Ladies and gentlemen, thank you for standing by, and welcome to the Ranpak Holdings Corp. First Quarter 2020 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] And I would now like to hand the conference over to your speaker today, Bill Drew, Chief of Staff. Please go ahead, sir.

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 S-4 registration statement filed with the SEC in connection with the business combination and our other filings 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 an 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. Also, as we'll discuss in more detail later, due to the accounting treatment for the business combination we closed on June 3, 2019, the data presented for the first quarter of 2019 represents the predecessor period. Lastly, we'll be filing our 10-Q with the SEC for the period ending March 31, 2020. 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. Omar will provide an update on how we are responding to the challenges of managing through the COVID pandemic and summarize our first quarter results. I will then provide additional detail on the financial results before we open the call for questions. With that, I'll turn the call over to Omar.

Thank you, Bill. Good morning, everyone. I'd like to begin by sharing how proud I am of our team and the role we play in helping transport goods across the world safely, sustainably and reliably to people and communities in need. As a part of the critical logistics infrastructure, Ranpak has remained steadfast in its commitment to provide our customers across the globe with the environmentally friendly protective packaging materials that they rely on to ship their products. Ranpak is not a large company, but we are a global one, doing business in roughly 50 countries. Initially encountering the virus in our operations in Asia, then in Europe, and more recently, in the Americas, our employees have been working hard on executing under difficult conditions, and I'm extremely proud of how they have adapted to the changing environment and come together. We shipped a tremendous amount of product in the first quarter, very close to what we did in the first quarter last year, which benefited from customers purchasing ahead of the upcoming price increases and Brexit. While most employees from Ranpak are currently working remotely, many of our colleagues report to our operating facilities every day to make the machine and paper necessary to serve our customers. Their dedication and resolve in stressful times is an example for the rest of our organization. In order to operate in the safest manner possible, the company is working closely with appropriate public health officials to follow stated health and safety guidelines in the cities and countries, where Ranpak operates. All of the company's manufacturing, distribution and other facilities are operating under these guidelines and are fully operational. Our top priorities are the safety and health of colleagues and maintaining business continuity to meet the needs of our customers. Given the critical…

Thank you, Omar. In the deck, you'll see a summary of some of our key performance indicators. For the convenience of readers, we've presented the comparison of the 3-month period ended March 31, 2020, pro forma for constant currency and percentage of completion revenue recognition adjustments in order to present a meaningful comparison against the corresponding period. We'll also be filing our 10-Q today, which provides further information on Ranpak's operating results. Machine placement continued its steady increase in the quarter, up 8.5% year-over-year to almost 107,000 machines globally. Cushioning and Void-fill installed systems continue to grow in the mid-single digits and Wrapping continues to ramp well, exceeding 30% year-over-year. Overall, net sales for the company in the first quarter were down 4.6% year-over-year on an adjusted constant currency basis, driven by industrial headwinds and automation, offset by continued solid performance in our core business in Europe and Asia. As Omar mentioned, we did have some headwinds to our adjusted EBITDA this quarter from the investments we've been making, but still achieved a roughly 28% margin compared to 29% in the prior year. We were able to offset some of the investments in personnel through more favorable input costs, as we negotiated lower pricing from our paper suppliers going into this year. We expect paper pricing to remain a tailwind for the remainder of the year and expect to obtain greater operating leverage on our G&A as the year progresses and sales increase. Capital expenditures for the quarter were $10.3 million versus $6.5 million in 1Q '19. $2.4 million of the increase was due to increases in converter equipment, as we ramped up production of Trident and Guardian, our next-generation converters; support our new product launches; while we also built inventory of Void-fill converters, earmarked fulfillment centers coming online over…

