# Ranpak Holdings Corp. (PACK) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Ranpak Holdings Corp.'s 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1712463/000095017023011163/pack-20221231.htm
Accession: 0000950170-23-011163
Filing date: 2023-03-31
Report date: 2022-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/PACK/
All MD&A years: /company/PACK/mda/
Previous year: /company/PACK/mda/fy2021/ (FY 2021)
Next year: /company/PACK/mda/fy2023/ (FY 2023)

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The information in this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read together with our consolidated financial statements and related notes set forth in Part II, Item 8, as well as the discussion included in Part I, Item 1A, “Risk Factors,” of this Report. All amounts and percentages are approximate due to rounding.

Cautionary Notice Regarding Forward-Looking Statements

All statements other than statements of historical fact included in this Report, including, without limitation, statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding our financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. When used in this Report, words such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” or the negative of such terms or other similar expressions, as they relate to us or our management, identify forward-looking statements. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those described in our other SEC filings. Such forward-looking statements are based on the beliefs of management, as well as assumptions made by, and information currently available to, our management. No assurance can be given that results in any forward-looking statement will be achieved and actual results could be affected by one or more factors, which could cause them to differ materially. The cautionary statements made in this Report should be read as being applicable to all forward-looking statements whenever they appear in this Report. For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors detailed in our filings with the SEC. All subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are qualified in their entirety by this paragraph.

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The forward-looking statements contained in this Report and the Exhibits attached hereto are based on our current expectations and beliefs concerning future developments and their potential effects on us taking into account information currently available to us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. Should one or more of these risks or uncertainties materialize, they could cause our actual results to differ materially from the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified in the section titled, “Risk Factors” included elsewhere in this Report. Except as required by law, we are not undertaking any obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. You should not take any statement regarding past trends or activities as a representation that the trends or activities will continue in the future. Accordingly, you should not put undue reliance on these statements.

Overview

We are a leading provider of environmentally sustainable, systems-based, product protection solutions and end-of-line automation solutions for e-commerce and industrial supply chains. Since our inception in 1972, we have delivered high quality protective packaging solutions, while maintaining our commitment to environmental sustainability. We assemble our PPS systems and provide the systems and paper consumables to customers, which include direct end-users and our network of exclusive paper packaging solution distributors, who in turn place the systems with and sell paper to commercial and industrial users for the conversion of paper into packaging materials. We provide end-of-line automation systems that solve challenges, including optimization, customization, and efficiency, facing end-users of our products. We are a global business that generated approximately 58.3% of our 2022 net revenue outside of the United States.

As of December 31, 2022, we had an installed base of approximately 139.1 thousand protective packaging systems serving a diverse set of distributors and end-users. We generated net revenue of $326.5 million and $383.9 million in 2022 and 2021, respectively.

Effects of Currency Fluctuations

As a result of the geographic diversity of our operations, we are exposed to the effects of currency translation, which has affected the comparability of our results of operations between the periods presented in this Report and may affect the comparability of our results of operations in future periods. Currency transaction exposure results when we generate net revenue in one currency at one time and incur expenses in another currency at another time, or when we realize gain or loss on intercompany transfers. While we seek to limit currency transaction exposure by matching the currencies in which we incur sales and expenses, we may not always be able to do so.

In addition, we are subject to currency translation exposure because the operations of our subsidiaries are measured in their functional currency which is the currency of the primary economic environment in which the subsidiary operates. Any currency balances that are denominated in currencies other than the functional currency of the subsidiary are re-measured into the functional currency, with the resulting gain or loss recorded in the foreign currency (gains) losses line-item in our Consolidated Statements of Operations. In turn, subsidiary income statement balances that are denominated in currencies other than USD are translated into USD, our reporting currency, in consolidation using the average exchange rate in effect during each fiscal month during the period, with any related gain or loss recorded as foreign currency translation adjustments in other comprehensive income (loss). The assets and liabilities of subsidiaries that use functional currencies other than the USD are translated into USD in consolidation using period end exchange rates, with the effects of foreign currency translation adjustments included in accumulated other comprehensive income (loss).

We hedge some of our exposure to foreign currency translation with a cross-currency swap. Refer to Note 12, “Derivative Instruments” to the consolidated financial statements included elsewhere in this Report for additional information. Significant currency fluctuations could impact the comparability of our results between periods, while such fluctuations coupled with material mismatches in net revenue and expenses could also adversely impact our cash flows. See “Qualitative and Quantitative Disclosures About Market Risk.”

Acquisitions and Investments in Small Businesses

In 2021, we acquired Recycold and strategically invested in Pickle and Creapaper. We further invested in Pickle in 2022. All amounts associated with these transactions are immaterial to this Report. Please refer to Note 9, “Goodwill, Long-Lived, and Intangible Assets, net” to our consolidated financial statements included elsewhere in this Report for further detail.

While recent acquisitions have been relatively small, any significant future business acquisitions may impact the comparability of our results in future periods with those for prior periods.

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Key Performance Indicators and Other Factors Affecting Performance

We use the following key performance indicators and monitors the following other factors to analyze our business performance, determine financial forecasts, and help develop long-term strategic plans:

PPS Systems Base — We closely track the number of PPS systems installed with end-users as it is a leading indicator of underlying business trends and near-term and ongoing net revenue expectations. Our installed base of PPS systems also drives our capital expenditure budgets. The following table presents our installed base of PPS systems as of December 31, 2022 and 2021:

[[GREPCENT_TABLE]]
[["","","December 31, 2022","","","December 31, 2021","","","Change","","","% Change"],["PPS Systems","","(in thousands)"],["Cushioning machines","","","35.3","","","","35.2","","","","0.1","","","","0.3"],["Void-Fill machines","","","81.6","","","","77.5","","","","4.1","","","","5.3"],["Wrapping machines","","","22.2","","","","20.5","","","","1.7","","","","8.3"],["Total","","","139.1","","","","133.2","","","","5.9","","","","4.4"]]
[[/GREPCENT_TABLE]]

Paper Costs. Paper is a key component of our cost of goods sold and paper costs can fluctuate significantly between periods. We purchase both 100% virgin and 100% recycled paper, as well as blends, from various suppliers for conversion into the paper consumables we sell. The cost of paper supplies is our largest input cost, and we historically have negotiated supply and pricing arrangements with most of our paper suppliers annually, with a view towards mitigating fluctuations in paper cost. Nevertheless, as paper is a commodity, its price on the open market, and in turn the prices we negotiate with suppliers at a given point in time, can fluctuate significantly, and is affected by several factors outside of our control, including inflationary pressures, supply and demand and the cost of other commodities that are used in the manufacture of paper, including wood, energy and chemicals. The market for our solutions is competitive and it may be difficult to pass on increases in paper prices to our customers immediately, or at all, which has in the past, and could in the future, adversely affect our operating results. Further, the conflict in Ukraine has increased pricing for paper products as a result of decreased availability of paper products previously sourced from Russian paper mills. In the third quarter of 2022, we eliminated our paper sourcing from Russian suppliers and reallocated our purchases to other mills across the globe. As previously noted, we have seen some stabilization of paper and other costs in North America, however, pricing conditions in Europe remain unsteady, primarily due to the volatility in energy markets. Where we can, we will look to pass increased market costs on to our customers to mitigate the impact of these costs. We are unable to predict our ability to pass these costs on to our customers and how much of these increases we will be able to pass on to our customers. As such, we expect some continued pressure on our gross margin in the medium term relative to our historical margin profile.

