Ranpak Holdings Corp Stock

Hello everyone, thank you for joining us and welcome to the Ranpak Holdings Second Quarter 2026 Earnings Call. After today's prepared remarks, we will host a question and answer session. [Operator Instructions]

I will now hand the conference over to Sara Horvath, Chief Legal and HR Officer. Please go ahead.

Thank you and good morning everyone. Before we begin, I'd like to remind you that we will discuss forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those forward-looking statements as a result of various factors, including those discussed in our press release and the risk factors identified in our Form 10-K and our other filings filed with the SEC.

Some of the statements and responses to your questions in this conference call may include forward-looking statements that are subject to future events and uncertainties that could cause our actual results to differ materially from these statements. Ranpak assumes no obligation and does not intend to update any such forward-looking statements. You should not place undue reliance on these forward-looking statements, all of which speak to the company only as of today.

The earnings release we issued this morning and the presentation for today's call are posted on the Investor Relations section of our website. A copy of the release has been included in 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-Q with the SEC for the period ending June 30, 2026. The 10-Q will be available through the SEC or on the Investor Relations section of our website. With me today, I have Omar Asali, our Chairman and CEO, and William Drew, our CFO. Omar will summarize our second quarter results and market conditions, and William 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.

Thank you, Sara. Good morning, everyone, and thank you for joining us today. We are pleased with our second quarter results and how we have started the year as we continue to effectively navigate a dynamic environment. Our investments in automation are paying off as we experience an exceptionally strong quarter in both North America and Europe.

Automation delivered another quarter of strong growth with revenue increasing 129.6% year-over-year on a constant currency basis and excluding the impact of warrants. The momentum has continued to build across North America and Europe. In North America, we continue to experience strong activity with Walmart and Medline and are expanding the breadth of customers at a solid clip to start the year. In Europe, we are more established in that market as our automation product line began there and continue to experience broad-based activity.

We believe automation will be a strong growth engine for us for years to come. PPS volume is up 2.4% year-over-year, marking growth in 11 out of the last 12 quarters. Europe was the outperformer again, as anticipated weakness following the start of the war has not immediately materialized to the extent we were concerned about. The trends we experienced in North America in the first quarter, where large enterprise outperformed while the distribution channel faced a challenging comparison, persisted into Q2, but did improve somewhat in the latter part of the quarter.

Overall, we continue to expect to see improved performance in the distribution channel in the second half as the comparison normalizes and our new product initiatives in cushioning, void-fill, and wrapping take hold. We're getting great receptivity to our new products such as Guardian 24, which has a smaller footprint relative to other units and provides meaningful cost savings versus foam. Now, more onto our results. Consolidated net revenue increased 12.2% on a constant currency basis for the quarter, or 12.6% excluding the impact of warrants, driven by an outstanding growth in automation equipment sales on a constant currency basis.

We also benefited from currency tailwinds in the quarter, which added 1.8 percentage points to top-line growth on a reported basis in the quarter, bringing reported top-line growth to 14.0% for the quarter and 12.5% on a year-to-date basis. Adjusted EBITDA increased $2.6 million to $19.1 million on a reported basis and was up 13.9% in constant currency terms. Excluding the impact of warrants, Adjusted EBITDA increased 15.8% on a constant currency basis and roughly in line with growth in sales and gross profit, ex-depreciation on a constant currency basis.

Now moving on to the market environment and how Ranpak is positioned. The macro backdrop through the second quarter was noisy, to say the least. We saw oil prices hit multi-year highs in April and then fall back, consumer confidence plummet and then recover, and geopolitical tensions that started to fade have now heightened once again. Against that volatility, the quarter ended in a better place than it started.

Several months in, demand seems generally okay, but we see that customers remain understandably nervous about the impact higher oil and gas prices will have on input costs and the consumer. They are therefore being conservative and focused on cost reduction. The consumer at the lower end of the K-shaped economy is stretched as gas and energy prices remain elevated and other inflationary pressures for consumer goods persist. Recent improvement in consumer confidence is encouraging, but we would like to see it stabilize and also see it flow through to more durable sectors like housing and industrial activity before getting really bullish.

In the near term, we are focused on driving our value and sustainability proposition. We're getting good traction with our cushioning offerings versus foam in place, and we expect that product to inflect soon. In North America, the paper market has gotten somewhat tighter for the second half as producers try to push price increases. But from a competitive standpoint, we believe we remain well positioned against plastic and resin, where we saw meaningful price increases flow through in the second quarter.

We continue to be aggressive in pushing the sales team to accelerate the plastic to paper transition, as this is a dynamic we have not seen in North America in years. In Europe, Dutch TTF gas pricing has been volatile since the start of the conflict, moving from more than 60 euros per megawatt hour at the end of Q1, back down to 40, and now back in the mid-50s. Paper producers in Europe have been passing on price since the beginning of Q2, and we in turn took steps to protect our margins through a temporary surcharge.

We continue to be transparent with our customers, and when conditions normalize, we will remove the surcharge. From a commercial perspective in Europe, we continue to emphasize the advantages we see for paper versus plastic, as resin costs and availability in the region are experiencing greater pressures than what we are currently seeing flow through in the paper markets. Conditions seem to be changing daily, but overall we believe they remain manageable.

Just as we are doing internally, companies everywhere are extremely focused on costs to minimize inflationary impact. We remain disciplined on our spend and focused on improving our margin profile. We also see great pockets of opportunity that we are attacking with vigor, which we believe will be the bedrock for growth in years to come. While the near term is somewhat uncertain, I remain very excited by Ranpak's offerings and positioning in the marketplace. With that, here is William with more info on the quarter.

Thank you, Omar. In the deck, you'll see a summary of some of our key performance indicators. We'll also be filing our 10-Q, which provides further information on Ranpak's operating results. Overall, net revenue for the company in the second quarter increased 12.2% year-over-year on a constant currency basis, or an increase of 12.6%, excluding the impact of warrants, driven by accelerating growth in automation, volume strength in EMEA/APAC, and solid e-commerce growth in North America.

For North America, revenues increased 8.5% in the quarter, or up 9.4% excluding the impact of warrants, driven by 211.8% growth in automation, excluding warrants. While PPS was a slight detractor as the channel continued to face a tougher comp and we lapped 14.8% volume growth in the prior year. Traction with automation in North America continues to build, so we are excited about the outlook there. In Europe and APAC, net revenue increased 15.4% on a constant currency basis, driven by 109.3% growth in automation, and 4.2% volume growth in PPS, driven largely by strength in EMEA, which is highly encouraging.

Gross profit increased 17.6% on a constant currency basis in the quarter and would have increased 18.6% excluding the $1.7 million non-cash provision for warrants. We continue to be very focused on improving our margin profile through the back half of the year and are pleased to report 150 basis points improvement in gross margin versus Q2 of last year. In NOAM and PPS, where margins have been most pressured, we made continued progress through our efficiency gains and improved more than 250 basis points excluding depreciation versus the prior year.

In EMEA, there was some pressure due to the timing of the implementation of the surcharge versus when our input costs increased, but I feel good about what we were doing there. We continue to be pleased with the actions the teams are taking to take costs out and get more efficient. Just a note on the consolidated gross margin. Automation being a larger contributor, masks some of the progress we're making overall given the lower margin profile of that product line.

But we do expect to continue to improve the margin of that product line as we scale. As we have shared before, automation is a sale of capital goods, so there's minimal CapEx required to expand our sales. We've invested in the facilities already and can service $100 million-plus in revenue in our existing footprint. Over time, as automation becomes a larger component of our revenue profile, we expect you will see CapEx as a percentage of sales in Ranpak decline.

SG&A excluding RSU expense was down 3.0% on a constant currency basis versus the prior year. Consistent with what we've shared previously, we continue to prioritize cost discipline and margin expansion. Keeping spend lean and putting our G&A investments to work against our fixed overhead is where we're focused. Getting automation to break even on an Adjusted EBITDA basis remains a key goal for us, and we believe we have line of sight to that as we approach $60 million in revenue this year.

As Omar mentioned, Adjusted EBITDA increased 13.9% year-over-year on a constant currency basis, or up 15.8%, excluding the impact of warrants, as greater sales and gross profit flowed through with slightly lower G&A. The constant currency calculation is based on a rate of 1.1323, which was last year's average rate for the quarter. Beginning in Q3 of last year, there was considerable movement in the euro. So next quarter, if rates stay as they are, we will have a slight rate headwind for comparisons, as the average euro to USD for Q3 2025 was 1.169 compared to 1.14 today.

So please note that for the remainder of the year. Moving to the balance sheet and liquidity, we completed Q2 2026 with a strong liquidity position with a cash balance of $43.2 million and no drawings on our revolving credit facility. Bringing our reported net leverage to 4.5x on an LTM basis, which is down 0.2 turns from Q1. On cash, the first half of the year is typically a draw on cash, and as previously shared, we made a $10 million follow-on investment in Pickle Robot in Q1.

We do expect cash to improve meaningfully in the back half of the year due to seasonality and our ability to free up some working capital. Our goal remains to achieve between 2.5 to 3 turns, which we believe we can do over the next 24 months. Our CapEx for the quarter was $6.6 million, which is $3.2 million lower from prior year as we remain disciplined on spend, but continue investing in further production capacity to drive growth in key products in upcoming years in areas like cold chain and related to the growth plans for our enterprise customers.

With that, I'll turn it to Omar.

Thank you, William. Before I close, I want to touch on a few of our key initiatives and add some color on the rest of the year and into 2027. Over the past several years, our strategy has been to build a best-in-class portfolio of end-of-line automation solutions and to partner with others who play key roles in the flow of goods through the warehouse. We believe there is tremendous value in Ranpak having as many touchpoints in the warehouse as possible.

It maximizes efficiency for our customers and gives us deep, sticky relationships with the most sophisticated customers in the world. From my perspective, there are a few bigger areas of opportunity than removing bottlenecks in the warehouse. Between our own solutions and our partnerships with Pickle Robot and others, we now have the pieces in place across vision, physical AI, and end-of-line automation. That means we can help companies maximize throughput, reduce labor dependency, and improve accuracy at every step in the process.

How are we different in the industry? We've been building an integrated intelligence ecosystem to address these warehouse pain points. And we and our partners have access to some of the largest physical data sets in the world. We believe that high-quality data cannot just be simulated in a model with the same impact and is exactly what you need to win with physical AI. We believe our ecosystem is genuinely unique and strategically advantaged in our pursuit of warehouse orchestration.

In the public realm, I don't know of anyone else who's doing what we are doing. These are the steps that have positioned us so well with our large enterprise customers and increasingly separate us in the industry. We're very focused on partnering with our large enterprise customers at scale to deliver value-added and differentiated solutions, while reducing our exposures to products we view as more commoditized and lower growth. The packaging needs of these players are changing rapidly, and Ranpak is pivoting to serve the opportunities we think can scale meaningfully and carry more value.

Let me turn to a few specifics for the second half. In automation, we believe we are on track to hit the roughly $60 million in revenue this year. That was my single biggest goal coming into 2026. Automation has real momentum in both North America and Europe, and I believe it is a business that should command a higher multiple in the public markets relative to protective packaging. In North America, we're pruning the PPS portfolio somewhat to improve the margin profile.

