsized goals, all of which I continue to believe are bigger than when I first joined the company. Although the financial results of 2022 are frustrating, I firmly believe we are a significantly better company than we were a few years ago. Our systems and access to data are night and day apart. Our processes have improved considerably and are documented and repeatable rather than tribal knowledge. The talent levels of the team across the organization are also better and are enabling us to pursue opportunities that two years ago we would not have been able to chase.

As I think about the terribly disappointing year of 2022 and how I get comfort that 2023 and beyond will be far better outcome, I think it is helpful to identify the key headwinds that really drove under performance and what the status is of each one going into 2023. First, we went live with a brand new and sophisticated ERP system in the first quarter of 2022. We now have a year under our belts in the new operating environment. We made great strides throughout the year and will continue to get better and get more efficient, turning our transition into SAP into a way to enhance performance and extract efficiencies. On the demand side, there are a few factors that provide some encouragement. Destocking. Distributors and end users across the globe went into 2022 with product on hand that reflected the COVID and stimulus induced hyper demand environment.

The distribution model made it tricky to have good visibility throughout the year on customer inventory levels and sell through of products, which really impacted our forecasting. This destocking period was further exacerbated by the market slowdown in the overall macro environment across the globe and uncertainty due to the war in Ukraine. We’re at a point now where we can confidently say more normal ordering patterns are returning and the overwhelming majority of destocking has been exhausted. In fact, we believe many distributors ended the year in a markedly low inventory position as to not to have a lot of products on their books at year end exacerbating the week finish to the year. This, I believe, has contributed to our seeing January and February being in line with where we were in January and February of 2021 from a topline perspective.

Next is the great e-commerce reset. Consumers spent two years sitting at home with excess savings being deployed for the consumption of goods. In 2022 that changed dramatically. Consumers were free to travel again and enjoy experiences they craved and those lost two years. Many of the more expensive, more durable and larger items that our PPS solutions are used to protect had been ordered and delivered in the years prior. It’s hard to call the bottom on something like this as consumer behavior is always tricky, but I think we are much closer to the point where normal buying and replacement patterns for these types of goods will reemerge. Also, the general inertia of e-commerce continues as many of our customers continue to open new facilities to become more efficient and ask us to help them as they expand.

Churn. Our churn and attrition throughout this challenging period has been relatively low. By investing in our customers, we believe we were able to preserve and sustain an outsized portion of our existing book of business. While it was painful from a margin perspective, I believe we will bounce back faster because of the strategy we employed. Sustainability. In the massive inflationary environment and disrupted supply chains, sustainability took a backseat to cost efficiencies as the area of focus for procurement teams. As the environment stabilizes, I can confidently say the focus on sustainability is coming back with vigor and that wave in North America is becoming much more real. We have positioned ourselves well to benefit, so I’m looking forward to this renewed focus.

On the cost side, it really comes down to kraft paper and energy. Kraft paper prices in North America and Europe increased dramatically in 2021 and 2022 due to outsized demand on the unstable energy environment in Europe. While most other commodities rolled over meaningfully in the back half of 2022, kraft paper remained resilient, weighing on our gross margins. This is finally changing as the supply/demand environment in the U.S. is putting pressure on the paper market and lower energy and waste paper prices in Europe is weighing on kraft paper there as well. The greatest headwind we face in 2022 by far from a cost perspective has turned into a tailwind for us going into 2023. We expect to be able to achieve meaningful cost savings compared to 2022.

This is what we are seeing on the ground already and gives us the most confidence in a more robust profitability profile in 2023. Energy. Energy prices in Europe are down 80% from where they peaked over the summer. This could obviously change very quickly and the only certainty I can provide is there will be volatility in European energy markets, but from where we sit now compared to where we were going into the winter, we and Europe in general are in a far better position. We haven’t baked in this environment persisting throughout the year, but if this environment holds, there would be upside to our plan. Finally, automation. Automation is something we’ve been talking about for the past number of years. We’re at a point now where we have the right products, we have the right team, we will have the facilities by mid-year and we are building the pipeline to scale.