Inflationary Pressures and Other Costs. We experienced inflationary pressures in 2022, increasing the costs of paper as well as shipping and logistics, energy and wages, among other costs. In addition, inflationary pressures have adversely impacted some of our end-users, such as automotive companies; distributors; electronic manufacturers; machinery manufacturers; home goods manufacturers; e-commerce and mail order fulfillment firms; and other end-users that are particularly sensitive to reductions in business and consumer spending by their respective customers, and which in turn have impacted our net revenue. The conflict in Ukraine has also caused certain headwinds, including (i) increased energy costs, particularly in Europe; (ii) shipping variabilities due to truck driver shortages and (iii) increased shipping times for paper products sourced from Russian paper mills, in addition to increased paper costs discussed above. Higher costs due to inflation and the conflict in Ukraine during 2022 were partially offset by price increases, which mitigated the impact on our operating results. However, our ability to predict or further offset inflationary cost increases in the future or during economic downturns or recessions may be limited or impacted by heightened competition for net revenue, an unwillingness by our customers to accept price increase or pressure to reduce selling prices if end-users reduce their volume of purchases. Inflationary pressures and associated increases in interest rates and borrowing costs may also impact the ability of some of our end-users and suppliers to obtain funds for operations and capital expenditures, which could negatively impact our ability to obtain necessary supplies as well as the sales of materials and equipment to affected end-users. This could also result in reduced or delayed collections of outstanding accounts receivable from end-users, which could impact our cash flows. As a result, to the extent inflationary pressures continue, we expect additional pressure on our net revenue and gross margin. We will continue to evaluate the impact of inflationary pressures on our profitability and cash flows as well as our end-users.

Impact of the COVID-19 Pandemic. The COVID-19 pandemic has resulted in changes in market and economic conditions around the world. We continue to operate our production and distribution facilities, both domestically and internationally, albeit subject to measures designed to promote a safe operating environment. During the COVID-19 pandemic, our assembly and distribution operations have experienced disruptions, including lockdowns; port congestion; component-related supply-related challenges (including from China); increased shipping and logistics costs; and delayed availability of supplies. Additionally, social distancing and similar measures adopted in many jurisdictions around the world impacted our ability to demonstrate and install our protective packaging systems and Automation products and, as a result, such demonstrations and installations were delayed. The COVID-19 pandemic and associated shutdown measures also contributed to an increase in e-commerce activity and our net revenue, and the subsequent reopening of economies has had a negative impact on e-commerce activity and our net revenues. While we do not

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currently expect COVID-19 to have a material impact on our business, results of operations, financial condition or liquidity, we cannot predict the extent to which we will ultimately be impacted due to the uncertain nature and duration of the COVID-19 pandemic. See “Risk Factors” located previously in this Report. We will continue to evaluate the nature and extent of the impact to our business, results of operations, financial condition, and cash flows.

Results of Operations

The following tables set forth our results of operations for 2022 and 2021, presented in millions of dollars.

In addition, in our discussion below, we include certain other unaudited, non-GAAP constant currency data for 2022 and 2021. This data is based on our historical financial statements included elsewhere in this Report, adjusted (where applicable) to reflect a constant currency presentation between periods for the convenience of readers. We reconcile this data to our GAAP data for the same period under “Presentation and Reconciliation of GAAP to Non-GAAP Measures” for 2022 and 2021.

Comparison of 2022 to 2021

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2022","","","% Net revenue","","","2021","","","% Net revenue"],["Net revenue","","$","326.5","","","\u2015","","","$","383.9","","","\u2015"],["Cost of goods sold","","","226.9","","","","69.5","","","","235.0","","","","61.2"],["Gross profit","","","99.6","","","","30.5","","","","148.9","","","","38.8"],["Selling, general and administrative expenses","","","105.5","","","","32.3","","","","98.3","","","","25.6"],["Depreciation and amortization expense","","","32.1","","","","9.8","","","","35.0","","","","9.1"],["Other operating expense, net","","","4.5","","","","1.4","","","","3.4","","","","0.9"],["Income (loss) from operations","","","(42.5",")","","","(13.0",")","","","12.2","","","","3.2"],["Interest expense","","","20.7","","","","6.3","","","","22.4","","","","5.8"],["Foreign currency gain","","","(2.2",")","","","(0.7",")","","","(5.3",")","","","(1.4",")"],["Other non-operating income, net","","","(4.3",")","","","(1.3",")","","","-","","","","-"],["Loss before income tax benefit","","","(56.7",")","","","(17.4",")","","","(4.9",")","","","(1.3",")"],["Income tax benefit","","","(15.3",")","","","(4.7",")","","","(2.1",")","","","(0.5",")"],["Net loss","","$","(41.4",")","","","(12.7",")","","$","(2.8",")","","","(0.7",")"],["Non-GAAP"],["EBITDA","","$","32.9","","","","","","$","91.1"],["AEBITDA (Constant Currency)","","$","66.8","","","","","","$","117.8"]]
[[/GREPCENT_TABLE]]