Thanks, Bill. At this point in the call, I'd like to take a moment to thank Trent Meyerhoefer for his efforts and contributions made to Ranpak. As you have all seen this morning, Trent will be moving on from Ranpak as of May 15, and we wish him the best in his future endeavors. Trent is leaving on good terms and has been working with Bill Drew, who will assume the role of interim CFO, to ensure a smooth transition. We will be conducting a search to find a permanent replacement, which we expect to conclude by the end of the year. We've provided a lot of info on this call and tried to provide you with as much color as possible given how quickly the world is changing, including some color on our sales in April and early May. All in all, I'm encouraged by our execution in the quarter. Our business fundamentals, liquidity and financial health are strong. We are laser-focused on ensuring business continuity in our operating areas and developing contingency plans to address a wide range of scenarios. I feel very good about where we stand right now, but understand we are navigating a very dynamic environment where some things are not in our control. The lack of visibility and uncertainty about the pandemic and its potential effects on the global economy and our business makes it difficult to forecast the remainder of the year with any precision. Due to these factors, we are temporarily suspending our forward-looking guidance until the environment stabilizes and we get more clarity. As always, we are prudently managing our business in the near term, while maintaining focus on the long-term health of our company. 2020 remains an investment year, and we will continue to do the things we believe are in the best interest of the business for the long term. We continue to ramp up our talent in areas of investment, so we can be in a position to emerge from this period in an even stronger position. Thank you all, again, for joining us. At this point, operator, we'd like to open the line for questions.

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

Omar, as you look back in the quarter, I think you said it didn't quite meet your expectations. Can you talk a little bit more about various end-market strengths and weakness points and maybe how some of these customer facility closures that you mentioned might have impacted results?

Yes. Sure. Obviously, this quarter saw just tremendous volatility in certain sectors that we were not anticipating. I don't think anybody was. So to give obvious examples, in some industrial segments, where certain facilities and customers of ours were shut down for the last 2 weeks of the quarter, we saw that in auto-related. We saw that in some of the furniture players. We've seen a reduction in activity in oil and gas. And a lot of that occurred in sort of North America. For the quarter, the hit in Asia Pacific happened earlier in the quarter. Towards the end of the quarter, actually, things were opening up, and APAC continues to perform better up to now. And then globally, there has just been a tremendous shift from industrial activity to e-commerce activity. So we, as a company, have been trying to fulfill the needs of our e-commerce players. In some cases, some of these customers, activity has gone up 30%, 40%, 50%, even doubled, and we're trying to fulfill that. And in the case of industrial guys that have shut down, some of that activity has gone the wrong way, also 30%, 40%, 50% plus. So the world that we're in right now just has quite a bit of volatility in terms of the level of activity at the underlying facilities level. And what we're watching right now is, as the world opens up again, trying to see what type of activity we're going to see from the industrial channel. My personal view is the elevated level of e-commerce is going to continue with us for a while. The unknown is sort of what we see from industrial activity pickup in the upcoming weeks and months.

Yes. Correct. That makes a lot of sense. And you also mentioned that April and early part of May was up versus year ago periods. I don't know if you have the detail to quantify that further. But did you also say that the expectation is that Q1 revenue will likely be the smallest contributor for the year, so implying we should expect Q2 to be up sequentially even with everything going on?

Yes. It's really tough to predict the world, Greg, as you and I know, given what's happening out there. Under normal circumstances, at this call, I would not discuss April and May month-to-date. But frankly, sharing with investors what happened in March 31 right now, it seems like you're talking to them about an eternity ago. So just to give people a timely sense, what we have seen in April and May year-to-date is a continuation of these key trends I talked about, a robust e-commerce environment, very strong activity in Asia Pacific, very strong activity in Europe. So overall, we are up compared to last year. And that was just designed to give people a flavor at a high level, how we're doing rather than to give position. If you talk about the rhythm of the business, typically, Q1 is the weakest, and that's typically our smallest quarter from a revenue and EBITDA standpoint. If the trends that we see today continue, then I think that statement will hold, and you'll see us build up sales and EBITDA as we go into the next -- into this quarter and the next few quarters. So that would be our expectation. What I don't know and no one does is how will the world open up, what is around the corner in terms of the virus and the potential second wave or any of that stuff. And since we don't have a crystal ball that's better than the rest of the world, we've decided to suspend guidance. But what you're asking about, building sales and building EBITDA over the ensuing quarters, that is what we expect at this point.

Okay. Let's shift gears if we can because I think with everything going on in the world, it might -- potentially might have accelerated the interest in automation, at least, that's kind of what the commentary implies. So what are you hearing from customers? And what's your longer-term vision about the potential for automation, not just your current product line, but broader solution potential for this industry as we look sort of out to the next few years?