We believe that as we exit 2023, automation will begin breaking even on a run rate basis and no longer be a drain on EBITDA. For context, automation was a $6 million drain on EBITDA in 2022, and we expect it to be a total headwind of $4 million in 2023. Getting into the black on automation would be a game changer for us and significantly improve our ability to get our financial profile back on the trajectory we desire, and that is 30% EBITDA margin in PPS, high teens to 20% EBITDA margins for automation, and lowering our CapEx as percentage of overall sales. Obviously, a macro environment in the short-term has its challenges and what could happen around the world is unknown. We believe the first half will reflect these weaker activity levels, but we do expect a more normal operating environment to emerge as 2023 unfolds.

Europe seems to be adapting well to living with the uncertainty that the war has produced and a more normal operating rhythm has been established. New business activity in the U.S. is quite strong and we expect key wins to kick in as we get a bit deeper into 2023. Overall, I’m disappointed by 2022, but I’m extremely focused on getting back on track in 2023 and maximizing value for our shareholders. All of the key drivers of our business are very much intact and will propel our business forward. Companies large and small are investing in e-commerce, opening new facilities and trying to become more efficient. Labor remains expensive and in short supply. Our PPS and automation solutions help companies address these needs. On the sustainability front, some of the largest brand owners in the world are driving the move to reduce the use of single use plastics and move towards biodegradable and recyclable materials.

This is a global phenomenon and one that is picking up a lot of steam in North America. Many companies have made public commitments regarding their sustainability goals. Most, if not all, will fall short of these commitments and Ranpak can help them bridge that gap. Thank you all, again. At this point we’d like to open up the line for questions. Operator?

See also 10 Stocks with Biggest Buybacks and 15 Countries Where Bitcoin is Legal or Illegal.

Operator: Our first question will come from the line of Ghansham Panjabi with Baird. Please go ahead.

Ghansham Panjabi: Thank you. Good morning guys. Would you be able to bridge us the 2022 adjusted EBITDA using your definition constant currency of $67 million versus the $81 million midpoint for 2023 between volume, price mix, and anything else you want to call out?

William Drew: Sure. Omar, you want me to take that one or?

Omar Asali: Yes, go ahead, Bill.

William Drew: Sure. Thanks Ghansham. So for 2023, I think, what we’re looking at from a volume, price, price mix automation standpoint, at the low end volumes we would assume to be kind of minimal volume growth right at the high end, you’re talking mid-single digits. You’ll get a little bit of price low single digits just from some of the carryover, from some of the pricing that we took in the first half of last year. And then automation we’re expecting to contribute kind of low single digit part of the growth on the top line.

Ghansham Panjabi: Okay, got you. And then as we look at our model, a few average EBITDA between — from both 2021 and 2022, you pretty much get to the baseline levels of 2019 and 2020, even with machine placements being around 40% higher than 2019 average levels. I know a lot of things have impacted you and others over the past 12 months, but how do you sort of see machine placements trending over the next couple of years in context of the operating environment that we’ve basically have at current?

Omar Asali: Yes Ghansham. I think in the last couple of years, as you’ve identified, there’s just a lot of noise. There was excess usage during COVID. Then frankly, I think excess underutilization. So we invested in machines. We invested in machines, placing them at new customers, frankly kept a number of fleet at existing customers. We are very focused on making sure that we’re optimizing the amount of equipment at existing customers right now, but we want to be careful where, you don’t want to go reduce that number of machines drastically. If you think some of the issues the customers are facing are due to temporary weakness or temporary softness, you want to make sure that you, you’re providing the right service level to these customers.