Net Revenue

The following table and the discussion that follows compares our net revenue by geographic region and by product line for 2022 and 2021 on a GAAP basis and on a non-GAAP constant currency basis as described above and in the discussion below. See also “Presentation and Reconciliation of GAAP to Non-GAAP Measures” for further details:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2022","","","% Net revenue","","","2021","","","% Net revenue"],["North America","","$","134.7","","","","41.3","","","$","146.9","","","","38.3"],["Europe/Asia","","","191.8","","","","58.7","","","","237.0","","","","61.7"],["Net revenue","","$","326.5","","","","100.0","","","$","383.9","","","","100.0"],["Cushioning machines","","$","140.3","","","","43.0","","","$","162.6","","","","42.4"],["Void-Fill machines","","","130.6","","","","40.0","","","","154.5","","","","40.2"],["Wrapping machines","","","40.5","","","","12.4","","","","52.0","","","","13.5"],["Other","","","15.1","","","","4.6","","","","14.8","","","","3.9"],["Net revenue","","$","326.5","","","","100.0","","","$","383.9","","","","100.0"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["","","Non-GAAP Constant Currency"],["","","Year Ended December 31,"],["","","2022","","","% Net revenue","","","2021","","","% Net revenue","","","$ Change","","","% Change"],["North America","","$","134.7","","","","39.1","","","$","146.9","","","","38.9","","","$","(12.2",")","","","(8.3",")"],["Europe/Asia","","","209.4","","","","60.9","","","","230.6","","","","61.1","","","","(21.2",")","","","(9.2",")"],["Net revenue","","$","344.1","","","","100.0","","","$","377.5","","","","100.0","","","$","(33.4",")","","","(8.8",")"],["Cushioning machines","","$","149.2","","","","43.4","","","$","159.2","","","","42.2","","","$","(10.0",")","","","(6.3",")"],["Void-Fill machines","","","136.6","","","","39.7","","","","152.2","","","","40.3","","","","(15.6",")","","","(10.2",")"],["Wrapping machines","","","41.8","","","","12.1","","","","51.4","","","","13.6","","","","(9.6",")","","","(18.7",")"],["Other","","","16.5","","","","4.8","","","","14.7","","","","3.9","","","","1.8","","","","12.2"],["Net revenue","","$","344.1","","","","100.0","","","$","377.5","","","","100.0","","","$","(33.4",")","","","(8.8",")"]]
[[/GREPCENT_TABLE]]

Net revenue for 2022 was $326.5 million compared to net revenue of $383.9 million in 2021, a decrease of $57.4 million or 15.0%. Net revenue was negatively impacted by currency headwinds, as well as decreases in cushioning, void-fill, and wrapping, slightly offset by an increase in other sales. Revenue from all product categories was negatively affected by lower economic activity; lower e-Commerce use due to the opening up of economies; the impact inflationary pressures are having on consumer and corporate budgets; and tightening inventory management in response to uncertainties in the economic environment. In addition to currency headwinds, revenue from all product categories was negatively affected by our global transition to a new cloud-based ERP system, particularly in the first quarter of 2022. The ERP system transition created certain obstacles that affected operations, including scheduled downtime for cutting over to the new ERP system; processing and shipping inefficiencies associated with using the new ERP system; and, while transitioning to the new ERP system, the delay of pricing increases to help offset input cost pressures. Additionally, the impact of the Omicron variant of COVID-19 limited visits to customers for product demonstrations in the first quarter of 2022; however, this impact waned during the second and third quarters of 2022. Cushioning decreased $22.3 million, or 13.7%, to $140.3 million from $162.6 million; void-fill decreased $23.9 million, or 15.5%, to $130.6 million from $154.5 million; wrapping decreased $11.5 million, or 22.1%, to $40.5 million from $52.0 million; and other sales increased $0.3 million, or 2.0%, to $15.1 million from $14.8 million, for 2022 compared to 2021. Other net revenue includes automated box sizing equipment and non-paper revenue from packaging systems installed in the field, such as systems accessories. The decrease in net revenue is quantified by a decrease in the volume of our paper consumable products of approximately 24.1 percentage points (“pp”), partially offset by a 14.4 pp increase in the price or mix of our paper consumable products and a 0.8 pp increase in the sales of automated box sizing equipment. Constant currency net revenue was $344.1 million for 2022, a $33.4 million, or 8.8%, decrease from constant currency net revenue of $377.5 million for 2021.

Net revenue in North America for 2022 totaled $134.7 million compared to net revenue in North America of $146.9 million in 2021. The decrease of $12.2 million, or 8.3%, was attributable to a decrease in cushioning, void-fill, wrapping, and other sales.

Net revenue in Europe/Asia for 2022 totaled $191.8 million compared to net revenue in Europe/Asia of $237.0 million in 2021. The decrease of $45.2 million, or 19.1%, was driven by currency headwinds as well as decreases in cushioning, void-fill, and wrapping sales, partially offset by an increase in other sales. Constant currency net revenue in Europe/Asia was $209.4 million for 2022, a $21.2 million, or 9.2%, decrease from constant currency net revenue of $230.6 million for 2021.

Cost of Goods Sold

Cost of goods sold for 2022 totaled $226.9 million, a decrease of $8.1 million, or 3.4%, compared to $235.0 million in 2021. The change was primarily due to lower volumes, currency headwinds, as well as $1.2 million lower depreciation expense partially offset by increased paper costs. We experienced increased manufacturing input costs in 2022, primarily driven by increased paper and labor costs compared to 2021. As previously noted, we implemented additional pricing actions in 2022.

Selling, General, and Administrative (“SG&A”) Expenses

SG&A expenses for 2022 were $105.5 million, an increase of $7.2 million, or 7.3%, from $98.3 million in 2021. The change in SG&A was largely due to increased headcount and associated compensation as well as ERP system implementation costs. The increase was partially offset by decreases in expenses from proactive selective headcount reductions; the deferral of certain initiatives during the second half of 2022; a decrease in stock compensation expense primarily associated with the 2021 LTIP PRSUs (herein defined), whose downward adjustments resulted from evaluations on their performance criteria; and an approximate 5.0% decrease due to currency rate fluctuations over the prior year.

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Depreciation and Amortization

Depreciation and amortization expenses for 2022 were $32.1 million, a decrease of $2.9 million, or 8.3%, from $35.0 million in 2021, primarily due to a decrease in depreciation of computer software. Additionally, currency rate fluctuations accounted for approximately 3.1% of the decrease in 2022 over the prior year.

Other Operating Expense, Net

Other operating expense, net, for 2022 was $4.5 million, an increase of $1.1 million, or 32.4%, from $3.4 million in 2021. The change in other operating expense (income), net was largely driven by increases in research and development costs in 2022, partially offset by an approximate 2.9% decrease due to currency rate fluctuations in 2022 over the prior year.

Interest Expense

Interest expense for 2022 was $20.7 million, a decrease of $1.7 million, or 7.6%, from $22.4 million in 2021. The change was due to a decrease in debt during 2022 compared to 2021. Additionally, currency rate fluctuations accounted for approximately 1.8% of the decrease in 2022 over the prior year.

Foreign Currency (Gain) Loss

Foreign currency gain for 2022 was $2.2 million, a change of $3.1 million, or 58.5%, from foreign currency loss of $5.3 million in 2021 due to the volatility in Euro exchange rates compared to USD.

Other Non-Operating Expense (Income), Net

Other non-operating income, net for 2022 was $4.3 million and primarily represents the unrealized gain on our investment in Pickle. Other non-operating income, net was not material for 2021.

