Ranpak Holdings Corp (PACK) 2019 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to your Ranpak Second Quarter 2000 ( sic ) [2019] Earnings Conference Call. (Operator Instructions)

At this time, it is my pleasure to turn the floor over to Mr. Bill Drew, Head of Business Development. Sir, the floor is yours.

Thank you, and good morning, everyone. Before we begin, I'd like to remind you that we will discuss forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those forward-looking statements as a result of various factors, including those discussed in our press release and the risk factors identified in our Form S-4 registration statement filed with the SEC in connection with the business combination and our other filings with the SEC.

As some of the statements in responses to your questions in this conference call may include forward-looking statements, they 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 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 also been included in an 8-K that we submitted to the SEC before this call. We'll also make a replay of this conference call available via webcast on the company website.

For financial information that is presented on a non-GAAP basis, we have included reconciliations to the comparable GAAP information. Please refer to the table and slide presentation accompanying today's earnings release.

Also, as we will discuss in more detail later, due to the accounting treatment for the business combination which closed on June 3, we've also presented our results for the quarter on a combined basis, reflecting a simple arithmetic combination of the GAAP predecessor and successor periods without further adjustment as well as any other adjustments I've described.

Lastly, we'll be filing our 10-Q with the SEC for the period ending June 30, 2019. The 10-Q will be available through the SEC or the -- on the Investor Relations section of our website.

Now with me today, I have Omar Asali, our Chairman and CEO; and Trent Meyerhoefer, our CFO. On today's call, Omar will provide a brief introduction to Ranpak and touch on our markets, growth strategies and competitive positioning, among other things. He will then summarize our second quarter results, and Trent will then 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, Bill, and good morning, everyone. Welcome to Ranpak's second quarter conference call. This is Ranpak's first earnings call since coming to the public markets through the business combination with One Madison Corp. on June 3. We're excited to be here. I want to thank you all for joining us this morning.

I'm going to start on Slide 2. I'd like to spend a few moments introducing the Ranpak story, which may be new for some of our listeners. Ranpak is a leading provider of environmentally sustainable, systems-based solutions for product protection for e-commerce and industrial supply chains. In business since 1972, Ranpak has established itself as the leader in fiber-based protective packaging solutions. The company operates a unique razor, razor-blade model to drive recurring revenue through an installed platform of over 100,000 machines placed throughout the world.

We place our machines at little to no cost to the end user who, in return, agrees to purchase and use only Ranpak paper consumables with the machines that we provide. We provide our end users with paper that is specifically crafted and formulated to work with each of our machines.

Other paper will not perform over an extended period with our systems as the paper will jam, and machines may need to be serviced. Our value-added consumables are sold to end users via an established network of distributor relationships, delivering services to approximately 31,000 diversified end users in over 50 countries. The business model allows us to serve all types of end users from the largest e-commerce players to the smaller mom-and-pop businesses who buy only a few pallets of paper per year.

We offer a full suite of environmentally friendly protective packaging solutions for our end users. This broad product line gives us the ability to meet any in-the-box protective packaging need our end users may have. Our experienced sales force is adept at determining the best packaging solution for any particular end user and is focused on identifying how Ranpak's product line can address each individual end user's specific packaging needs in an environmentally friendly way.

Our end users choose Ranpak simply because we improve the performance of their business, and they can count on us. Our machines are fast and reliable. Our paper gets there on time. It doesn't jam, and the sustainable product protection solution we provide is very effective.

We also have a distinct financial profile with high margins and historical growth, which is among the highest in the packaging industry. We strive for every solution we provide to our end users to be a value-added, high-margin product.

With that understanding of Ranpak's unique business model and attractive financial profile, I'd like to share our view on 2 structural tailwinds for Ranpak: one, the continuing growth in e-commerce; and second, the increasing focus on the importance of sustainability for the consumer and within supply chains.