And given the warrant relationship, we are trying to be mindful of where and how we participate in the consumables area. In the second half, that means you could see us do less of the lower margin business where we have been providing warrants to a level we are more comfortable with. Our capacity additions and development work we have been doing sets us up well to be able to participate in size for the larger and more attractive initiatives that we believe will begin to scale in 2027 and help us achieve our longer-term goals.

We continue to expect to meet our guidance for the year. We remain very confident in our outlook and the capacity we are building in the second half of 2026 positions us well to achieve our longer-term revenue targets while adjusting our portfolio more towards value-added solutions. Talking about positioning for 2027, we're also building out more cold chain capacity in the second half. We believe that product line has hit an inflection point with our ClimaLiner Plus offering as an alternative to EPS foam.

The feedback in the marketplace has been outstanding, and we think it is poised for a step change in growth. Sustainable cold chain is one of the great opportunities out there right now. And like automation, it gives us another scalable revenue stream with low ongoing capital intensity. I'm extremely pleased with where we are and where we are headed. It is never a straight line, but I have not been this excited about our product pipeline at any point in my time at Ranpak.

I think we have some real game changers in the portfolio and they will help drive us toward our goal of $800 million in top line by 2030. We remain focused on growth, while staying very disciplined on costs and operations to strengthen our margin profile. And I believe everything we are doing right now moves us in that direction.

With that, we'd like to open the line up for questions. Operator?

[Operator Instructions] Your first question comes from the line of Ghansham Panjabi with Baird. Please go ahead.

I guess first off on the automation momentum that you're seeing so far this year, obviously Q2 built on Q1. Can you just give us a sense, Omar, as it relates to whether these are existing customers that are proliferating the technology through their enterprises and production networks? Is it new customers? How would you have us think about the split between the 2?

Yes, it's actually both, Ghansham, which is quite exciting from our seat. So you have some of the large enterprises, Walmart, Medline, which again, we're helping them roll out in more facilities as well as new facilities and that continues. And then what we're seeing is very decent activity with new customers. So I'll highlight for you, we have formed a couple of key partnerships with integrators.

One of them is one of the largest integrators in AS/RS, and we've signed a partnership with them the last few months and are rolling out some of their key accounts for end-of-line packaging. So it's a mix of both. Clearly the large enterprises will continue to drive a big part of the volume for the next couple of years and that was part of our thinking, but we're seeing very good activity with new accounts. And by the way, for the rest of the year, Ghansham, most of the revenue and our confidence in hitting the $60 million is contracted and our funnel and pipeline that we're building for 2027 and frankly for 2028 is quite robust. We like the activity and how we're positioned in automation.

Okay, that's helpful. And then what is the impact on EBITDA, specific to automation in 2026, as it relates to the breakeven that you called out for the end of the year? And then if I could, on the paper business and the variability between EMEA and North America, just your thoughts as it relates to what's going on there. Did EMEA benefit by ahead of price increases, as they have done in the past, you know, during the previous inflation cycles?

Sure. So on automation, and I'll start there just with EBITDA, we still think we're on track for getting to break even later this year. As you know, we're in the scaling phase. So as we scale more, which we're starting to get closer to that, we think the financial profile will improve significantly. And the plan is to be sort of EBITDA even towards the end of the year and then starting next year, automation will be an EBITDA positive contributor.

So that's still intact and based on what we're seeing in terms of volume and what we just discussed with both existing new accounts and the pipeline, we feel very, very confident that we're on track to hit that. On PPS variability, I would say there's a couple of components here between Europe and the U.S. One, in the U.S., we continue to see tremendous strength on the enterprise side and large customers. The distribution channel has been a bit softer than we like.

Frankly, our expectation just from talking to them is that you're going to see a pickup in that channel in the second half of the year. So we're hoping to see some good activity there. And inventory and stock levels there are really, really small given just geopolitics, risk appetite in general. In Europe, we're seeing better broader strength. There was some pre-buy earlier on, but our channel checking right now, Ghansham, show very, very low levels of inventory, stocks, et cetera.

People are not stocked up. Obviously people are trying to assess in Europe where the war is going and how that may impact energy prices and customer demands. So I think the consumer there, as well as some of our customers, are being a little bit cautious. But, you know, as they get clarity on that, we'll see how volume trends behave. But we're not entering, you know, Q3 with any high levels of stock or inventory at any of these customers. So we're expecting some decent activity, but frankly, the war is a bigger factor in Europe than it is in North America.

Your next question comes from the line of Greg Palm with Craig-Hallum. Please go ahead.

Can you expand a little bit on the margins? I think, William, you mentioned that just there was a little bit of a timing between surcharge and input costs. But just given what we're seeing, inflationary input costs, basically everywhere, your ability to pass through some of that and maybe just confidence level that you'll see a better margin profile in the second half?

Yes, sure. Happy to, Greg. So as we said in the prepared statements, we did improve gross margin by about 150 basis points year-over-year, so that was good to see. There are some moving pieces related to that right in North America. We continue to make great progress being more efficient and taking costs out. So the North America PPS business, we were able to improve margins by over 300 basis points.

In EMEA, as you pointed out, the surcharge went in place in May, but our input costs did increase starting in April. So there was a lag there that we had to absorb. You're also seeing in EMEA a little bit of a trade-down of customers going to lower dollar price, lower margin SKUs, particularly as it relates to void-fill, which creates a little bit of a mix headwind. But overall, I think we continue to operate more efficiently and I think we're doing a good job moving in the right direction for the things that are within our control.

And then just as the rest of the year goes, we do expect to continue to improve the gross margins. We'll continue to see improvement, we think in North America, as we get more efficient and pass on pricing. And in EMEA, we'll continue to monitor with the surcharge to make sure that we're covering additional costs.

Greg, if I may add in the second half, in North America, we think there is room for price increases in the marketplace, in particular in light of where plastic and some of the resin-based products are. So I think expect us to do something there that will help the margin profile. And then I think, and I've said that in prior calls, we have really been working very hard on a number of lean and Six Sigma initiatives that are starting to translate into the margin.

It's still early days, but our expectations in the second half of the year, you will see that also come through in our margin profile. There's a number of very important initiatives around quality, around efficiency, productivity, et cetera, and the big continuous improvement mentality inside the company. And it's starting to yield results. So hopefully that's something you'll see in Q3 and Q4.

Okay, perfect. And following up on the comment of pruning the PPS portfolio, is this related? I assume it is, but just to the install base, you know, starting to shrink a lot more, you know, in recent quarters than it has been here in the past historically and maybe just you can expand a little bit upon this new strategy that you called out.

Yes, I think this is part of our strategy, Greg, to continue to improve the margin profile and financial profile. I don't think it's going to be noticeable for you guys in terms of the top line, if you know what I mean, i.e. what we're doing inside there as we drive growth in good accounts and good opportunities, we're pruning some things that we feel financially are not yielding the type of results that we want.

Part of it, to be honest with you, will deal with efficiency of fleet that you're referring to where some accounts they may have had, maybe let's say more converters than needed given the actual volumes we're seeing today. The other part of it may deal with some of the consumable businesses, with some of our enterprise partners where we have warrants. Again, we want to be a very good partner and fulfill their needs as much as possible.

But we want to be prudent in terms of what does it mean for us in terms of bottom line and financial profile. So I would say consider it just healthy pruning that we feel, given what we're seeing from volume trends and the strength of the business, that it's wise to do that to enhance our financial profile.

Your next question comes from the line of Troy Jensen with Cantor Fitzgerald. Please go ahead.

Hi, Troy. Troy, if your line is muted, we cannot hear you speaking. Maybe we can move on and see if Troy rejoins.

Certainly, there are no further questions at this time. I will pass back to William Drew for any closing remarks.

Thanks a lot, Ellen, and thank you all for joining us today. We look forward to speaking next quarter.

This concludes today's call. Thank you for attending. You may now disconnect.

Hello, and welcome to Ranpak Holdings First Quarter 2026 Earnings Call. Please note that this call is being recorded. [Operator Instructions] Thank you.

I would now like to turn the call over to Sara Horvath, General Counsel. Please go ahead.

Thank you, and good morning, everyone.

Before we begin, I'd like to remind you that we will discuss forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those forward-looking statements as a result of various factors, including those discussed in our press release and the risk factors identified in our Form 10-K and our other filings filed with the SEC. Some of the statements and responses to your questions in this conference call may include forward-looking statements that are subject to future events and uncertainties that could cause our actual results to differ materially from these statements. Ranpak assumes no obligation and does not intend to update any such forward-looking statements. You should not place undue reliance on these forward-looking statements, all of which speak to the company only as of today. The earnings release we issued this morning and the presentation for today's call are posted on the Investor Relations section of our website. A copy of the release has been included in 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-Q with the SEC for the period ending March 31, 2026. The 10-Q will be available through the SEC or on the Investor Relations section of our website.

With me today, I have Omar Asali, our Chairman and CEO; and Bill Drew, our CFO. Omar will summarize our first quarter results and market conditions, and 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.

Thank you, Sara. Good morning, everyone, and thank you for joining us today.

We are pleased with how we started the year and how effectively we are navigating a dynamic environment. I believe the work we have done over the past several years and strategic focus we have taken towards developing paper-based value-added and differentiated solutions positions us well to advance our position in this environment.

Our strategy is working, and the business is demonstrating strong momentum across critical areas such as automation and large enterprise accounts that we have been investing in for years. Automation delivered an exceptionally strong quarter, increasing 111% year-over-year on a constant currency basis and excluding the impact of warrants. The momentum is evident and anchored by our European business, where we continue to build strong reputation across a wide range of accounts as well as our larger customers such as Walmart in North America.

Automation is a major growth engine and clear differentiator for us in the market. The cost savings our solutions deliver through lower freight, labor, and higher throughput are significant and mission-critical for large organizations.

PPS volumes increased 0.8% year-over-year, marking growth in 10 out of the last 11 quarters. Europe was the outperformer and exceeded expectations that we shared on our fourth quarter call. The trends we shared regarding North America in our fourth quarter call came to fruition as we saw strength with our large enterprise e-commerce customers, but the distribution channel faced a challenging comparison with the first quarter last year as many customers were reinvesting in inventory due to paper market disruptions. Overall, we expect this trend to normalize throughout the year and get back to growth in this very important channel.

We have invested a great deal in new product introduction related to our PPS business and believe many of our new products in cushioning, wrapping, and void-fill are reinvigorating the channel. Cushioning in particular, is gaining tremendous momentum through our Guardian 24 launch in North America, and the launch is timely given the current disruption in pricing in the resin markets.

Now more on to our results. Consolidated net revenue increased 4.5% on a constant currency basis for the quarter or 5.4% excluding the impact of warrants, driven by an excellent almost 100% growth in automation on a constant currency basis. We also benefited from strong currency tailwinds in the quarter, which added 6.5 percentage points to top line growth on a reported basis in the quarter.

Adjusted EBITDA increased $1.6 million to $18.9 million on a reported basis and was flat in constant currency terms. Excluding the impact of ForEx, adjusted EBITDA increased 5% on a constant currency basis and roughly in line with growth in gross profit on a constant currency basis.

Now moving to the market environment and how we are positioned. Prior to the start of the war, we have been seeing positive movement in economic activity in Europe following several years of challenging conditions driven by energy price shocks, tariffs and elevated inflation. The global conflicts that have unfolded since the end of February are creating a new flavor of energy price shocks and uncertainty across the globe that we are navigating.