Income Tax Benefit

Income tax benefit for 2022 was $15.3 million, or an effective tax rate of 27.3%. Income tax benefit was $2.1 million in 2021, or an effective tax rate of 42.7%. The fluctuation in the effective tax rate between periods was primarily attributable to a jurisdictional mix of income, benefits derived from stock-based compensation, return to provision adjustments, tax credits available in the U.S., and income in foreign jurisdictions that are taxed at different rates than the U.S. statutory tax rate.

Net Loss

Net loss for 2022 increased $38.6 million to $41.4 million from a net loss of $2.8 million in 2021. The change was due to the reasons discussed above.

EBITDA and AEBITDA

EBITDA for 2022 was $32.9 million, a decrease of $58.2 million, or 63.9%, from $91.1 million in 2021. Adjusting for one-time costs, AEBITDA for 2022 and 2021 totaled $66.8 million and $117.8 million, respectively, a decrease of $51.0 million, or 43.3%.

Comparison of 2021 to 2020

Discussions of 2020 items and comparisons between 2021 and 2020 that are not included in this Report can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for 2021.

Presentation and Reconciliation of GAAP to Non-GAAP Measures

As noted above, we believe that in order to better understand the performance of the Company, providing non-GAAP financial measures to users of our financial information is helpful. We believe presentation of these non-GAAP measures is useful because they are many of the key measures that allow management to evaluate more effectively our operating performance and compare the results of our operations from period to period and against peers without regard to financing methods or capital structure. Management does not consider these non-GAAP measures in isolation or as an alternative to similar financial measures determined in accordance with GAAP. The computations of EBITDA and AEBITDA may not be comparable to other similarly titled measures of other companies. These non-GAAP financial measures should not be considered as alternatives to, or more meaningful than, measures of financial performance as determined in accordance with GAAP or as indicators of operating performance.

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The following tables and related notes reconcile certain non-GAAP measures, including the non-GAAP constant currency measures, to GAAP information presented in this Report for 2022 and 2021:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2022","","","2021","","","$ Change","","","% Change"],["Net revenue","","$","326.5","","","$","383.9","","","$","(57.4",")","","","(15.0",")"],["Cost of goods sold","","","226.9","","","","235.0","","","","(8.1",")","","","(3.4",")"],["Gross profit","","","99.6","","","","148.9","","","","(49.3",")","","","(33.1",")"],["Selling, general and administrative expenses","","","105.5","","","","98.3","","","","7.2","","","","7.3"],["Depreciation and amortization expense","","","32.1","","","","35.0","","","","(2.9",")","","","(8.3",")"],["Other operating expense, net","","","4.5","","","","3.4","","","","1.1","","","","32.4"],["Income (loss) from operations","","","(42.5",")","","","12.2","","","","(54.7",")","","","(448.4",")"],["Interest expense","","","20.7","","","","22.4","","","","(1.7",")","","","(7.6",")"],["Foreign currency gain","","","(2.2",")","","","(5.3",")","","","3.1","","","","(58.5",")"],["Other non-operating income, net","","","(4.3",")","","","-","","","","(4.3",")","","\u2015"],["Loss before income tax benefit","","","(56.7",")","","","(4.9",")","","","(51.8",")","","","1,057.1"],["Income tax benefit","","","(15.3",")","","","(2.1",")","","","(13.2",")","","","628.6"],["Net loss","","","(41.4",")","","","(2.8",")","","","(38.6",")","","","1,378.6"],["Depreciation and amortization expense \u2013 COS","","","36.8","","","","38.6","","","","(1.8",")","","","(4.7",")"],["Depreciation and amortization expense \u2013 D&A","","","32.1","","","","35.0","","","","(2.9",")","","","(8.3",")"],["Interest expense","","","20.7","","","","22.4","","","","(1.7",")","","","(7.6",")"],["Income tax benefit","","","(15.3",")","","","(2.1",")","","","(13.2",")","","","628.6"],["EBITDA(1)","","","32.9","","","","91.1","","","","(58.2",")","","","(63.9",")"],["Adjustments(2):"],["Unrealized gain translation","","","(2.3",")","","","(5.5",")","","","3.2","","","","(58.2",")"],["Non-cash impairment losses","","","1.0","","","","1.7","","","","(0.7",")","","","(41.2",")"],["M&A, restructuring, severance","","","2.0","","","","1.3","","","","0.7","","","","53.8"],["Amortization of restricted stock units","","","18.3","","","","22.5","","","","(4.2",")","","","(18.7",")"],["Amortization of cloud-based software implementation costs(3)","","","2.8","","","","-","","","","2.8","","","\u2015"],["Cloud-based software implementation costs","","","7.4","","","","-","","","","7.4","","","\u2015"],["Unrealized gain on investment in small private business","","","(3.9",")","","","-","","","","(3.9",")","","\u2015"],["Other adjustments","","","4.3","","","","8.7","","","","(4.4",")","","","(50.6",")"],["Constant currency","","","4.3","","","","(2.0",")","","","6.3","","","","(315.0",")"],["Constant Currency AEBITDA(1)","","$","66.8","","","$","117.8","","","$","(51.0",")","","","(43.3",")"]]
[[/GREPCENT_TABLE]]

(see subsequent footnotes)

(1)
Reconciliations of EBITDA and AEBITDA for each period presented are to net (loss) income, the nearest GAAP equivalent.

(2)
Adjustments are related to non-cash unusual or infrequent costs such as: effects of non-cash foreign currency remeasurement or adjustment; impairment of returned machines; costs associated with the evaluation of acquisitions; costs associated with executive severance; costs associated with restructuring actions such as plant rationalization or realignment, reorganization, and reductions in force; costs associated with the implementation of the global ERP system; and other items deemed by management to be unusual, infrequent, or non-recurring.

(3)
Represents amortization of capitalized costs related to the implementation of the global ERP system, which are included in SG&A:

Liquidity and Capital Resources

Liquidity describes the ability of a company to generate sufficient cash flows to meet the cash requirements of its business operations, including working capital needs, capital expenditures, debt service, acquisitions, other commitments and contractual obligations. We evaluate liquidity in terms of cash flows from operations and other sources and the sufficiency of such cash flows to fund our operating, investing and financing activities.

We believe that our cash balances together with borrowing capacity under the revolving portion of our senior secured credit facilities will provide us with sufficient resources to cover our current requirements. Our main liquidity needs relate to capital expenditures and expenses for the production and maintenance of PPS systems placed at end-user facilities, working capital, including the purchase of paper raw materials, and payments of principal and interest on our outstanding debt. We expect our capital expenditures to increase as we continue to grow our business, expand our manufacturing footprint, and upgrade our existing systems and facilities. We continue to evaluate our inventory requirements and adjust according to our volume forecasts. Our future capital requirements and the adequacy of available funds will depend on many factors, and if we are unable to obtain needed additional funds, we may have to reduce our operating costs or incur additional debt, which could impair our growth prospects and/or otherwise negatively impact our

36

business. Further, volatility in the equity and credit markets resulting from the COVID-19 pandemic, the conflict in Ukraine, or other macroeconomic factors could make obtaining new equity or debt financing more difficult or expensive.