First, with respect to e-commerce, we are all aware of the increased penetration of e-commerce and the shift of retail and B2B sales online. This results in more and more boxes being shipped every day across the globe. And it's not just the large players who are driving growth. More businesses of all sizes are expanding their sales channels, and we are proud to say we serve mom-and-pop end users just as effectively as the largest e-commerce and industrial players. In fact, 80% of our sales through distributors in 2018 were to end users that purchased less than $10,000 worth of paper per year.

While optimized box sizes and automated solutions have gained increased attention among some of the larger e-commerce players of late, over time, we believe strong end markets and increased penetration will offset near-term headwinds associated with void-reduction efforts. In fact, we're working with many of these large customers to make their end-of-lines even more efficient and providing our leading automation solutions to improve their businesses.

We have seen volumes increase as 1-day shipping has been rolled out in June and continued in July. And we joined APASS in March, which is Amazon's packaging support and supplier network, to support vendors who are trying to meet new box optimization standards to sell their products without being charged a packaging fee. Over the medium term, we also believe efforts to reduce void provide an opportunity for fiber-based solutions given its inherent flexibility to fit in smaller spaces relative to other substrates.

The second macro growth tailwind that's worth highlighting, which we believe is still in its earlier stages, particularly in the U.S., is sustainability. The focus on sustainability is much more than a fad, and it is everywhere in every facet of life. Consumers, businesses, governments, investors and nonprofits are taking notice of the importance of sustainable business practices and driving change and accountability. European consumers and policymakers have taken the lead in demanding more accountability from businesses' effect on the environment. We believe North America will follow suit. Therefore, we're excited about Ranpak and its ability to continue its long history of impressive organic growth while maintaining a best-in-class margin profile. We intend to fuel continued organic growth through increased machine placement and new product introductions.

Beyond organic growth, as many of you know, we also believe Ranpak is an excellent platform for acquisitions. Another key aspect of our growth algorithm going forward is to engage in selective accretive M&A, with a view towards identifying potential targets that extend our leadership position in sustainable protective packaging solutions and that provide us with greater scale.

Moving on to Slide 3. After getting off to a strong start in 2019 with pro forma net sales up 12% in the first quarter on a constant currency basis driven by organic volume growth and some price increases, we gave a big chunk of that growth back in the second quarter, which brings year-to-date pro forma net sales growth of 2.6% on a constant currency basis and adjusting for a fair value purchase accounting adjustment versus the prior year. I view this quarter as a short-term setback and not indicative of the power of the business going forward or for the remainder of the year. But obviously, I'm not pleased with this performance and demand and expect significantly better execution going forward from our team.

Turning to Slide 4. Since the close on June 3, I've taken decisive action to instill a more efficient operating structure and address areas that I felt were lacking optimal processes from a speed and execution standpoint. I have streamlined the decision-making process, reporting lines and lines of communication within the company as well as with our distributors and end users. Going forward, we expect to be a more nimble and proactive company in our approach and take advantage of the great opportunity we see in front of us.

I have also implemented leadership changes and set the tone for a culture of performance, accountability and ownership mentality among all employees. I have expanded my role from Executive Chairman to become the CEO of Ranpak and brought in our Vice Chairman, Mike Jones, to help fuel the growth and expand our North American business. I am confident that the changes made so far will contribute to make this very good business an excellent one.

We have recently gained positive momentum in both North America and Europe and see paper pricing becoming more of a tailwind for the remainder of the year. I am focused on building on that and finishing the back half of the year firing on all cylinders.

Moving to Slide 5. We're pursuing a number of near- and medium-term initiatives to drive top line growth in North America and abroad. Two areas, in particular, that I'm very excited about and believe offer great potential in the near term are cold-chain and retail. We're building a new retail sales channel that is additive to our existing distributor relationships. We see tremendous opportunities to expand our reach into the retail space, and we'll discuss that in more detail in a bit.

We're also increasing the focus on our customer relationships and dedicating a great deal of time and effort to enhancing those relationships with top-to-top dialogue. We believe there's a lot of room to expand with our key existing customers and see abundant opportunities in the near-term horizon.