So far, we are not seeing a meaningful impact on demand side of the business, while customers are understandably nervous about the impact higher gas prices may have on the consumer and the resulting demand for goods. At the same time, the goods economy has been soft for the past number of years as consumers have shifted dollars to travel and experiences.

With travel now becoming significantly more expensive due to fuel price increases, we could see some rebalancing if folks decide to stay home and order more goods. It's too early to say how this will play out, but we are positioning ourselves conservatively when it comes to managing the business and being extremely mindful of our margin profile by taking cost reduction measures and continuing our focus on operational efficiency.

In North America, the input cost environment for paper has been stable, which positions us well against resin, where we have already seen meaningful price increases begin in the marketplace. We're pushing the sales team to be aggressive in accelerating the plastic to paper transition as this is the dynamic we have not seen in North America in years.

In Europe, Dutch natural gas pricing has been volatile since the start of the conflict, moving from the low to mid-30s to more than EUR 60 per megawatt hour quickly following the start of the conflict before retreating to the current levels in the low to mid-40s.

Paper producers in Europe are passing on price increases beginning in the second quarter, and we will, in turn, protect our margins through a temporary surcharge. We are being transparent with our customers; and when conditions normalize, we will remove the surcharge.

From a commercial perspective in Europe, we see additional opportunities for paper to gain share versus plastic as resin costs and availability in the region are experiencing greater pressure than what we are seeing flow through the paper markets.

Conditions seem to be changing daily. But overall, we believe they are manageable and are far better than what we experienced in Europe in 2022, following the start of the Russia-Ukraine war, where the continent lost nearly half of its gas supply overnight. For everybody safe, we're hopeful for a speedy end to the conflict, but are positioning ourselves for this prolonged uncertainty.

Fortunately, we have some very powerful structural tailwinds at our back and strong momentum in automation as well as with our largest customers, Amazon and Walmart, where our relationships continue to deepen. Our sequencing and priorities are consistent with what I shared in our last call: drive top line growth to achieve scale, leverage that scale to unlock operational efficiencies, and enhance purchasing power, which will flow through to adjusted EBITDA as revenue continues to grow. This, in turn, will support deleveraging and ultimately enable us to generate meaningful cash. The strategy remains the same in this environment.

With that, here's Bill with more information on the quarter.

Thank you, Omar. In the deck, you'll see a summary of some of our key performance indicators. We'll also be filing our 10-Q, which provides further information on Ranpak's operating results.

Overall, net revenue for the company in the first quarter increased 4.5% year-over-year on a constant currency basis or an increase of 5.4%, excluding the impact of warrants, driven by accelerating growth in automation, volume strength in EMEA and APAC, and solid e-commerce volume growth in North America.

Our North America business was roughly flat in the quarter or up 1.6%, excluding the impact of warrants as more than 130% growth in automation, excluding warrants, was offset by the lower contribution from the PPS distribution channel versus the prior year. Growth with Walmart really helped to propel the North American automation business in the first quarter, but we expect more broad-based growth throughout the year.

We lapped prior year PPS volume growth of 45% in an unusual environment where distributors were restocking. So we were pleased with the team's ability to keep the gap as narrow as it was.

In Europe and APAC, net revenue increased 8.6% on a constant currency basis, driven by 95.2% growth in automation and 3.4% volume growth in PPS. We saw volume growth in both EMEA and APAC in the quarter and are looking to build on that throughout the year through our key initiatives of sales, product management and procurement.

Gross profit increased 5.2% on a constant currency basis in the quarter and would have increased 7.9%, excluding the $1.7 million noncash provision for warrants. Excluding depreciation within COGS and warrants, gross profit would have increased 9.8% on a constant currency basis.

Our cost out and margin efficiencies are taking hold, driving 210 bps of gross margin improvement to 43.1%, excluding warrants and depreciation, even in the quarter where automation and large enterprise accounts in NOAM had an outsized impact.

We continue to believe gross margins are a real opportunity for us in 2026 and are pleased that our actions are having an impact. The footprint activities in NOAM has settled and resulted in reduced temporary charges that we saw last year and cost-out initiatives are taking hold. Our greater scale and growth prospects in PPS and automation are also enabling us to be better buyers of key inputs.

SG&A, excluding RSU expense, was down 1.5% on a constant currency basis versus prior year. As we have shared previously, we are extremely focused on controlling our costs and improving our margin profile. Tight spend and leveraging our G&A investments to better absorb our overhead remains a top priority. This is particularly true for automation, where a substantial amount of our G&A investments over the past few years has been focused.

The greater scale we are building is getting us much closer to breakeven on an adjusted EBITDA basis. As Omar mentioned, adjusted EBITDA was flat year-over-year on a constant currency basis or up 5% excluding the impact of warrants. The constant currency calculation is based on the rate of 1.052, which was last year's average rate for the quarter. There has been considerable movement in the euro since then. So as an example, on a reported basis, adjusted EBITDA increased 9.2% and had the rate used for constant currency been 1.15, adjusted EBITDA would have been up 1.6%. Given the movement in the currency, we wanted to provide a few different data points to help triangulate the moving pieces.

Moving to the balance sheet and liquidity. We completed Q1 2026 with a strong liquidity position with a cash balance of $48.5 million and no drawings on our revolving credit facility, bringing our reported net leverage to 4.7x on an LTM basis. Our goal remains to achieve between 2.5x to 3x of net leverage, which we believe we can do over the next 24 months.

Our CapEx for the quarter was $8.3 million, which is up $800,000 from prior year, but still meaningfully below the levels seen in 2023 and 2024. We continue to be disciplined in our CapEx spend in order to maximize cash.

With that, I'll turn it to Omar.

Thank you, Bill. Before I close, I want to touch on a few strategic updates and the broader environment we're operating in.

During the quarter, we funded an additional investment in Pickle Robot through a SAFE note transaction. This allows us to maintain our roughly 9% ownership stake in the company, which we continue to view as highly strategic and valuable.

The momentum in automation is real and strong. Given how we started the year in terms of bookings, we're expecting to be closer to $60 million in revenue in automation this year, and I am confident in our path to surpassing $100 million in revenue in the near future.

As Bill mentioned, our margin enhancement initiatives are taking hold. The team is getting a lot more efficient in improving execution across both PPS and automation. These efforts are starting to show up in the numbers and will continue to build throughout the year, including key projects like sourcing paper locally in Asia, which we believe is a major opportunity to reduce cost and drive top line growth in the region.

Our relationships with large enterprise accounts remain strong and are deepening as expected. We are pursuing initiatives with both Amazon and Walmart that we believe can meaningfully move the needle over the next 24 months. We continue to expect more than $1 billion in cumulative revenue from these 2 relationships over the next 8 to 10 years.

Within the current environment, we're focused on what we can control, driving our key initiatives, strengthening our top line and improving margins. We feel very good about the direction of the business and the opportunities ahead, particularly as we advance our industrial technology platform and expand the cross-selling opportunities it creates for PPS.

Thank you again for your time and continued support. With that, we'd like to open the line for questions. Operator?

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

Congrats on the results. I think what stood out most to me was your results in Europe, just given everything going on there. So maybe you can spend a little bit more time on giving us a little bit of a flavor on sort of what's going on in the region since the start of the war. And I'm also interested in the comments about resin, not just cost, but availability. So did you actually see any shift in the quarter to paper, or is that something a potential that we could see play throughout the year?

I think I'll start with that last point. On the resin, I think this is something that we didn't see in the first quarter. Frankly, we're seeing more of it now. and we're seeing more concern around customers shifting. I think it's largely driven by price, but availability could be a factor.

What we saw in Q1 was a couple of things. One from our team, late last year, we had changed part of the organization and the sales organization in Europe. We have more focused leadership, frankly, stronger, more analytical leadership, and we saw better execution throughout the quarter. And that execution was both covering existing accounts better as well as increasing the level of trials and closes, which are metrics that we're following very closely. So fundamentally, I think, there was better execution in Q1.

Second, just from a demand standpoint, we got very concerned like everybody else with the war. But as March progressed, we continue to see decent demand. And if I'm being frank, we continue to see that in this quarter as well. So the European team and our European business continue to do better than what we had expected. And I think it's honestly execution. And I think right now, there is a benefit from the resin to paper switch.

Now the concern is always with the war ongoing and with energy prices is, will this impact demand, and when and could that play a role in the upcoming weeks? We really don't know. But what we're seeing day by day, Greg, we continue to see business trends that we like.

I recall last quarter, you talked about automation, and I think you had a pretty good backlog going into the quarter, but it also sounds like you had pretty good bookings activity in Q1 as well, it sounds like it's given you a little bit more confidence in that growth outlook.

What exactly are you seeing? Just curious what kind of conversations or order activity or pipeline came out of MODEX and just it sounds like the path to surpassing $100 million, I think, you used the term kind of near term, obviously, not this year, but it sounds like you're more confident in your ability to get there.

I think our confidence is increasing, Greg. I think that's correct. Just to give you a sense where we are, including this past quarter in the last few years, cumulatively, we have sold more than $120 million in equipment. So we have a lot of equipment out there working 24/7. We have customer feedback. We've built customer confidence. We're building our reputation. You mentioned MODEX, which is the show here in the U.S. There's an equivalent show in Germany called LogiMAT that happened a few weeks before that. We had record attendance, record leads in both shows.

So we feel like we're building a very, very strong reputation as a real player in packaging automation. Obviously, as you and I know, it takes some time to do that. So that's the first step that I would highlight that I like where we are and the inflection point that I see.

In terms of booking and in terms of activity, honestly, we are super busy. The appetite is there. We continue to build our funnel. Our funnel in Europe is exceptionally strong. Our funnel in Europe and the U.S. is developing. And obviously, it's driven by a number of very large enterprises that we're close to, but we're expanding that enterprise coverage in the U.S. around automation. And our confidence in hitting our numbers this year and getting to $100 million in the near term, honestly, Greg, is very high.

The other thing that we're seeing is that automation business is increasingly driving some volume for PPS with customers that historically have not used us in protective packaging, getting to know us through automation and then asking for some of our packaging solutions and vice versa. So the new businesses, we continue to see they go well. But I would say our operating and commercial muscle in automation has really developed to a place where our confidence is quite high with what we're seeing near term.

Then if you talk just about the market, remember, our solutions come with ROI, ROI around labor, ROI around freight, around materials, around energy. We live in a world where everybody is under so much inflationary pressure, frankly, in a world where there are labor issues as well. So coming up with these solutions that are reliable is resonating in the marketplace.

Last one for me. I didn't see or hear you address the guide for the full year. But based on the outperformance in Q1, I mean, knowing we still have a lot of time left in the year, but qualitatively, how are you thinking about the guide you put back out in March?

Qualitatively, feeling great. We feel that the business is in really good shape. So we don't want to be in the business of, frankly, like just tinkering with the guide all the time and in particular, if I'm being blunt, not understanding what's happening geopolitically and what the impact of that could be, which is something that we just cannot analyze.

We've decided we're going to keep executing, but our confidence is very high. We think this first quarter positions us very well for the rest of the year. And then when we look at the building blocks, Greg, for the rest of the year, we feel we have a lot in our arsenal to deliver and surpass.