We had $62.8 million in cash and cash equivalents as of December 31, 2022 and $103.9 million as of December 31, 2021. We sold approximately 5.3 million shares of Class A common stock in the May 2021 Equity Offering (herein defined) for net proceeds of $103.4 million. We used $70.0 million of proceeds from the May 2021 Equity Offering to invest in a money market fund to generate short-term cash returns. Additionally, we prepaid $20.9 million of principal on the First Lien Dollar Term Facility in June 2021 (the “June 2021 Prepayment”).

Including finance lease liabilities and excluding deferred financing costs, we had $396.9 million in debt, $2.4 million of which was classified as short-term, as of December 31, 2022, compared to $406.5 million in debt, $2.2 million of which was classified as short-term, as of December 31, 2021. At December 31, 2022, we did not have amounts outstanding under our $45.0 million revolving credit facility, and we had no borrowings under such facility through March 31, 2023.

Share Repurchase Program

On July 26, 2022, members of the Company’s Board of Directors (“Director(s)”) authorized a general share repurchase program of our Class A common stock of up to $50.0 million, with a 36-month expiration. These Class A common stock repurchases may occur in transactions that may include, without limitation, tender offers, open market purchases, accelerated share repurchases, negotiated block purchases, and transactions effected through plans under Rule 10b5-1 of the Securities Exchange Act of 1934. The timing and actual amount of shares repurchased will depend on a variety of different factors and may be modified, suspended or terminated at any time at the discretion of the Directors.

Debt Profile

The material terms of the Facilities (as defined below) are summarized in Note 11, “Long-Term Debt” to the consolidated financial statements included elsewhere in this Report.

The aggregate principal amount of the senior secured credit facilities consists of approximately $378.2 million dollar-denominated first lien term facility (the “First Lien Dollar Term Facility”), a €140.0 million ($152.6 million equivalent) euro-denominated first lien term facility (the “First Lien Euro Term Facility” and, together with the First Lien Dollar Term Facility, the “First Lien Term Facility”) and a $45.0 million revolving facility (the “Revolving Facility” and together with the First Lien Term Facility, the “Facilities”) (including the right to bring in additional lenders to provide commitments with respect to the Revolving Facility in an amount of up to $30.0 million and additional borrowing capacity available for letters of credit in an amount of up to $5.0 million). Our credit facilities are secured by substantially all of our assets.

The First Lien Term Facility accrues interest at a rate of LIBOR plus 3.75% (assuming a first lien net leverage ratio of less than 5.00:1.00), subject to a leverage-based step-up to an applicable margin equal to 4.00%. The First Lien Term Facility matures on June 3, 2026. The Revolving Facility matures on June 3, 2024.

The Revolving Facility includes borrowing capacity available for letters of credit of up to $5 million. Any issuance of letters of credit will reduce the amount available under the Revolving Facility.

In addition, the debt financing provides the borrowers with the option to increase commitments under the debt financing in an aggregate amount not to exceed the greater of $95.0 million and 100% of consolidated EBITDA for the four consecutive fiscal quarters most recently ended, plus any voluntary prepayments of the First Lien Term Facility (and, in the case of the revolving facility, to the extent such voluntary prepayments are accompanied by permanent commitment reductions under the Revolving Facility), plus unlimited amounts subject to the relevant net leverage ratio tests and certain other conditions.

The obligations of Ranpak Corp. (as successor to the initial borrower Ranger Packaging LLC), an Ohio corporation (the “U.S. Borrower”) and Ranpak B.V., a private limited liability company under the laws of the Netherlands (the “Dutch Borrower” and together with the U.S. Borrower, the “Borrowers”) under the Facilities and certain of its obligations under hedging arrangements and cash management arrangements are unconditionally guaranteed by Ranger Pledgor LLC, a Delaware limited liability company (“Holdings”), each existing and subsequently acquired or organized direct or indirect wholly-owned U.S. organized restricted subsidiary of Holdings (together with Holdings, the “U.S. Guarantors”) and, solely with respect to the obligations of the Dutch Borrower or any Dutch Guarantor, each existing and subsequently acquired or organized direct or indirect wholly-owned Dutch organized restricted subsidiary of Holdings (the “Dutch Guarantors”, and together with the U.S. Guarantors, the “Guarantors”), in each case, other than certain excluded subsidiaries. The Facilities are secured by (i) a first priority pledge of the equity interests of the Borrowers and of each direct, wholly-owned restricted subsidiary of any Borrower or any Guarantor and (ii) a first priority security interest in substantially all of the assets of the Borrowers and the Guarantors (in each case, subject to customary exceptions), provided

37

that notwithstanding the foregoing, obligations of the U.S. Borrower and U.S. Guarantors under the Facilities were not secured by assets of the Dutch Borrower or any Dutch Guarantor.

The Revolving Facility requires the borrowers to maintain a maximum first lien net leverage ratio 9.10:1.00. This “springing” financial covenant is tested on the last day of each fiscal quarter, but only if on such date the sum of (i) the principal amount of outstanding revolving loans under the Revolving Facility, (ii) drawings on letters of credit under the Revolving Facility and (iii) the face amount of non-cash collateralized letters of credit under the Revolving Facility in excess of an amount to be set forth in the definitive documentation with respect to the debt financing exceeds 35% of the total revolving commitments under the Revolving Facility.

The senior secured credit facilities also contain a number of customary negative covenants. Such covenants, among other things, will limit or restrict the ability of each of the borrowers, their restricted subsidiaries, and where applicable, Holdings, to:

•
incur additional indebtedness, issue disqualified stock and make guarantees;

•
incur liens on assets;

•
engage in mergers or consolidations or fundamental changes;

•
sell assets;

•
pay dividends and distributions or repurchase capital stock;

•
make investments, loans and advances, including acquisitions;

•
amend organizational documents;

•
enter into certain agreements that would restrict the ability to pay dividends;

•
repay certain junior indebtedness;

•
engage in transactions with affiliates; and

•
in the case of Holdings, engage in activities other than passively holding the equity interests in the borrowers and their subsidiaries.