So we’re trying to get a better sense of what normalized utilization is for some of these machines. Our belief in the current environment, given what we’ve endured with destocking, given the general malaise and the economy, given the weakness in e-commerce, the war in Europe, et cetera, is our machines will be utilized at a much higher level at our existing customers, but we need some of these issues to be resolved then to pass through. And we will be watching that in the upcoming months pretty closely to make sure that that thesis has played out. And our biggest config conviction right now is around destocking which we believe our customers started the year at very low levels of inventory. We think that was a finite event that was painful in 2022, and that alone should help and will help utilization of some of these machines.

So the answer is we’re watching it closely. We are going to be pretty prudent when we’re placing new machines at new customers. We’re going to optimize existing customers, but given all the noise in the last couple of years, we don’t want to overreact real quickly and hurt our business from a recovery standpoint.

Ghansham Panjabi: Very comprehensive. Thank you.

Operator: Your next question will come from the line of Adam Samuelson with Goldman Sachs. Please go ahead.

Adam Samuelson: Yes, thank you. Good morning everyone.

Omar Asali: Good morning, Adam.

Adam Samuelson: Omay, and maybe following on that kind of line of questioning a little bit, can you, have tried to kind of size the impact of destocking both in the fourth quarter and in 2022 as a whole? And maybe disaggregate kind of the volume declines in paper consumables that you reported with between kind of destocking, lower throughput of existing machines, the growth in the installed base and kind of trying to think about that in context of 2023 guidance that I think was low to mid-single digit volume growth?

Omar Asali: Sure. Bill, you want to take that?

William Drew: Sure. So for the destocking last year, in Europe obviously it had a pretty substantial impact, right, and far bigger than we anticipated going into the year. I think we would put probably, the European volume pressure related to destocking was probably in the, call it 40% to 50% of the volume decline that we had last year. So moving away from that going into this year, I think will be a nice lack of a headwind, right, turning into a tailwind. I think where we’re being a little cautious is just on the overall environment, right, in terms of seeing what happens as the economy hopefully improves with the lower energy environment in Europe.

Adam Samuelson: Okay. And I guess as we think about the installed base, and you kind of made the point earlier, not trying to do anything kind of too hasty on pulling machines from existing customers, kind of help us from here delineate kind of what would it take to think about a more significant kind of change in the installed base and just confidence that you have that, the utilization of that installed base is going to improve?

Omar Asali: I mean, Adam, I think the next few quarters on watching the data closely will be key. So as we’re representing to you that we’re confident destocking is behind us, we will be watching that. We’re not seeing any pressure related to that because if we are seeing any pressure related to that, then that means our basic assumption about consumption and rate of consumption are incorrect and what we are considering as lean levels of inventory may not be as lean. And that would change, certainly change our calculus. The second thing that we’re watching, and frankly it’s already happening, and this is why we made a little bit of comments about January and February, is just stabilization of the utilization of our equipment.

So you had a very tough year in Europe last year. You had industrial activity come down. You had e-commerce activity come down in certain geography geographies very drastically. In the Nordic region in Eastern Europe, there were dramatic declines. And frankly, in a place like Germany, which is our biggest market, we saw some dramatic declines. We’re seeing that reverse this year already. So a continuation of that will prove our thesis that maybe being a little bit patient with these converters is the right approach. If we see a change in that in the next quarter or two, then I think we would be reassessing the quantum of converters that exist at some of these customers. We are applying a lot of discipline on any new converters that we’re putting in the field.

And we’ve seen just a lot of volume pressure with our existing guys. And I’ve mentioned these on some prior calls. You’ve had some e-commerce facilities either closed a lot of days during the week or in some cases open a few hours a day. So you’ve had some dramatic moves and we’re seeing some of that normalize. And naturally if it normalizes, it should lift the volume for converters and frankly, year-to-date, that’s what we’re seeing, but to give us more confidence that we’re on the right course, we just want to see that continue for the next couple of quarters because at the end of the day, data for the last 70 days is just not enough. So we will wait and see. We will assess it. We’re watching it very, very closely. If the data shows us something different, we will react accordingly.