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

It's actually Josh Beth on for Ghansham. Maybe just to start off on the demand component, Omar, you're talking about March and April continuing to stay strong. Is there a chance that that could just be a potential prebuy from your customers just ahead of any potential price increases?

Then maybe related to that, just maybe on the margin cadence for the year, just given those input cost headwinds that you guys are going to face and just the price increases are eventually going to come via surcharge. But is there going to be any potential lag where maybe you might see some margin impact in 2Q before you start to realize that in the back half of the year?

Yes, I think. And let me start, and then I'll have Bill chime in. So on the buy-in, it's very tough to say if some of it is buy-in or not in light of people anticipating. I will tell you, we're watching carefully what's happening now. We're watching very closely what our book looks like in May. And we're also watching very closely the bottom-up sort of our trials, our closes, our funnel.

There is no question that the building blocks are better in our company. And that we are winning at existing accounts, we're winning new facilities, we're also winning new accounts, and that is part of the growth that we're talking about. So could there be some folks in general, doing some buy-in here and there? Yes. I will tell you, and we try to stay very, very close to our end users and very close to our distribution channel, just in the level of inventories out there is not high. It's not concerning. So when we look at the period of inventory that they're having, we're not seeing any abnormality there. So I think that's the one point around what we're seeing in the marketplace.

On cost, let me start, and then I'll have Bill chime in. We actually feel pretty good. In the U.S., we have a number of agreements in place that are giving us quite a bit of protection and the paper market is stable, and we are getting our hands on good supply, high-quality product and the prices are locked in. It's actually enabling us to go and compete against some of the plastic plays.

So when I mentioned the Guardian 24, that's a cushioning application where we're competing against foam and other resin-based cushioning applications. We are seeing a huge issue in pricing with some of them, up 30%, 40%, 50%, while our price is stable. So our price to the customer is stable, our productivity is high and then our input cost is stable. So actually, we like what we're seeing in the U.S.

In Europe, it's slightly different because some of the product is dependent on nat gas, and that obviously has been volatile. And this is why we are adding the surcharge just to protect our margin. And that has been communicated to the market, the market understands it, we're giving visibility. If there is no need to have the surcharge in the future, we will deal with it. So we're calling it a temporary surcharge and the market has embraced it there. And we have not seen any sort of change in patterns with us asking -- in terms of buying patterns with us asking for the surcharge.

Bill, I don't know if you want to add stuff on the cost side.

Yes. I think overall, for the margin, gross margin, for the year, we are expecting to see improvement versus last year by a good 200 basis points. I do think in Europe, you'll see a slight lag in Q2. So you might see a little bit of pressure in the beginning of it, but that will level out as the surcharge goes into effect.

As Omar mentioned, we're just very focused on maintaining our margin profile, and we think we've covered that well with the surcharge, where you could see some impact as the customers trade down to lower paper grades. But overall, I think we feel good about our margin outlook for Europe and APAC.

Okay. Great. And then maybe just one last one for me. Bill, I think the free cash flow bogey that you guys gave was kind of in the $15 million range during your call in March. Can you just help us think about that again? And if there's any puts and takes just given everything that's going on, whether it be higher working capital, just given higher inventory holding costs or whatever that might be, just to kind of bridge that gap for us, that would be much appreciated.

Yes. I think it still holds, right? If you look at the midpoint of the guide, we're still around that $90 million area, right? And then you add back the $6 million to $8 million of warrants. So I think on that piece, we're still holding.

Then on CapEx, I do think that we can probably do a little bit better. We're looking at $35 million. I think we might be able to be better than that. We're very focused on managing that tightly. Cash interest still remains about $34 million or so. Cash taxes, that $3 million to $4 million. And then working cap, we are still expecting about a slight use of $4 million or $5 million. So still kind of gets you to that $15 million area prior to any debt paydown.

Sorry, just outside of that, right, in addition to kind of the margins that you were asking about, we do have a lot of projects and cost-out initiatives in play. Our new COO has implemented a really strong lean Six Sigma program that's underway in both Europe and North America and identifying a lot of opportunities for us to get more efficient, take costs out of the business and help improve our margins.

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

Ellie, I think that was just Baird that just asked.

[Operator Instructions] Your next question comes from the line of Troy Jensen of Cantor Fitzgerald.

Congrats on the upside this quarter. Maybe a couple of questions just for you, Bill. To start off, 10% customers, can you quantify how many you had in the quarter?

We did, we had one 10% customer, it was about 10.5%.

Would you expect to have multiple 10% customers sometime this year?

This year, I wouldn't say so, but certainly over the next few years.

Perfect. And then a follow-up on Greg's question on the guidance. You see revenue seems safe, but I guess I just want to focus on the EBITDA. I think the midpoint of your EBITDA guidance was about $90 million. You did $12 million here in Q1. So you got to do about $25 million per quarter. Just thoughts on kind of hitting the midpoint of the EBITDA guidance.

Yes, the guidance is based on the adjusted EBITDA, Troy, so the first quarter was $18.9 million.

Yes. That's enough there. All right. Then my last question, just on the Pickle Robotics, have they reported a valuation pre or post capital raise?

They have not. So Pickle, just to give you a quick update, they have gotten the largest industrial PO for robots in the warehouse, and they're working on that. And Pickle as we speak, will be doing a round and the fund raise that will determine sort of the new valuation. So they're in the marketplace for that as we speak.

Have they talked about liquidation plans? Is the IPO target or grow the business or I'm assuming they get some liquidation, but any thoughts?

Sorry, on Pickle, I think, the expectation is they'll be doing around -- my expectation is this will probably be probably the last round that they do before contemplating something like potentially the public markets or an IPO, but we'll see. And the most important thing, honestly, is the customer traction and where the technology is and from all the work that we've done, we continue to believe they are the leader in trailer unload. And frankly, the POs are giving us that validation.

I'd now like to hand the call back to Bill Drew for closing remarks.

Thank you, Ellie. And thank you all for joining us today. We look forward to catching up on our update for Q2.

Thank you for attending today's call. You may now disconnect. Goodbye.

Good morning, and welcome to the Ranpak Holdings Fourth Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the call over to Sara Horvath, General Counsel. Please go ahead.

Thank you, and good morning, everyone. Before we begin, I'd like to remind you that we will discuss forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those forward-looking statements as a result of various factors, including those discussed in our press release and the risk factors identified in our Form 10-K and our other filings filed with the SEC.

Some of the statements and responses to your questions in this conference call may include forward-looking statements that are subject to future events and uncertainties that could cause our actual results to differ materially from these statements. Ranpak assumes no obligation and does not intend to update any such forward-looking statements. You should not place undue reliance on these forward-looking statements, all of which speak to the company only as of today.

The earnings release we issued this morning and the presentation for today's call are posted on the Investor Relations section of our website. A copy of the release has been included in 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 31st, 2025.

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 and issue our outlook for 2026. 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.

Thank you, Sara, and good morning, everyone. Thank you for joining us today. We finished 2025 on a positive note as all geographies experienced volume growth and automation finished the year with a lot of momentum, positioning us well for 2026.

Large enterprise accounts in North America continue to be a key driver of performance, both from top line and margin perspective. We experienced a very robust e-commerce-led holiday season in North America, particularly in December, following a brief lull during the government shutdown.

The e-commerce strength drove volume growth of 5.5% in the quarter and 14.3% for the year in North America. Excluding the impact from warrants, automation was the other bright spot in the quarter as we achieved nearly 40% growth on a constant currency basis and entered 2026 with a strong order book, giving us visibility to what we believe will be our largest growth year yet in that area.

With our fourth quarter performance, we hit the lower end of our adjusted EBITDA guide, but did miss the top line slightly due to a continued challenging environment in Europe and a few automation project milestones getting pushed into Q1.

Excluding the impact of [indiscernible] automation achieved the goal of being north of $40 million in revenue for the year, resulting in almost 35% growth. 2025 was an important year for Ranpak. We strengthened our economic relationships with 2 of the world's largest e-commerce and retail leaders.

These are partnerships that we believe will fuel substantial growth across both our protective and automation business for years to come. We also elevated our position as a leader in automated box customization through a major collaboration with Medline Industries, the largest provider of medical surgical products and supply chain solutions in the U.S.

Together, we're providing automation solutions across some of the highest volume operations in the health care sector. These achievements validate the years of work and strategy we've been executing towards and setting the stage for Ranpak's next era. The world is evolving at an unprecedented pace. With rapid advances in AI and robotics, capabilities that once felt like science fiction are now becoming operational reality.

Ranpak is well positioned to lead in this new landscape, one defined by larger, more sophisticated warehouses and logistics networks that must also meet rising expectations for environmental responsibility. Our internal innovations and customer relationships, combined with strategic relationships with cutting-edge leaders like Pickle Robot give us a unique advantage. We're not just providing packaging, we're delivering end-to-end solutions for goods movement and AI-driven insights that help our customers operates smarter, faster and more sustainably. Now more on our results. We experienced another quarter of volume growth, making it [ nine ] out of the past 10 quarters, growing volumes at 3% over a really strong Q4 in 2024, which experienced 12 points of volume growth.

It was encouraging to see sequential volume growth in each region and for Europe to experience volume growth for the first time this year. Consolidated net revenue increased 2.2% on a constant currency basis for the quarter or 4.4%, excluding warrants, driven by e-commerce activity in North America and automation achieving its largest revenue quarter ever.

4.8% volume growth for the year and 34.4% growth in automation drove 2025 full year net revenue to increase 5% on a constant currency basis. Our North America business again was the engine that drove top line performance with sales up 5.8% for the quarter and 14% for the year, driven by more than 20% growth in void fill and 91.7% growth in automation, excluding warrants. In the quarter, the distribution channel was less robust, but we did grow mid-single digit for the year, and I believe have some momentum in the channel given our new product releases and focused growth and expansion initiatives.

Invigorating this channel is key to helping improve our margin profile in the region, and we believe the setup going into 2026 has us positioned to continue to grow here while enhancing margins. In Europe and Asia Pacific, less favorable mix as well as increased rebate activity offset slightly higher PPS volumes and 30% automation growth in the quarter, resulting in a revenue decrease of 1.5% year-over-year on a constant currency basis.

Similar to last year, Europe did not experience the same holiday season strength that we saw in the U.S. The environment in Europe seems to be improving from the negative impacts of tariffs we saw earlier in the year. After several years of recession-like conditions across the region, driven by energy price shocks, elevated inflation and tariff uncertainty, economic fundamentals are stabilizing and the outlook is improving, but we will need to see how the recent events in the Middle East unfold as that could have an impact on sentiment in the region. The input cost environment has remained relatively stable and consistent with the trends we saw in the second half of last year.

Europe has been somewhat more favorable, driven largely by softer demand, while the U.S. experienced tighter pricing through midyear. Those pressures eased and ultimately leveled off once the paper market disruptions from early in the year were resolved.

In Europe, energy market volatility is the unknown at the moment. There was some volatility to start of the year as colder than normal winter weather drove a heavier draw in reserves. Even so, Dutch nat gas was around EUR 30 per megawatt hour prior to the events of the last few days, resulting in pricing in Q1 in line with what we experienced in the second half of the year.

On a constant currency basis, adjusted EBITDA declined 10.3% for the quarter or just 1.2% when excluding the impact of warrants. For the full year, adjusted EBITDA was down 8.5% or 2.4% excluding warrants. Our second half performance allowed us to achieve the low end of the revised guidance we communicated in our Q2 results despite the top line challenges we faced in EMEA.