The aforementioned restrictions are subject to certain exceptions including (i) the ability to incur additional indebtedness, liens, investments, dividends and distributions, and prepayments of junior indebtedness subject, in each case, to compliance with certain financial metrics and certain other conditions and (ii) a number of other traditional exceptions that grant the borrowers continued flexibility to operate and develop their businesses. The Facilities also require the borrowers to make mandatory prepayments of the term loans upon the occurrence of certain events, consisting of (i) an annual excess cash flow sweep of 50% of excess cash flow (as defined in the agreement governing the facilities) with step-downs to 25% if the first lien leverage ratio is less than or equal to 4.50:1.00 and greater than 4.00:1.00 and 0% if the first lien leverage ratio is less than or equal to 4.00:1.00, subject to certain deductions; (ii) the receipt of certain insurance/condemnation proceeds or net proceeds from specified asset sales and sale-leasebacks, subject to step-downs based on the company’s first lien leverage ratio; provided that in lieu of a prepayment we may instead reinvest such proceeds in specified assets subject to certain conditions, and (iii) the incurrence or issuance of non-permitted debt, following which we must pay 100% of specified net proceeds received in connection therewith. The senior secured credit facilities also contain certain customary representations and warranties, affirmative covenants and events of default.

Under the First Lien Term Facility agreement, our lower leverage ratio at December 31, 2020 required us to pay our lenders an $8.2 million exit payment fee (the “Exit Payment”), which was paid in the first quarter of 2021.

Amendment to First Lien Credit Facilities

On February 14, 2020, Ranger Packaging LLC, as the initial U.S. borrower, the Dutch Borrower, Holdings, certain other subsidiaries of Holdings, certain lenders party to Amendment No. 1 (herein defined) and Goldman Sachs Lending Partners LLC (the “Administrative Agent”) entered into the Amendment No. 1 to First Lien Credit Agreement (“Amendment No. 1”).

Among other things, the Amendment No. 1 amends the Facilities such that (x) the requirement of the Borrowers to apply a percentage of excess cash flow to mandatorily prepay term loans under the Facilities commences with the fiscal year ending December 31, 2021 (instead of the fiscal year ending December 31, 2020) and (y) the aggregate amount per fiscal year of capital stock of any parent company of the U.S. Borrower that is held by directors, officers, management, employees, independent contractors or consultants of the U.S. Borrower (or any parent company or subsidiary thereof) that the U.S. Borrower may repurchase, redeem, retire or otherwise acquire or retire for value has been increased to the greater of $10.0 million and 10% of Consolidated AEBITDA (as defined in the

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Facilities) (increased from the greater of $7.0 million and 7% of Consolidated AEBITDA) as of the last day of the most recently ended quarter for which financial statements have been delivered.

Borrower Assumption Agreement

On July 1, 2020, in the following order, (i) Rack Holdings Inc. merged with and into Ranger Packaging LLC, with Ranger Packaging LLC as the surviving entity of such merger and (ii) Ranger Packaging LLC merged with and into Ranpak Corp., with Ranpak Corp. as the surviving entity of such merger (clauses (i) and (ii) collectively, the “Reorganization”). Contemporaneously with the Reorganization, Ranger Packaging LLC, Ranpak Corp., Ranger Pledgor LLC, certain other subsidiaries of Ranger Pledgor LLC and Goldman Sachs Lending Partners LLC entered into the Borrower Assumption Agreement whereby, among other things, Ranpak Corp. assumed all obligations, liabilities and rights of Ranger Packaging LLC as the U.S. Borrower under the Facilities.

Permitted Exit Payment

As a result of making the Exit Payment to our lenders, we became eligible to enter into the Permitted Exit Payment Amendment (as defined in the Credit Agreement). On July 28, 2021, we entered into the Permitted Exit Payment to the Credit Agreement, which, among other things, would introduce additional exceptions to the negative covenant that restricts the ability of the Borrowers and their restricted subsidiaries from paying dividends and distributions or repurchasing capital stock. On July 28, 2021, the Permitted Exit Payment Amendment to the Credit Agreement became effective.

Cash Flows

The following table sets forth our summary cash flow information for the periods indicated:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2022","","","2021"],["Net cash provided by operating activities","","$","1.1","","","$","54.3"],["Net cash used in investing activities","","","(37.9",")","","","(69.8",")"],["Net cash provided by (used in) financing activities","","","(4.5",")","","","72.0"],["Effect of Exchange Rate Changes on Cash","","","0.2","","","","(1.1",")"],["Net Increase (Decrease) in Cash and Cash Equivalents","","","(41.1",")","","","55.4"],["Cash and Cash Equivalents, beginning of period","","","103.9","","","","48.5"],["Cash and Cash Equivalents, end of period","","$","62.8","","","$","103.9"]]
[[/GREPCENT_TABLE]]

Cash Flows Provided by Operating Activities

Net cash provided by operating activities was $1.1 million in 2022. Cash provided by operating activities was $54.3 million in 2021. The changes in operating cash flows are largely due to the decreases in cash earnings due to increased input costs, increased SG&A, currency headwinds, investments in working capital, and the unrealized gain on our investment in Pickle.

Cash Flows Used in Investing Activities

Net cash used in investing activities was $37.9 million in 2022 and reflects cash received in termination of cross-currency swaps, cash used for production of converter equipment and the renovation of our global headquarters in Concord, Ohio, and an investment in Pickle. Cash used in investing activities was $69.8 million in 2021 and reflects cash used for production of converter equipment, technology infrastructure improvements, our acquisition of Recycold, and our investments in Pickle and Creapaper.

Cash Flows Provided by (Used in) Financing Activities

Net cash used in financing activities was $4.5 million in 2022 and reflects debt repayments, payments on finance lease liabilities, and tax payments for withholdings on stock compensation. Net cash provided by financing activities was $72.0 million in 2021 and reflects the May 2021 Equity Offering net proceeds of $103.4 million, offset by the June 2021 Prepayment of $20.9 million, and the $8.2 million Exit Payment.

Contractual Obligations and Other Commitments

We lease production and administrative facilities as well as automobiles, machinery and equipment. We have various contractual obligations and commercial commitments that are recorded as liabilities in our condensed consolidated financial statements. Other items, such as purchase obligations and other executory contracts, are not recognized as liabilities, but are required to be disclosed.

The table below presents our significant enforceable and legally binding obligations and future commitments as of December 31, 2022.