But I believe the strategy we’re taking in terms of taking care of the customers, making sure they have the right equipment for €œnormalized levels€, I think that’s a strategy that’s going to be a wise strategy that’s frankly no different than the strategy we took in the second half of last year of not passing all price increases despite the pressure that we were facing in order to protect our customer base and to make sure that they stay with us and as the world reverses, hopefully that will accrue to our benefit. So I think the short answer to your question is just watching the next couple of quarters.

Adam Samuelson: Okay. That’s very helpful. And if I could just sneak a couple quick modeling ones in, what’s the SG&A assumed in the constant currency EBITDA guidance and what’s the expectation for CapEx for 2023?

William Drew: So for CapEx we’re looking at about $55 million this year, Adam. So I think about $25 million of that is related to the real estate infrastructure investments, as well as some other one time projects, such as some palletizing robots, things like that that can help us improve efficiency within the operations. And then call it the other $30 million of that is going to be related to just converters.

Adam Samuelson: Okay, and then the SG&A?

William Drew: And then on the G&A, so I would assume, call it operating SG&A to be, call it 24%, 25% of sales, right? So that would exclude, call it the LTIP and cloud amortization expense.

Adam Samuelson: Okay. All right, that’s very helpful. I’ll pass it on. Thanks

Operator: Your next question will come from the line of Greg Palm with Craig-Hallum Capital Group. Please go ahead.

Greg Palm: Yes, good morning. Thanks for taking the questions. Just diving a little bit deeper on what you’re seeing January and February, can you give us some sense on what volumes were in those two months either, maybe relative to 2021 levels would be helpful?

William Drew: Sure, I can take that. So, from a top line perspective, right, Omar mentioned that we’re in line with 2021 levels. Obviously we’ve taken some price right since 2021, so call it in the second half of 2021 throughout 2022 we did take a good amount of price to keep up with the kraft paper cost increase. So volumes versus 2021 through the first couple months were down, call it about 23 points, but if you look at it kind of by a different geography, in North America they’re up versus 2021, but where you see the decline would be in the, the Europe and APAC region, which obviously had massive demand and that’s really when a lot of it started in 2021. But overall, just from a volume standpoint in that region, right, it’s still above obviously last year and the years prior to 2021.

Greg Palm: Got it. Okay and just thinking about the guidance for the year and all the puts and takes, I’m just kind of curious, maybe you can just give us some sense in what exactly the underlying assumptions are. I mean, are you assuming that what you’re seeing in January and February continues, meaning it gets better since seasonality should suggest that? Are you thinking that what you’re seeing in January and February is maybe just a little bit of a benefit from push outs in Q4 and maybe it doesn’t improve as much throughout the year? I’m just trying to get a sense for what the guidance really assumes.

Omar Asali: Hey Greg, maybe I can start with just some general comments, then I’ll have Bill give in his input. But I would say January and February benefit a little bit obviously from the very weak December in particular. So we’re not necessarily just assuming that that is changing the world and all of a sudden the demand story is going to be different for the rest of the year. I would say from the top line standpoint, macro standpoint, as Bill outlined with the growth rates, we are not assuming anything robust out there. We are saying destocking, we have very high confidence in and that’s behind us, and that will give us some relief. That gives us a lot of confidence, in the numbers that we’re outlining for this year. And the second thing that gives us a lot of confidence, that is not 100% reflected, but a big part of it is our paper pricing and what’s happening in the energy market in Europe now, we’re not assuming that energy is just going to be stable, but what we’re seeing in kraft paper, and we’re negotiating these things, so we have visibility for the upcoming few months and quarters.