Overall, 2025 proved to be a more difficult year than we anticipated. Many companies shifted priorities, curtailed activity and took a more cautious stance in response to a rapidly evolving tariff environment. Europe, in particular, appeared to take a meaningful step back as customers there lack confidence in their forward outlook.

Our sequencing and priorities remain clear: first, drive top line growth to achieve scale, then leverage that scale to unlock operational efficiencies and enhanced purchasing power, which will flow through to adjusted EBITDA as revenue continues to grow.

This, in turn, will support deleveraging and ultimately enable us to generate meaningful cash. With that, here's Bill with more info on the quarter.

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. Overall, net revenue for the company in the fourth quarter increased 2.2% year-over-year on a constant currency basis or an increase of 4.4%, excluding the impact of warrants, driven by solid e-commerce volume growth in North America and increased automation sales, bringing full year net revenue up 4.7% on a constant currency basis or 6.1%, excluding the $5 million headwind associated with warrants.

For the quarter, in the Europe and APAC reporting division, combined revenue decreased 1.4% on a constant currency basis as higher PPS volumes and automation sales were offset by higher rebate activity due to the competitive environment in Europe and investment in pricing ahead of local paper sourcing in Asia. On a full year basis, net revenue in the region declined 2.7% on a constant currency basis, primarily due to lower volumes, reflecting a choppier operating environment post Liberation Day and higher impact of rebates.

Automation grew 14% in the region on an annual basis, exiting the year with good momentum after only being up slightly through the first half of the year. North America lapped 39% volume growth in the prior year and grew volumes 5.5% as relationships with large e-commerce players continue to drive growth.

Net revenue for the quarter was up 5.8%, which brought the full year net revenue in the region to growth of 14%. It was another strong year for top line growth in North America as automation ramps, and we continue to grow with e-commerce accounts.

Gross profit declined 16% on a constant currency basis in the quarter and would have declined 10.6%, excluding the $2.3 million noncash impact of warrants.

Excluding depreciation within COGS and warrants, gross profit would have declined 5% on a constant currency basis due to the mix impact of increased contribution from North America large e-commerce customers and lower industrial activity. For the year, gross profit declined 9% on a constant currency basis and would have declined 5.3%, excluding the $5 million noncash impact of warrants.

Excluding depreciation within COGS and the noncash impact of warrants, gross profit would have declined 4.5% on a constant currency basis due to the mix impact of increased contribution from North America large e-commerce customers and lower industrial activity.

We believe gross margins are a real opportunity for us in 2026. With greater scale, we are becoming better buyers of key input costs and have identified a number of key cost-out actions to optimize operations in order to enhance our margin profile.

SG&A, excluding RSU expense, was down 2% on a constant currency basis versus prior year. As I shared previously, controlling our spend and leveraging our G&A investments to better absorb our fixed overhead remains a top priority. We've invested more than $20 million in our technology infrastructure since 2022, building a modern cloud-native stack that is AI ready.

We are fast but selective adopters of AI solutions to help us drive productivity and get more efficient in our operations and service. We initially are focused on specific use cases where we can measure the impact and returns, but overall, I believe these tools will enable us to extract savings in the business as we grow, helping to improve the overall margin profile of the business in addition to driving more commercial opportunities.

At roughly $40 million in sales, automation remained a meaningful drag on our profitability for the year, being a negative $6 million contribution to adjusted EBITDA, although we did get to breakeven on an adjusted EBITDA basis for the fourth quarter. We are expecting substantial growth in 2026 in automation, which we expect would put us in positive territory for the year on an adjusted EBITDA basis, which is a critical milestone for us to hit. Although we had PPS volume and automation growth across the organization for the quarter, the gross profit headwinds resulted in an adjusted EBITDA decline of 10.3% in the quarter on a constant currency basis or down 1.2%, excluding the impact of warrants.

This brings the full year's results to down 8.5% on a constant currency basis or down 2.4%, excluding the noncash impact of warrants. Moving to the balance sheet and liquidity. We completed 2025 with a strong liquidity position with a cash balance of $63 million and no drawings on our Revolving Credit Facility, bringing our reported net leverage to 4.4x on an LTM basis.

Our goal remains to achieve between 2.5x and 3x leverage, which we believe we can do over the next 18 to 24 months. Our CapEx for the year was $30.3 million, a reduction of $2.8 million from 2024 and a 45% reduction from the $55 million spent in 2023. We continue to be disciplined in our CapEx spend in order to maximize cash. With that, I'll turn it to Omar.

Thank you, Bill. In closing, we believe the structural forces shaping the packaging and fulfillment landscape continue to strengthen, and we believe Ranpak is well positioned to benefit from them. First, the largest e-commerce players are growing faster and consolidating share.

We are both economically and strategically aligned with the 2 most important companies in the space, and we're working closely with them on opportunities that have the potential to reshape Ranpak's scale over the next number of years. We continue to expect more than $1 billion in cumulative revenue from these 2 relationships over the next 8 to 10 years, and we are pushing to accelerate that timeline.

Second, labor shortages in warehouse environments remain persistent and costly. Wage inflation and high turnover are structural realities. In the U.S., immigration and border policies are also amplifying the labor issue. Our automation portfolio is a direct hedge against these pressures, providing customers with greater stability, less cost and less variability in their operating model.

Third, warehouses and factories are becoming smarter. At Ranpak, we are assembling an unmatched technology stack, combining robotics partnerships, internal hardware innovation, advanced vision systems, AI and data. The bottlenecks in fulfillment are physical, not digital. Our flywheel of technology and data access allows us to solve these physical world constraints in ways that simply weren't possible even a few years ago.

The technology is finally ready, and we believe our ecosystem gives us a unique advantage in addressing goods movement and labor challenges at scale. Fourth, while AI and LLMs have advanced rapidly, the physical world still needs to create and move goods.

Companies that manufacture differentiated products and eliminate physical bottlenecks will be winners in the years ahead. We believe we have spent the past several years positioning Ranpak to be one of those winners. Lastly, the One Big Beautiful Bill Act in the U.S. is presenting a significant opportunity for businesses to automate and modernize their operations and the tax incentives are providing further savings and improving ROIs for customers deploying our automation equipment.

As we look toward 2026, we entered the year with a more stable operating environment in North America than we saw in 2025 and improving economic outlook. We faced difficult comparisons in Q1 due to last year's paper market disruptions where distributors were restocking. Adverse weather in January and February contributed to its choppy start in North America, but feedback from both distributors and end users point to continued strength as the year progresses and an encouraging outlook.

We expect North America performance versus prior year to even out in the second quarter, where we saw less distributor demand last year as a result of restocking in Q1.

Europe remains more muted relative to the U.S., but the direction is constructive. Inflation has been moderating. [ Rail ] wage growth has turned positive as wage increases are outpacing inflation. Unemployment remains at historically low levels. Industrial production and manufacturing sentiment remain below long-term averages, but we are seeing early signs of stabilization.

Germany's renewed commitment to defense investment and broader fiscal support are beginning to show up in the data, creating a foundation for gradual improvement. For the first time in a long time, the outlook there for businesses and consumers seems to be improving. That being said, the war in the Middle East makes the outlook for the world economy and Europe more uncertain.

The duration of the conflict, impact on trade routes and impact on energy pricing, particularly in Europe, could play a role in the way this year unfolds. This week, due to the conflict, Dutch nat gas has been volatile and remains elevated near the 50s area.

Within this environment, we are focusing on things that are in our control and building on our momentum through our differentiated solutions. Enhancements to our commercial organization and stronger cross-selling of automation into larger accounts are enabling us to outperform our peers from a growth perspective.

We have tailwinds in automation such as packaging and packaging waste regulation or PPWR in Europe as companies are preparing to adhere to the regulation requiring them to drastically reduce packaging waste and promote a circular economy, namely minimizing unnecessary packaging and reducing packaging weight and volume.

We expect automation to deliver another year of meaningful growth in 2026 as we advance toward our goal of surpassing $100 million in automation revenue. Related to our near-term priorities and guidance, our focus is on driving top line growth to build scale, improving margins through cost-out initiatives and better buying, accelerating automation and advancing our industrial technology platform and strengthening cash generation and deleveraging toward a net leverage ratio below 3 turns. For 2026, on a constant currency basis, at the current spot rate, we expect net revenue growth of 5% to 12.7% and adjusted EBITDA growth of 5.4% to 19.9%.

Assuming a spot rate of EUR 1.16 to the U.S. dollar, this implies a net revenue range of $415 million to $445 million and adjusted EBITDA range of $83.5 million to $95 million. We're anticipating automation revenue growth of 30% to 50%, potentially reaching more than $60 million and turning positive from an adjusted EBITDA perspective.

This guidance also reflects a noncash revenue and adjusted EBITDA reduction of $5 million to $7 million related to warrant expense recognition. Over the past few days, we adjusted our guidance range to reflect what we are currently seeing out of the Middle East.

We previously were expecting double-digit growth in adjusted EBITDA, but believe it is appropriate to be conservative on the margin and top line in this environment. We believe the lower end of the range reflects our optimism of growth in North America and automation and a potentially less robust and more expensive environment in Europe if the war persists.

In terms of TPS, we expect low to high single-digit volume growth in TPS, building on the momentum of 2025, while recognizing a tough comparison in Q1 of 2025, which we expect to improve throughout the year. Thank you again for your time and continued support. With that, we'd like to open the line for questions. Operator?

[Operator Instructions] Our first question comes from Ghansham Panjabi from Baird.

First off, can you give us a sense as to the PPS volume outlook that's embedded in your guidance for 2026? And if you could also do that by region, Omar, I know there's a lot going on with some of the things you mentioned in Europe and also the political situation, et cetera. But yes, just what do you have embedded at this point?

Sure. Maybe I'll just give some high-level color and then have Bill give you a bit more detail. We continue to do really well with enterprise accounts for PPS in North America. We're working hard with our distribution channel as well to really ramp up volume.

My expectation is that you will see meaningful growth in the U.S., maybe high single digit to double digit and continue to drive volume around that in North America. Europe, Ghansham, honestly, is a bit harder. If you asked me 5, 6 days ago before the events in the Middle East, we felt we were turning the corner in Q4.

We were showing some good signs, and we felt we were entering the year with potentially some, let's call it, modest momentum to show volume growth. Right now, that's a bit more unknown, and I think it may depend a little bit on the duration of the conflict. In APAC, we are investing heavily in localization and local sourcing of paper, and we think that's going to drive quite a bit of volume. So that's the high level in terms of how we're thinking about PPS volume growth. But I'll have Bill chime in maybe with more specifics.

Yes, Ghansham, I think Omar covered it right. So in North America, we think that there's good potential to grow mid- to high single digit, maybe a little bit more than that, depending on some of our initiatives with some of our large customers here.

In EMEA, we ran a number of different scenarios. And I think with the low end of the guide, we're assuming that will be down slightly. And then on the higher end, up mid-single digits if we get a resolution quicker than we're expecting. So I think overall, we're looking at kind of a range of low to high single digit on the PPS business for '26.

And then automation, we're expecting some pretty meaningful growth there, call it, 3 to 5 points worth of growth just based on what we're seeing there and also just the order book that we came into the year with.