39

[[GREPCENT_TABLE]]
[["","","","","","Payments due by Period"],["","","Total","","","Less than 1 Year","","","1-3 Years","","","3-5 Years","","","More than 5 Years"],["Contractual Obligations"],["First Lien Term Facility(1)","","$","395.4","","","$","1.5","","","$","3.0","","","$","390.9","","","$","-"],["Operating leases(2)","","","18.2","","","","3.7","","","","6.6","","","","2.9","","","","5.0"],["Finance leases(2)","","","37.7","","","","2.6","","","","4.3","","","","3.7","","","","27.1"],["Capital commitments(3)","","","10.5","","","","10.5","","","","-","","","","-","","","","-"],["Other non-current liabilities reflected on the registrant's balance sheet under GAAP(4)","","","0.8","","","","0.2","","","","0.4","","","","-","","","","0.2"],["Total","","$","462.6","","","$","18.5","","","$","14.3","","","$","397.5","","","$","32.3"],["(1) Consists of cash obligations under the First Lien Term Facility, which are described in more detail in Note 11, \"Long-Term Debt\" in the notes to our Consolidated Financial Statements. Interest payments on the First Lien Term Facility are calculated quarterly using variable interest rates based on market indices and, as a result, are not readily determinable for this analysis."],["(2) Includes estimated lease obligations for our new facilities in Shelton, Connecticut and Eygelshoven, The Netherlands. Lease inception occurred in 2021, however, lease commencement is not anticipated until sometime in 2023."],["(3) Associated with the renovation of our global headquarters in Concord and our new facilities in Shelton, Connecticut and Eygelshoven, The Netherlands."],["(4) Asset retirement obligation. See Note 18, \"Asset Retirement Obligation\" in the notes to our Consolidated Financial Statements for further detail."]]
[[/GREPCENT_TABLE]]

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of December 31, 2022.

Critical Accounting Policies and Estimates

Our accounting principles and the methods of applying these principles are in accordance with U.S. GAAP, which often require the judgment of management in the selection and application of certain accounting principles and methods. We consider the following accounting policies to be critical to understanding our financial statements because the application of these policies requires significant judgment on the part of management, which could have a material impact on our financial statements. The following accounting policies include estimates that require management’s subjective or complex judgments about the effects of matters that are inherently uncertain. For information on our significant accounting policies, including the policies discussed below, see Note 2, “Basis of Presentation and Summary of Significant Accounting Policies” to the audited consolidated financial statements included elsewhere in this Report.

Revenue Recognition. Revenue from contracts with customers is recognized under ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”) using a five-step model consisting of the following: (i) identify the contract with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy a performance obligation. Performance obligations are satisfied when we transfer control of a good or service to a customer, which can occur over time or at a point in time. The amount of revenue recognized is based on the consideration to which we expect to be entitled in exchange for those goods or services, including the expected value of variable consideration. The customer’s ability and intent to pay the transaction price is assessed in determining whether a contract exists with the customer. If collectability of substantially all of the consideration in a contract is not probable, consideration received is not recognized as revenue unless the consideration is nonrefundable and we no longer have an obligation to transfer additional goods or services to the customer or collectability becomes probable.

Our revenue associated with our PPS business contains (i) a non-lease component (the paper consumables) accounted for as revenue under ASC 606 and (ii) a lease component (our PPS systems) accounted for as machine lease revenue under ASC Topic 842, Leases (“ASC 842”). Revenue for paper consumables is recognized based on shipping terms, which is the point in time the customer obtains control of the promised goods. Machine lease revenue is recognized on a straight-line basis over the terms of the PPS systems agreements with customers, which have durations of less than one year. Revenue for Automation equipment sales is recognized based on an input method of cost and effort incurred.

We sell our products to end-users primarily through an established distributor network and direct sales to select end-users. Sales taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from net revenue on the Consolidated Statements of Operations.

Charges for rebates and other allowances are recognized as a deduction from revenue on an accrual basis in the period in which the associated revenue is recorded. When we estimate our rebate accruals, we consider customer-specific contractual commitments including stated rebate rates and history of actual rebates paid. Our rebate accruals are reviewed at each reporting period and adjusted to reflect data available at that time. We adjust the accruals to reflect any differences between estimated and actual amounts. These adjustments impact the amount of net revenue recognized by us in the period of adjustment. Charges for rebates and other allowances were approximately 10.0% and 7.4% of revenue in 2022 and 2021, respectively. Refer to Note 8, “Revenue Recognition, Contracts with Customers,” of the Notes to consolidated financial statements for further discussion of revenue.

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We recognize incremental costs to obtain a contract as an expense when incurred if the amortization period of the asset that otherwise would have been recognized is one year or less. For example, we generally expense sales commissions when incurred because the contract term is less than one year. These costs are recorded within sales and marketing expenses.

Goodwill and Identifiable Intangible Assets, net. Goodwill represents the excess of the total purchase consideration over the fair value of the underlying net assets, largely arising from the assembled workforce, new customers and the replacement of customer and technology attrition. Goodwill is not subject to amortization but is tested for impairment annually as of October 1st, through a qualitative or quantitative assessment and when events and circumstances indicate that the estimated fair value of a reporting unit may no longer exceed its carrying value. If the carrying value of the reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.

In determining our reporting units, we consider economic characteristics, nature of services and products, and relative size of components within our operating segments. The components within our operating segments tend to share assets and other resources within their respective operating segment. Products offered in the components within our operating segments are similar throughout their respective operating segment. Our analysis of these factors provides that our reporting units are consistent with our operating segments.

Identifiable intangible assets consist primarily of patents, customer/distributor relationships, and trademarks. We amortize definite-lived identifiable assets over the shorter of their stated or statutory duration or their estimated useful lives, generally ranging from 10 to 15 years, on a straight-line basis and periodically review them for impairment. Trademarks are accounted for as indefinite-lived intangible assets and, accordingly, are not subject to amortization.

We use the acquisition method of accounting for all business combinations and do not amortize goodwill or intangible assets with indefinite useful lives. Goodwill and intangible assets with indefinite useful lives are tested for possible impairment annually during the fourth quarter of each fiscal year or more frequently if events or changes in circumstances indicate that the asset might be impaired. We assess, use estimates, and make judgments regarding a variety of factors that may impact the fair value of the goodwill reporting unit or the intangible asset being tested. Such estimates and judgments include business plans, anticipated future cash flows, economic projections, and other market data. These estimates and judgments include, but are not limited to, projected revenues, operating margin, and discount rate. Because there are inherent uncertainties in these estimates and judgments, significant differences between these estimates and actual data may result in future impairment charges and could materially adversely affect our financial condition or results of operations.