We are seeing quite a bit of help on the COGS side for us. I’ve said in the past that we probably gave up in 2022 something along a thousand basis points in our gross margin, and that we’re hoping to recover half of that in 2023. And as the year progresses, we expect to continue to recover more from the input cost side. And we have quite a bit of confidence based on what we’re seeing that will be achievable. So the two things that, that you see that give us confidence in the guidance are destocking and then kraft paper cost. We are not making assumptions that e-commerce is going to reset to fantastic levels this year. We’re certainly not making assumptions about the economy rip roaring or any of that stuff. If the economy improves, that will be added to our plan and our guidance.

But I think what we’ve took into consideration is stuff that we have very high confidence that we can achieve. Bill, I don’t know if you want to add in a few comments.

William Drew: Sure. I think just on — a little color on the cadence, right, I think we are expecting probably the first half of the year to be more subdued relative to the second half just given the environment that we’re in. And also just as you think about last year and how 2022 unfolded, the volumes in the second half of 2022, we’re meaningfully lower than in the first half, right? And given the seasonality, that’s really unusual. So usually you kind of have the opposite effect where there’s a step up and a lot of that was driven by Europe and then towards the end of the year, North America as well. So I think, if you think about 2023, I would say the first half probably the lower from a top line perspective as well as margin, right.

We expect the margin to improve kind of steadily throughout the year as we get more of the benefits from the paper pricing and if you think about just paper pricing last year, right, it continued to increase throughout the year, right? So Q1 of last year was the lowest paper pricing that we had, right, with it peaking in Q4. So as we lap that, particularly in the second half of the year, that’s when we get more of a margin benefit. But we do expect Q1 again to be better margin than what we saw certainly in Q4.

Greg Palm: Okay. That’s helpful. And Omar specifically you mentioned kraft, but what have you seen specifically in terms of kraft paper pricing by region versus where it was end of year?

Omar Asali:

nat-gas: In America it’s obviously less about energy. It’s more about supply/demand. A number of new mills that are coming online, a lot of capacity coming online, as the volumes for corrugated and volume for paper and the general economy is a little bit weaker. We are able to negotiate with our vendors better pricing for, again the upcoming quarters. In many of these cases, these new pricing, Greg, are not starting on Jan 1, but starting in some cases on Feb 1 and March 1. So they were helped a little bit the first quarter, but then as Bill mentioned, they’ll help us more as the year progresses. So these are situations where we’ve already negotiated supply, already negotiated pricing. I would say in America, its supply/demand picture that’s helping us. In Europe, it’s largely energy that’s helping us. And this is why we feel pretty good about recovering a meaningful part of the gross margin.

Greg Palm: Okay, great. And then last one for Bill, I appreciate the upfront disclosure regarding the material weakness, so that doesn’t come as a surprise to everybody, but I missed a little bit of the commentary. Can you just maybe repeat exactly what happened?

William Drew: Yes, sure. And we’ll have a full description in section 9A, the 10-K when it comes out. But I think at a high level, right, 2022 had a lot of changes to systems, processes, reports that are used in the audit process. I would say the biggest things that we encountered in our 2022 year end audit where related to it ITGCs, right? So the general IT controls some access issues and the knock-on effects that all those had on the other controls, which made them ineffective, unfortunately. So, we’ll be enhancing policies and procedures obviously to improve the environment. It’s something that we take incredibly seriously and it’s disappointing taking this step back after having two years of a clean audit, but we’re going to make sure that we address the situation as promptly as possible.

We’ll have some recruiting in some key positions that will help in accounting and other support functions as well as IT, invest in some additional tools right, to help with some of the access provisioning and monitoring. So we’re going to work hard to address this.

Greg Palm: Okay. All right, I’ll leave it there. Thanks.

Operator: We have no further questions at this time. I’ll hand the conference back over to Bill for any closing remarks.

William Drew: Thank you, Regina, and thanks everybody for joining us today. We look forward to catching up next quarter.

Operator: Ladies and gentlemen, that will conclude today’s meeting. Thank you all for joining. You may now disconnect.