Perfect. And then on PPS, as it relates to your assumption, how much of that -- what percentage of that is specific to the customer initiatives that you have with Walmart and Amazon?

So both of these accounts, Ghansham, we think are going to drive meaningful growth. Remember, part of the transactions we have include automation equipment. And in '26 with some of the accounts you mentioned, equipment may drive more of the PPS piece because of just sort of the installment and deployment schedule, if you will.

As we put this equipment throughout the year, then that equipment will be consuming the consumables as the year progresses. And then in terms of just the consumable piece, we think both of these accounts will be double-digit growers for us. So we think it's going to be a pretty important driver for us. Frankly, that's part of our excitement, not just for '26, but as we look for the outer years as well, we believe there's tremendous volume activity that we think we can drive with these 2 relationships.

Got it. And then maybe I'll ask my last 2 questions together. So the 30% to 50% growth that you're targeting for automation in 2026, just curious as to your backlog specific to that. Just trying to get a sense as to the visibility specific to that -- to those numbers.

And then second, Bill, in terms of free cash flow, how are you thinking about drop-down free cash flow relative to the midpoint of your EBITDA guidance, net of CapEx and interest and so on?

So I'll take the first one. As Bill said, we entered '26 with our best backlog ever. We continue to see tremendous activity, frankly, in the U.S. and in Europe around our automation business. Our strategic relationships, again, that you touched on Ghansham, are driving also a big part of that.

Our confidence in surpassing the lower end of that number, the 30% is pretty high. We believe that we're on our way to hit potentially $60 million or more in revenue in 2026, again, assuming no surprises from a macro environment. And frankly, our pipeline as we speak this year, our backlog is increasing as well.

And part of the help we're getting is from some of the tax changes in the U.S. Part of it is around labor. So honestly, I feel great about our automation story. I feel great about how it's progressing. I think the $100 million goal is becoming closer and closer in our mind as reality.

And I think the team is executing and our products, by the way, are getting great feedback from some of the most demanding customers that we've mentioned, whether it's people like Medline in health care or others. So we feel really good about that as a growth driver, Ghansham. Bill?

Yes. And then as far as the free cash flow question goes, so if you take the midpoint of the guide, Ghansham, at $83.5 million to $95 million, call it, $89 million at the midpoint, that's being burdened by a good $6 million, $7 million of warrant expense, which are noncash, so you add that on top.

We're expecting to spend roughly, call it, $37.5 million or so in CapEx, could be less. We've been pretty disciplined over the past few years in that, and we'll continue to be disciplined. Cash interest, we expect to be about $34 million. And then cash taxes about $3 million, $4 million this year.

We are expecting a use of working cap this year just based on some of the initiatives that we have with larger customers where we carry a little bit more inventory. So call that about $5 million, which if you kind of take all those together, gets you to about $15 million in free cash for the year.

Our next question comes from Greg Palm from Craig-Hallum.

Just going back to the Q4 results, specifically on revenue. I mean it seems like the operating environment was fairly stable. And I know you talked about or mentioned better kind of e-com facility around the holiday season. Was the revenue miss mostly due to some automation stuff shifting to the right? I know you mentioned there was, I think, a couple of projects, but maybe just give us a little bit more color.

Yes. Sure, Greg. I think a couple of things. One, yes, in automation, it's very tough to be very precise in terms of which quarter things would happen. So sometimes there's slippage. It's got nothing to do with us. So sometimes it has to do with us and our schedule of building and deploying, as you know, just given the nature of the business. So part of it is a few things that slipped from Q4. The other part of it, honestly, Greg, is industrial activity was not at the level that we liked.

E-commerce was certainly strong, but e-commerce came in very, very heavy in December. I think in the U.S., in particular, there were some periods in November where we saw a little bit of softness around government shutdown, et cetera, and then the recovery was very strong.

So some of that impacted us. But overall, we were very happy with e-commerce activity. I think industrial activity, we would like to see a pickup in that. And I think that could help us both from a volume standpoint as well as, frankly, a margin standpoint.

Yes. Okay. And then your comments on Q1 specifically, I wasn't sure how to interpret those. Should we assume revenue is more flattish on a year-over-year basis, first, call it, I don't know, high single-digit growth for the year at the midpoint. I think that would imply like double-digit growth for the remainder of the year, but it would be great just to get a little bit more color on how you're thinking about the cadence this year.

I think the cadence that you're highlighting is correct. Normally, at Ranpak, as you know, Greg, the second half of the year is stronger than the first half. That's just the nature of our business, in particular, as we're building backlog, pipeline, et cetera, and as we're building trials in PPS.

And then the second piece, honestly, is typically, again, in normal environment, Q2 is stronger than Q1, Q4 is stronger than Q3. We're expecting the year to play out that way. We have a bit of a tough comp given paper disruptions and some dislocations from 2024. So that's the piece that I was just trying to highlight.

I think what you highlighted as a cadence is correct. From where we sit, and again, honestly, we were going to give a very different guide 5, 6 days ago. But the recent events caused us to sort of just lower some numbers a little bit just to be cautious, not that we have a crystal ball around the war. We don't know where the war is headed. We don't know how long it will last. We don't know when and if the escalation happens.

So all these things are unknown to us, just like they're unknown to the world, and we felt the prudent thing is to basically be a little bit more conservative in our guidance. But what you highlight and the strength that we see in sort of the double-digit growth as the year progresses, that's our base case expectation.

And the numbers that we highlighted, Greg, reflect basically some conservatism around the war to the best of our ability, if you will.

Okay. Yes, that makes sense. And specific on what's going on in the Middle East in terms of the guide, how would you take into account, for instance, natural gas prices and the potential headwind from input costs over there?

Sure. So obviously, as you've seen, Dutch nat gas has gone up quite a bit in the last few days and continues to be at elevated levels. We have a number of partners and mills that we work with that are not dependent on that. So that's the good news, whether it's renewable or other sources.

We also have a number of folks that have hedged some of the exposure, but not all of it. I think the exposure that we have is on the recycled piece, the recycled paper that we buy. And that's less the piece that has the exposure is less than 50% of our total buy.

So that's where we have some exposure from a cost standpoint that we're monitoring closely. I don't think the numbers at the end of the day, and Bill and I have looked at them and ran some sensitivities, I don't think they're going to be huge at these levels. They clearly are not going to be positive.

They'll have a negative impact, but they're not going to be huge. To be honest, Greg, what's on our mind a bit more is what does that do from a demand standpoint in Europe when energy is elevated and when you start seeing CEOs of industrial companies and e-commerce consumers and so on, just get a little bit more cautious. That's the piece that we're monitoring.

We don't have a great answer on it right now because it just happened in the last few days. But I think the demand piece is the piece that could have a bigger impact. I feel from a cost standpoint on the Dutch nat gas, I think, yes, we have some exposure, but I think it's under control.

Yes. Okay. And I guess last one for me. How do you think about unlocking shareholder value? I mean you think about what happened in 2025, you made a lot of important steps and won some meaningful business that's just getting started. But given where the stock is, the value of the PPS business, automation, your Pickle ownership, I mean maybe you could just give us some thoughts on how you expect to unlock some of that value over time.

Yes, sure. Look, I'll be the first to say, '25 did not play out the way we expected. We entered '25 thinking we're going to structure 2 important transactions for us with 2 large customers, and that will be the beginning of starting to unlock shareholder value.

And then obviously, through a whole host of things, including, frankly, tariffs, et cetera, the year did not play out as expected. I would say the best way I think about unlocking shareholder value from here, Greg, is to the comment I said a few months ago that we believe we can double the top line of this business and really drive significant growth in EBITDA.

And I think the best way to describe that is what is the bridge to doing that. I think our largest 2 customers, we said that they could deliver more than $1 billion in revenue in the next 8 to 10 years.

We think in the next few years, we're working with them on a number of projects to accelerate some of their spend and some of their buying from us. So we think these 2 large relationships are going to drive a very big chunk of the growth towards that bridge to $800 million in total in the next number of years.

We think the switch from plastic to paper, in particular, in the U.S. with large enterprise accounts, with other accounts that we're working with, with our distribution channel and some of the efforts there, we think that's going to drive some real volume growth.

We think localizing in Asia Pacific and becoming more competitive from a pricing standpoint is going to drive significant growth there and sort of re-rate our business at that level. And then we have a number of new initiatives that we're working on, that we've been working on the last couple of years that we think will materialize from a revenue standpoint, things like Cold Chain and things like new product developments that we're working on.

And then frankly, last but not least, the most important piece we think automation is a grower of 30% to 50% in the next number of years per year. You run basic math, my confidence in now surpassing the $100 million is quite high, and that's going to be a pretty big bridge towards also helping us grow into that $800 million.

So you put these building blocks together. We think that's what's going to rerate the company. And as we execute on these endeavors, Greg, we think that will be driving shareholder value.

But by the way, just given Amazon's -- you talked about the plastic to paper switch. So given what Amazon has done, what Walmart is doing, have you noticed any other major behavioral changes in the market in the U.S. specifically?

We are, and this is a big part of our wins in enterprise accounts, and this is a big part of our also discussions with accounts in 2026 that we think can drive growth. It's very hard to give you an exact time line of when that switch is going to happen with some of these accounts. But we absolutely feel it like a tailwind that there is more and more large enterprise accounts that want to switch to that substrate.

I think the consumer has spoken and the consumer wants less single-use plastic. And I think that's going to play a factor in terms of our growth. So yes, we are seeing that. Obviously, we're not going to talk account by account on those names.

Walmart and Amazon are unique. They're unique in their size. They're unique now in the relationship with us. But I think that trend is a bit broader. The timing is the piece that's a bit harder. And frankly, Greg, not only is that trend happening and helping us, but the protective packaging space is consolidating.

There are different transactions that some were announced and others that people are working on. The table is changing, and we believe both from a substrate standpoint and a strategic standpoint, we're well positioned to drive growth and drive shareholder value, as you discussed.

We have no further questions. I'd like to turn the call back to Bill Drew for closing remarks.

Thank you, Julianne, and thank you all for joining us today. We look forward to speaking again following Q1.

This concludes today's conference call. Thank you for your participation. You may now disconnect.

Thank you for standing by. My name is Carly, and I will be your conference operator today. At this time, I would like to welcome everyone to the Ranpak Holdings Q3 Earnings Call.

[Operator Instructions] I will now turn the call over to Sara Horvath, General Counsel. Please go ahead.

Thank you, and good morning, everyone. Before we begin, I'd like to remind you that we will discuss forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those forward-looking statements as a result of various factors, including those discussed in our press release and the risk factors identified in our Form 10-K and our other filings filed with the SEC.

Some of the statements and responses to your questions in this conference call may include forward-looking statements that are subject to future events and uncertainties that could cause our actual results to differ materially from these statements. Ranpak assumes no obligation and does not intend to update any such forward-looking statements. You should not place undue reliance on these forward-looking statements, all of which speak to the company only as of today.

The earnings release we issued this morning and the presentation for today's call are posted on the Investor Relations section of our website. A copy of the release has been included in the Form 8-K that we submitted to the SEC before this call. We will also make a replay of this conference call available via webcast on the company website.

For financial information that is presented on a non-GAAP basis, we have included reconciliations to the comparable GAAP information. Please refer to the table and slide presentation accompanying today's earnings release. Lastly, we'll be filing our 10-Q with the SEC for the period ending September 30, 2025. The 10-Q will be available through the SEC or on the Investor Relations section of our website.