Declining market conditions and the decline in our share price triggered interim testing for impairment as of September 1, 2022 (the “2022 Interim Tests”). The test for goodwill used unobservable inputs that required significant judgement and were performed using a combination of the Discounted Cash Flow Method and the Guideline Public Company Method in order to determine fair value. The test for indefinite-lived intangible assets also used unobservable inputs that required significant judgement and were performed using the Relief from Royalty Method in order to determine fair value. Upon completion of the 2022 Interim Tests, we concluded that each area was not impaired. However, the test for one of our goodwill reporting units that encompasses our business in Europe indicated that fair value of the reporting unit was close to approximating carrying value. The unobservable inputs that required significant judgment include estimates and assumptions affected by conditions specific to our businesses, economic conditions related to the industries in which we operate, and conditions in the global economy. Changes in these estimates and assumptions, especially considering the volatility in European markets in 2022, may result in an impairment charge for the Europe reporting unit. The assumptions that have the most significant effect on the fair values of our goodwill reporting units derived using the Discounted Cash Flow Method are (i) the expected long-term growth rate of our reporting units’ cash flows and (i) the weighted average cost of capital (“WACC”) for each reporting unit. A hypothetical decrease in the expected long-term growth rate by approximately 92 basis points would have resulted in a charge in the Europe reporting unit. Separately, a hypothetical increase in the WACC by approximately 74 basis points would have resulted in a charge in the Europe reporting unit. We believe that our estimates and assumptions used in the 2022 Interim Tests are reasonable but are subject to change from period to period. Actual results of operations and other factors may differ from the estimates used and it is possible that differences could be significant. A change in the estimates we use could result in a decline in the estimated fair values derived in the 2022 Interim Tests.

We then conducted an analysis of market data inputs and risk considerations in the thirty days between the 2022 Interim Tests and our annual testing date on October 1, 2022 (the “2022 Annual Assessment”) and do not believe that market or risk considerations changed materially. Further, we had no substantial changes in our long-term projections between those used in the 2022 Interim Tests and the 2022 Annual Assessment. Therefore, we do not believe there were any material changes to the conclusions reached within the 2022 Interim Tests and such conclusions were also appropriate for the 2022 Annual Assessment with no impairment in goodwill and indefinite-lived intangible assets.

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With our underperformance in the fourth quarter of 2022, we adjusted our projections downward to reflect more recent information. As previously noted, the 2022 Interim Tests provided that one of our goodwill reporting units that encompasses our business in Europe indicated that fair value of the reporting unit was close to approximating carrying value. This fact combined with the adjustment of our projections led us to conduct additional analysis on goodwill impairment, incorporating our adjusted projections as well as market and risk considerations (the “2022 Additional Goodwill Assessment”). The 2022 Additional Goodwill Assessment did not provide any material changes to the conclusions reached within the 2022 Interim Tests or the 2022 Annual Assessment, with no impairment in goodwill. See Note 9, “Goodwill, Long-Lived and Identifiable Intangible Assets, net” of the Notes to consolidated financial statements for further details.

If we fail an impairment test, any non-cash impairment charge may have an adverse effect on our results of operations and financial condition. We will continue to monitor events and circumstances for indicators of impairment in our reporting units, indefinite-lived intangible assets, and asset groups.

Impairment of Long-Lived Assets. We review our long-lived assets, including definite-lived intangible assets and property, plant, and equipment, for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. For these long-lived assets, an impairment loss is indicated when the undiscounted future cash flows estimated to be generated by the asset group are not sufficient to recover the carrying value of the asset group. If indicators exist, the loss is measured as the excess of carrying value over the asset groups’ fair value, as determined based on discounted future cash flows, asset appraisals or market values of similar assets.

The determination of asset groups’ undiscounted cash flows requires the use of estimates and judgments. Subsequent changes in undiscounted cash flows and their estimates and judgments could impact the determination of whether impairment exists in the future and whether the effects could materially adversely affect our financial condition or results of operations.

We conducted interim testing of our asset groups in the 2022 Interim Tests. The evaluation of our asset groups used unobservable inputs that required significant judgement and were performed using an undiscounted cash flow analysis where the undiscounted cash flows expected to be generated from the use and eventual disposition of the asset groups were compared to the carrying value of the asset groups. Upon completion of these tests, we concluded that the carrying values of our asset groups were recoverable and not impaired. As previously noted, we conducted an analysis of the thirty days between the 2022 Interim Tests and the 2022 Annual Assessment and do not believe that market or risk considerations changed materially, nor were there substantial changes in our long-term projections between those used in the 2022 Interim Tests and the 2022 Annual Assessment. Therefore, we do not believe there were any material changes to the conclusions reached within the 2022 Interim Tests and such conclusions were also appropriate for the 2022 Annual Assessment with no impairment in our asset groups. See Note 5, “Property, Plant and Equipment, net” of the Notes to consolidated financial statements for further details.

Derivative Financial Instruments. We use derivatives as part of the normal business operations to manage our exposure to fluctuations in interest rates associated with variable interest rate debt and adverse fluctuations in foreign currency exchange rates and to decrease the volatility of cash flows affected by these fluctuations. We have established policies and procedures that govern the risk management of these exposures.

We use interest rate swap contracts to manage interest rate exposures. Derivatives are recorded in the Consolidated Balance Sheets at fair value in accrued expenses and other non-current liabilities. Changes in the fair value of derivatives designated as cash flow hedges are recorded in accumulated other comprehensive income (loss), and subsequently reclassified into earnings in the period the hedged forecasted transaction affects earnings. If a derivative is deemed to be ineffective, the change in fair value of the derivative is recognized directly in earnings. The changes in the fair values of derivatives not designated as hedges are recognized directly in earnings, as a component of interest expense.

We hedge some of our exposure to foreign currency translation with a cross-currency swap, designated as a net investment hedge. A cross-currency swap involves the receipt of fixed-rate amounts from a counterparty in exchange for us making fixed-rate payments over the life of the contract without exchange of the underlying notional amounts. The change in fair value of the cross-currency swap is recorded in currency translation in other comprehensive income (loss) and accumulated other comprehensive income (loss). Components of the cross-currency swap excluded from the assessment of effectiveness are amortized out of accumulated other comprehensive income (loss) and into interest expense over the life of the cross-currency swap to its maturity.

See Note 12, “Derivative Instruments,” of the Notes to consolidated financial statements for further details.

Income Taxes. We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, we determine deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of

42

assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

We recognize deferred tax assets to the extent that we believe that these assets are more likely than not to be realized. In making such a determination, management considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

We record uncertain tax positions in accordance with the scope of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 740, Income Taxes (“ASC 740”) on the basis of a two-step process in which (i) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (ii) for those tax positions that meet the more-likely than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

Emerging Growth Company. Section 102(b)(1) of the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”) exempts an Emerging Growth Company (“EGC”) from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act of 1933, as amended, registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. Previously, we elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an EGC, were allowed to adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our financial statements with another public company that is not an EGC or that is an EGC which has opted out of using the extended transition period, difficult or impossible because of the potential differences in accounting standards used. We ceased to be an EGC on December 31, 2021.

Recently Issued and Adopted Accounting Pronouncements

For recently issued and adopted accounting pronouncements, see Note 2, “Basis of Presentation and Summary of Significant Accounting Policies” to the audited consolidated financial statements included elsewhere in this Report.