Yes. I think, look, conventional wisdom is automation, which is really a sale of equipment in most instances for us, is that in a weakening economy, like this one, you would think CapEx projects are delayed, and that would have been my feeling a month, 1.5 months ago. What we are hearing from customers, in particular, the larger ones, is given what they're seeing in terms of disruption, obviously, given the human contagion aspect, given their need for speed and efficiency, automation when it comes towards end of the line and finding either semi-automated solutions where you can have physical distancing done a lot easier or having completely automated solutions is something that's still very much on their mind and that they're interested in pursuing these conversations. So the level of conversations, frankly, in the U.S., in Europe and in Asia Pacific with our prospects and customers and automation is increasing. What we envision is, we finished our first chapter, which is hiring the full team. So now we have more than 60 individuals focused solely on automation. We have a facility dedicated to automation. We want to execute on that plan to meet the demands for this year. And over time, I would expect that we would be investing in increasing our manufacturing capacity, investing in R&D and in innovation to continue to come up with further solutions around the automation sort of opportunity. And frankly, I would be expecting that we would be coming with more automated solutions in our main converter business and core business as well. Again, it may not be fully automated to eliminate labor in that case, but to reduce labor, which from everything we're seeing from our customers, these trends are going to continue. Now these trends apply to the larger customers that can afford that equipment. The smaller warehouses and smaller customers, I think, will continue to just focus on sort of manual solutions. But the trends in automation continue to look robust. Now the reality is that business, just like our business, is a physical business in the sense people come to your facility, they want to go see your equipment at other customers. Our employees, engineers, technicians need to go to their facilities. So we need the world to open up to fulfill some of that demand. But the demand and the pipeline continues to be robust.

Yes. Yes. That's great. Okay. Last one for me. Can you talk a little bit more about the cold-chain opportunity? I think you mentioned a new application. Curious if you're testing that with new customers, whether that's in pilot stage and maybe what the time line is to sort of more of a commercialization and a contribution to the P&L?

Sure. And that's a great question because, I think, if you guys recall, in Q4 call, I said our focus has been on retail quite a bit to launch our product, which we were intending on launching in stores in March. And then I talked about automation, where -- which is what we just discussed. And the third opportunity was cold-chain. I would say what happened in the last 1.5 months, 2 months with COVID is we pivoted. Given the retail environment, we have been investing more resources in cold-chain right now. Again, our retail products are ready, they're online, but the in-store opportunity has been diminished with many of these stores not open and getting no traffic. And what we've seen, given what's happening in the grocery channel, what's happening with everybody loading up their pantries and their fridge, is we have increased our level of activity in cold-chain. We do have a prototype out there. It is being tested with customers. Our engineering and R&D team worked very hard the last couple of months to meet that demand, which is urgent and now. So that's what we're working on. And we're very excited about the product that we have out there that we think will help transmit food and beverage and, in some cases, actually medications, while controlling the temperature. So that has become a pretty exciting area for us, where a lot of resources at Ranpak has moved and started focusing on that, and I feel pretty good that you will see the results in the upcoming weeks and months. So it's something that was a shift given the dynamics that we saw with our customers and in the economy with the virus.

What's the market opportunity for that solution? Have you been able to size it up at all or not?

I think the market opportunity is gigantic. As you know, Greg, we're a small company, so even if we get small fractions of some of these markets. But if you add what you're seeing in grocery channel, if you add what you're seeing in the meal kit channel, if you add even some basic pharmaceutical movements, not at the high-end sort of complicated stuff, you're talking about a very sizable market that today, in meal kits and in grocery alone, is seeing quite a bit of surge. And what we're trying to do is meet those needs and meet those demands. And by the way, first and foremost, it's being a good supplier and partner to our customers. So just showing them that Ranpak can be nimble and address their needs relatively quickly, and we think these trends will continue, maybe not at these levels, but they will continue, and that would be a nice market segment that is completely additive to what we have. So it will be a whole new opportunity that we're excited about.

[Operator Instructions] And there are no further questions at this time. I'd like to turn the call back over to our presenters.

Thank you, James, and thank you, everyone, for joining us today. We look forward to speaking again next quarter.

Ladies and gentlemen, this does conclude today's conference call. You may now disconnect.