With me today, I have Omar Asali, our Chairman and CEO; and Bill Drew, our CFO. Omar will summarize our third quarter results and discuss our outlook, and 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.

Thank you, Sara, and good morning, everyone. Thank you for joining us today. I wanted to start today by discussing our third quarter announcement that we entered into a strategic and economic partnership with Walmart. This agreement has been years in the making and required the hard work and execution of many of our Ranpak team members.

The Walmart agreement is a transformational deal for Ranpak and Ranpak Automation in particular. I'm extremely proud of the team and the solutions we have built in automation as those really drove the origination of this partnership. Our warrant agreement with Walmart can be summarized as a potential for up to $300 million in spend, excluding the cost of paper over 10 years, in exchange for warrants to purchase up to 22.5 million shares in Ranpak with a strike price of $6.83 per share.

We expect that over $100 million of such potential spend would be allocated towards automation equipment and services with $200 million of such potential spend focused on PPS products. Given the requirements for vesting exclude the cost of paper, this implies roughly $600 million in potential reported spend in PPS products over the 10-year period for a total potential spend of roughly $700 million across all of our products.

This is an extremely exciting transaction for us at Ranpak, and I believe cements our place as a true leader in warehouse automation. Adding to the momentum in automation, we are pleased to share that we have entered into a multiyear enterprise sales agreement with Medline, the largest provider of medical surgical products and supply chain solutions serving all points of care to provide them with our Decision Tower and right-sizing solutions for up to 14 of their distribution centers over the next several years.

As the world's largest user of AutoStore robotic technology, Medline is on the cutting-edge of implementing warehouse automation solutions. We are thrilled to collaborate with them to unlock further value in their supply chain by pairing our end-of-line packaging automation solutions with their storage and retrieval investments so they can maximize throughput in their facilities by picking goods quickly and optimizing shipping volume and customer experience for outbound shipments.

The amount of rigor required to satisfy customers of this caliber is tremendous, and our team is executing. We've made substantial investments in the team and solutions over the past years, and it is now paying off. We have marquee automation deals in North America with our 2 key workhorse products in the Cut'it! as it relates to Medline and Autofill for Walmart.

The Walmart deal, in particular, highlights how powerful having the best-in-class automation solutions can be in driving growth opportunities in protective. When I first got to Ranpak, the assumption from most was that automation would detract from protective and that it was a hedge for that business. What we are actually seeing is that they work extremely well together and forge deeper relationships than either business could ever achieve on its own.

In 2025, we have now partnered and economically aligned ourselves with 2 of the most demanding and sophisticated customers in the world, in Amazon and Walmart, and have the potential to generate well over $1 billion in revenue from these 2 customers alone over the next 8 to 10 years. I can't think of many companies that can say that, and I believe it is a testament to the solutions and talent we have assembled at Ranpak. Five years ago, this would not have been a possibility at our company.

Now, onto the quarter. Consolidated net revenue increased 4.4% and would have increased 5.3%, excluding the non-cash impact of warrants on a constant currency basis for the quarter. Enterprise accounts in North America as well as global automation continue to be the main top line growth engines in 2025.

Our volume momentum in North America continued in the quarter with large accounts driving 3.7% volume growth against a solid third quarter in the prior year. In Europe and in Asia Pacific, volumes were down 2.5 points versus last year as a more challenging operating environment weighed on top line results. Overall, consolidated volumes were down 30 basis points versus prior year.

Automation increased 56% on a constant currency basis in the quarter versus last year, keeping us on track to achieve our expected full year automation revenue of $40 million to $45 million. Automation continues to gain traction globally as we believe we are winning more than our fair share in box customization and are beginning to ramp up with Walmart in North America with our Autofill solution.

We believe our solution set of box customization, automated dunnage insertion, robotic pad insertion, data and analytics and partnerships with cutting-edge AI players such as Pickle and R2 are a clear differentiator in the market and driving adoption of our solutions.

North America was a key driver of top line performance with sales up 10.9%, driven by an increase in volume and an increase in automation revenue of 140% over Q3 of last year. Enterprise accounts drove solid growth, while the distribution channel improved somewhat relative to the softer Q2 that was impacted by trade and tariff uncertainty. The team continues to drive closes and focus on solution selling, highlighting our breadth as a key differentiator.

Underlying demand has been really strong in void-fill throughout the year in North America with each quarter up double digits. Wrapping had solid contribution in the quarter, up mid-single digits after a softer Q2. Cushioning was the only area in North America that was down year-over-year, driven by softer July. August and September cushioning revenue increased nicely, and we are expecting cushioning to get a boost from our new launches within our Guardian product line that provides us with smaller footprint and lower cost alternatives to foam in place.

Although the launch is very new, the momentum we are seeing is one of the best I've seen from our new product introductions. I think there's a large opportunity in the next number of years to meaningfully grow our cushioning business in North America and Europe with these new products. This will not only boost growth, but provide favorable mix as cushioning has a better margin profile relative to void-fill, given it's a robust solution that requires more engineering and know-how to effectively make cushioning pads capable of shipping heavier industrial-grade items.

Innovation in PPS will remain a key area of focus for us as we look to expand globally and take further share from plastic and foam. We feel very good about the outlook for North America PPS, where we expect our growth will be anchored by Amazon and Walmart in the upcoming years and supplemented by continued innovation. While its origins are in automation, we expect the Walmart agreement to drive growth in PPS over the upcoming years as each Autofill unit placed is expected to consume over $100,000 of paper per year, which we believe should lead to a solid recurring revenue stream.

We also expect to expand our PPS relationships beyond the void-fill associated with the Autofill in order to help Walmart maximize the vesting of their warrants. In Europe, industrial activity continues to weigh on cushioning, which was the driver of volume challenges in the quarter as void-fill and wrapping combined were close to flat year-over-year. The environment seems to be stable at this point and offering some glimpses of improvement as trade tensions settle, but it's choppy, nonetheless.

In Europe, we are very focused on what is within our control and driving outcomes through better execution. Europe is our most profitable region, so we are taking a number of steps to drive volume growth. We've put in new sales leadership and are hiring key talent to target larger accounts and focus on total solution selling. This will better position us to drive growth through cross-selling opportunities amongst PPS and automation solutions and develop sticky relationships with some of the largest end users in Europe.

Asia Pacific production continues to ramp up, and the team is doing a good job of driving growth in the region, which has been offset somewhat this year due to destocking activity as we ramp up local production of product lines. We continue to view Asia Pacific as a really important part of our growth story in the upcoming years as having locally-sourced paper and production will enable us to be a lot more competitive in the region. We have just qualified our first local paper vendor, which is really exciting. We are looking forward to ramping up production there and produce more for the region locally than in Europe.

Given it's an entirely new team there, we have gone slowly and methodically to ramp up production. As expected, we saw some sequential improvement in profitability as our margin enhancement initiatives began to have an impact throughout the quarter, driving an increase in gross margins to 34.5% compared to 31.3% in Q2.

On a constant currency basis, adjusted EBITDA increased 3.5% for the quarter or 7.6%, excluding $0.8 million non-cash foreign impact. The input cost environment remains similar to our update last quarter. In the U.S., pricing has been flat since increasing earlier in the year, and we expect it to remain that way through the remainder of the year. In Europe, the energy markets remains favorable with Dutch nat-gas in the low 30s. We expect paper pricing for the fourth quarter to be in line with Q3 and helping to maintain our attractive margin profile in the region.

To summarize, our priorities remain what we shared last quarter, improve margin in North America, drive volumes in Europe, scale automation and generate cash. We believe all of these things will contribute to a far improved financial profile and enable us to delever to 2.5x target that we have. We want our capital structure to not be a topic of discussion and are committed to delevering. We're executing on a plan to do all these with some early successes in key areas.

With that, here is Bill with more info on the quarter.

Thank you, Omar. In the deck, you'll see a summary of some of our key performance indicators. We'll also be filing our 10-Q, which provides further information on Ranpak's operating results.

Overall, net revenue for the company in the third quarter increased 4.4% year-over-year on a constant currency basis, driven by solid volume growth in North America and an increase in automation revenue, offset by a somewhat sluggish environment in Europe and destocking in APAC.

For the quarter, in the Europe and APAC reporting segment, combined revenue decreased 0.6% on a constant currency basis, driven by 2.5% PPS volume headwinds, offset somewhat by price/mix and 34.5% growth in automation revenue. Our reported results benefited from 6.4 points of currency as the euro has meaningfully appreciated since the start of the year.

In North America, both PPS and automation increased year-over-year, driven by large e-commerce accounts. Automation increased $2.1 million or 140% and void-fill and wrapping each contributed positively to growth, resulting in regional revenue growth of 10.9%, net of $0.8 million warrant expense, which detracted 1.7 points from reported NOAM results.

Gross profit declined 3.8% in the quarter on a constant currency basis and would have declined 1.5%, excluding the $0.8 million non-cash impact of warrants. Excluding depreciation within COGS, gross profit increased 3.2% on a constant currency basis due to higher sales and improved margins in both NOAM and EMEA.

Higher gross profit ex depreciation from both geographies drove an increase in adjusted EBITDA of 3.5% in the quarter on a constant currency basis or 7.5% excluding the $0.8 million noncash impact of warrants. We continue to keep a tight lid on our spending and are laser-focused on our margin enhancement initiatives to drive growth in adjusted EBITDA and enhance our cash position with the ultimate goal of deleveraging to 2.5x.

Moving to the balance sheet and liquidity. We completed the third quarter with a strong liquidity position. We had a cash balance of $49.9 million and no drawings on our revolving credit facility, bringing our reported net leverage to 4.4x on an LTM basis and 3.8x according to our bank leverage ratio. As expected, we reduced our inventory somewhat in the quarter, although it remains elevated due to our entering into peak season, given last year, we wanted to ensure we had adequate supply to satisfy customer demand and insulate ourselves from any potential disruptions.

We expect to reduce inventory further in Q4 and turn that working capital into cash. We expect to build cash for the remainder of the year given the seasonality of the business and improvements we will make on our cash conversion cycle. Overall, we are expecting to end the year with approximately $65 million to $70 million in cash on the balance sheet. This is down somewhat compared to last quarter due to a lower sales environment in Europe in Q3 and expectations for Q4 compared to where we expected to be at the end of July.

Our CapEx for the quarter was $7.8 million, in line with our expectations, of which $6.4 million related to PPS converter spend. Capital expenditures are the area most directly impacted by the evolving tariff landscape. Our strategic sourcing work related to options for converters globally continues. We are encouraged by the progress there and are vetting options for alternatives to sourcing in China. We continue to focus our efforts on minimizing impact on CapEx through a greater focus on refabrication and refurbishment of older converters in the field.

To reiterate from last quarter, while the environment around us is obviously uncertain from a paper sourcing perspective, we expect minimal impact as we source locally in our production areas.

One final area to mention is that you continue to see warrant expense impacting our P&L. In the short term, these will have a meaningful impact on our P&L. But as we hopefully ramp our business with Amazon and Walmart, the impact will be far less pronounced on the comparisons. Again, these are all non-cash impacts, but they will be added back in statement of cash flows. But for reporting purposes, we must treat the warrants as a reduction in revenue, which flows throughout the P&L, dollar-for-dollar. This results in a 0.5 point impact on gross margin and a 0.6 point impact on EBITDA margin.

With that, I'll turn it to Omar.

Thank you, Bill. While it has been a challenging start to the year, I'm pleased we demonstrated meaningful progress on our margin enhancement initiatives this quarter, and I'm looking forward to further improvements going forward. As we think about the finish of the year, we feel very good about continued growth in automation and achieving $40 million to $45 million in revenue for 2025, net of warrant expense.

The momentum in automation is building, and I believe we have something special in that business. In North America, the PPS business continues to perform well, driven by our larger customers, and I believe we will have a strong holiday season based on the feedback I'm hearing from the team and our customers.

Our margin enhancement initiatives are well underway and having an impact. I believe a lot of the noise and disruption from the beginning of the year is well behind us. Europe and Asia Pacific have been a bit more volatile as volumes have been up and down from 1 month to another. Asia Pacific has some air pockets of destocking as lead times for products that we are producing there go from 5 months to 1 to 2.

That being said, our distribution channel in both reporting regions is getting invigorated by our new products in cushioning, void-fill and wrapping. Our innovation is broad-based and that is energizing our partners as well as attracting talented personnel to join the Ranpak team. I have been out meeting with our distribution partners in North America and Europe, and the message is consistent. They all want to grow with Ranpak.

I feel very strongly that we're on the right path and building momentum with customers and the market. Based on the environment in Europe and Asia Pacific, we are expecting to come in at the low end of the second half revenue guide of $216 million to $230 million and expect profitability to be robust to achieve the lower end of the second half adjusted EBITDA guide of $44.5 million to $54.5 million.

Our milestones achieved in 2025 and everything that has led to it has laid a strong foundation of growth and expansion in the years to come. We believe we have the right personnel and structure in place to meaningfully scale this business and that the investments we have made in systems and people are starting to show up across the board.

I see tremendous opportunity to enhance our margin profile and gain efficiencies through our internal processes and by working with our vendors who want to grow alongside us. Externally, I see substantial growth opportunities in protective, automation and cold-chain.

The strategic and warrant agreements we signed are having the desired effect of deepening our relationships and providing the opportunity to get into additional products and geographies with these key players. We have an excellent platform for growth and the opportunity to build the leader in industrial automation technology. Physical AI and Machine Vision is driving the next phase of industrial automation, and I believe we have the solutions and access to data that others dream of.

The target I'm setting for the team is to get -- to grow to $800 million in revenue organically within the next 5 years and to have automation be at least 15% of that total revenue. I believe we can achieve that with our current offerings and what we have currently in development and our new products.

At this point, we'd like to open it up for questions. Operator?

[Operator Instructions] Your first question comes from Greg Palm with Craig-Hallum.

Omar, going back to the guide, just wanted to make sure I understand all the kind of the puts and takes. So, it sounds like relative to the last update, really no change in automation, no change in North America, a little bit of a slowdown or weaker results in kind of Europe and APAC. Is that right? Anything else that you want to point out? I just wanted to make sure I understood all that.

No, you got it right. I think we continue to feel excellent about automation globally, by the way. In North America, we continue to see very robust volumes, including up to now. Europe and Asia Pacific are a little bit inconsistent. So, just to be clear, we will be within the guide. It's just given the inconsistency in those businesses, we expect to be on the lower end of the range. And that's the thing that we're monitoring. And honestly, Europe continues to start and showed some pattern of improvement.

The hesitation we have around that, Greg, is things are changing fast in Europe, and we would like to see a trend continue over a longer period of time before we build our confidence on the business there. But that's basically the summary. You got it right in terms of the building blocks.

Yes. Okay. And gross margin actually bounced back a lot more, I guess, more quickly as well relative to what I would have thought. How much of sort of the full impact of both pricing and some of the cost reductions did you see in Q3? And I guess maybe a different way to ask it is, how much is still left to go in Q4?

In pricing, obviously, given what we've done in North America, we saw a good positive impact in Q3. On the cost initiatives, margin improvement, continuous improvement, honestly, I see a lot more room there. We continue to execute. We're improving in our buying. We're improving in our logistics and freight. We've made some tangible moves. We have a plan over the next few months to continue doing that. We are also looking at our physical footprint and optimizing that.

You may recall, we've hired a new Chief Operating Officer who joined us, who is working hard on some of these initiatives. So, I think on the cost initiatives, I'm expecting a lot more progress and to continue to drive gross margin on that front.

Okay. Perfect. And then, just shifting gears to Walmart, obviously, a very important announcement. So, congrats there again. But can you give us just a sense on like how the ramp will progress over the time frame, $700 million spend, 10 years. I mean that implies a pretty significant annual contribution. I'm guessing it will be a lot less than that initially and then ramp more meaningfully over time, but maybe you can help us understand what that might look like based on what you know today?

Sure. So, we are already in the ramp-up phase. There was some modest help in Q3. You will see more help in automation in Q4. And then we're expecting in '26 and beyond in the next few years to really ramp up quite a bit on the equipment side. I personally think that spend will occur in a period that's meaningfully shorter than 10 years given the dialogue I'm having with Walmart.

I think you will see Walmart relatively quickly become probably the second largest customer we have, and there's quite a bit of room to grow in terms of their annual spend with us. So, I think we will see how '26 goes, Greg. And then, obviously, that will help us guide the upcoming sort of ramp-up.

The key thing is, some of our projects are in their next-generation facilities. So, it's related to their build-out there. And you can see in public comments, Walmart is investing heavily in e-commerce, in DCs and in FC fulfillment, and we are the beneficiaries of that as they continue to invest in that area. So, I think you will see some impact in -- starting in Q4 and hopefully, much bigger impact in '26 and thereafter.

Okay. Perfect. And then just lastly, your sort of longer-term targets that you put out, I want to make sure I heard it right. You said $800 million in revenue in 5 years, automation to contribute 15%, 1-5, of that. Is that right? And then do you have sort of an EBITDA margin target in mind if you're able to execute upon that?

You have that right. So, these are the right numbers sort of in the next 5 years, and that is sort of our organic plan, if you will, where we think the businesses we have today, the new product introductions that we're working on, we think they can lead effectively to doubling the top line in the next 5 years to $800 million. You have it right on automation, where I believe, we can get to 15%, 1-5, out of that $800 million coming from automation. And honestly, the guidance I have for the team that we're working towards and you're seeing us making progress towards that, is we want to be in a business that has north of 25% EBITDA margin. So that's the longer-term goal.

[Operator Instructions] Your next question comes from Ghansham Panjabi with Baird.

Just sort of building on the last question as it relates to 2025, I mean, obviously, a lot going on with the macroeconomic environment in Europe, U.S. and of course, your internal initiatives, et cetera. What is a reasonable baseline for volumes for 4Q? And how would that disaggregate between your 2 major regions?

Ghansham, this is Bill. So, for 4Q, I think we're expecting fairly consistent with what you saw this quarter just based on what we're seeing out of Europe and then continued strength in North America. So, we continue to see the enterprise accounts drive solid volumes in North America. We do think we'll get more of a contribution from the distribution channel as well in North America, which should help to improve things and also contribute favorably to the margin.

EMEA and APAC, given that the environment there remains a little bit more challenging and harder to call. So, we are expecting to be a little bit down there year-over-year and also taking into account some of the destocking in APAC. But overall, as we exit the year, we're looking to get back to growth in that area as well.

Okay. And then, in terms of automation, clearly, this is -- or at least I think it's going to be more lumpy than perhaps your protective packaging business in terms of volumes. How do you think about -- how should we think about the comparison going into next year and how you're going to build off that pretty significant momentum that you're showing this year for different reasons, including your strategic partnerships?

Ghansham, I think as you highlight, obviously, automation is about -- it's driven by the sale and then the deployment and installation of equipment. So, it's a little bit different than the consumable business we have in PPS. As I said, we feel very confident that we will hit the $40 million to $45 million this year, which will represent meaningful 40%, call it, 50% growth year-over-year.

In the near term, honestly, Ghansham, we continue to see the trend of 50% plus growth in automation. And our confidence in that growth trajectory is increasing because, frankly, a bunch of it is with customers that we've signed, that we're deploying, that we're building the equipment and installing and it's agreeing with them on the deployment and installation schedule.

And as I announced in the call, we have a large enterprise agreement now with Medline, it's very sophisticated in automation. We're very excited about helping them in a number of their DCs, and we're working on other deployments like that. So, this is a business where you can start building a backlog over time, Ghansham, and the confidence in the numbers is higher, but it's probably more a business where you should think about it in terms of annual deployments that you can do rather than quarter-by-quarter, which is how we're thinking about it. But the growth trajectory in the near term, I'm expecting it to be 50% plus in the top line.

Got it. And just one final one as it relates to the momentum that you're seeing with these -- again, these partnerships, et cetera, including Medline. How is the weighting going to change between North America and the overseas market, especially Europe as we -- over the next 3 years, just given the asymmetric growth that you're seeing? Or is the growth yet to come in Europe and the weighting is going to be pretty much comparable as it is now?

That's a great question, Ghansham, because obviously, recently and with enterprise accounts, we've seen bigger growth in North America, and we've seen some challenges in Europe. What I'm expecting, as Europe stabilizes, is that we will get back to growth in Europe, in particular, around new product introductions that are really important globally, but in particular, very important in Europe as we try to come up with converters that are faster and have a more compact sort of footprint. And that's really important in the European market where DCs and warehouses are smaller than what you see in the U.S.

So, we have a road map to regain market share to drive our growth. Having said that, in the next few years, I continue to expect higher and more further growth in North America than in Europe. And to your question, I think the geographic exposure of our company over time will lean heavier towards the U.S., but for the right reasons. In other words, not because I think Europe is going to decline, I actually think we're going to reverse the trends. And as Europe stabilizes, we will grow, but it will be at a lower pace than what we're seeing in North America.

And look, we've been a small public company that's a bit unusual in the quantum of exposure to Europe. So, over time, I expect that you will see Europe still being a very large and important contributor, but North America play a bigger role. And obviously, given sheer size today, we think Asia Pacific has tremendous room for growth to drive top line.

Okay. And if I could just squeeze one more question, maybe for Bill as it relates to cash flow, anything we should keep in mind versus the initial guidance? And obviously, you're pointing towards the lower end of your EBITDA range for the back half of the year? And then also lastly, on CapEx for '26, can you give us a frame of reference as to how to think about that component?

Yes, sure. I think it's pretty consistent, right, with what we went through last quarter. We did lower our year-end cash balance forecast to $65 million to $70 million, which is a little bit lower than what we talked about in Q3 -- sorry, at the end of Q2. And that's really driven by just the performance in Europe and APAC, right, the lower sales environment there. So, I think we are looking to finish in that $65 million to $70 million area in cash on hand, and that's just driven by the lower volume outlook.

And as we think about next year, right, we do look to get back to free cash flow generation. So, I think for us, we're looking to generate probably $15 million to $20 million in free cash at least next year based on what we're seeing. And I think the CapEx piece of that would be about $35 million or so based on what we're looking at now.

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

Thanks a lot, Carly, and thank you all for joining us today. We look forward to speaking again after Q4.

Ladies and gentlemen, that concludes today's call. Thank you for joining. You may now disconnect.