Innovation is a critical piece of the puzzle for us going forward. And we believe our new thermal, Cushioning and Void-Fill products that we will be bringing to market beginning in the fourth quarter of this year and in early 2020 position us very well for the future.

Slide 6 discusses a couple of our key areas of focus in more detail. Sustainability has been and always will be in our organizational DNA. It is not a new initiative for us compared to other firms dominated by plastics. For example, sustainable cold-chain is a space that is growing rapidly as many companies and consumers are searching for environmentally friendly alternatives to styrofoam and other polystyrene substrates. A great deal of our innovation activity focuses on developing solutions which meet the growing demands for temperature-sensitive shipping in the food and beverage as well as pharma spaces. Many companies, especially those that are direct-to-consumer, are actively targeting goals and looking for solutions to help them eliminate the use of styrofoam and expanded polystyrene. We are working to provide them with the best sustainable options out there and are looking forward to rolling out our next-generation thermal product.

Along these lines, we are pleased to announce one of our existing cold-chain applications, the WrapPak Protector has been selected as a finalist in the National Geographic and Sky Ocean Ventures' Ocean Plastic Innovation Challenge. Launched in February, the challenge focuses on 3 strategic ways to address the growing issue of plastic pollution: identifying opportunities for industries to address plastic waste throughout supply chains, communicating the breadth of the issue through data visualization and designing alternatives to single-use plastics.

A panel of expert judges has selected us as 1 of 10 finalists in the design track, and the winner will be announced later this year. I am proud of our team, and we are proud as an organization to be chosen as a finalist in such prestigious challenge and one that is focused on the most worthy of causes.

That leads me to retail. Since we closed in June, our Vice Chairman, Mike Jones, has been working closely with the sales and product development teams in North America to pursue new business opportunities and increase the channels we serve. He brings his expertise and best practices from more than 25 years serving customers in the retail channel to improve processes related to sales strategy, new product introduction, incorporating voice of customer and streamlining the sales planning process. Mike is also helping the team expand the reach of its existing product offering to the currently underserved retail and ship-from-store areas. We believe this channel represents a great opportunity for our Wrapping products, and in particular, our Geami wrap solution highlighted earlier, an environmentally friendly alternative to bubble wrap that requires far less space for storage. Bubble wrap is a $2 billion-plus market, so we're excited about the potential opportunity there. While many of these conversations are still in the early stages, the dialogue is very encouraging in this channel.

Another area we see offering potential upside is within marketing and branding. We believe there is low-hanging fruit within reach to increase Ranpak's profile and let the world know we are the leader in environmentally friendly protective packaging. In the coming months, you will see us continue to ramp up our digital content, improve the company's website content and functionality and be more active member of organizations focused on sustainability and improving the environment.

We are working to increase awareness among the businesses and consumers of options for protective packaging beyond foam and plastic and convey that by using Ranpak, businesses can operate in a cost-efficient and effective manner while helping the environment.

In addition to driving sales and taking execution to another level, I want to discuss another key area of focus for us, and that is our capital structure. We emerged from the business combination in June with One Madison with a capital structure that is not ideal from a public company perspective and does not put us in the best position to take advantage of the great opportunity set that we see in front of us. While the historical best-in-class margin profile and robust free cash flow generation of this business allows us to be very comfortable with our existing leverage profile, we are focused on deleveraging and plan to do so through organic growth and debt paydown.

As you will likely see, we recently filed $150 million shelf registration, which enable us to be opportunistic and move quickly when capital market conditions are favorable. Over time, we believe that below 3.5 turns is the appropriate leverage target for Ranpak in the public markets. And that will provide us with the flexibility to pursue all of our growth interests, whether organically or through M&A.

As you may have seen last month, we announced a very key positive development in the defense of our strong IP portfolio that took place in the second quarter. From the time this company was founded in 1972, Ranpak has been intensely focused on developing and protecting its IP and has defended it vigorously when we believe a competitor is infringing.

In May, we received a favorable ruling in a significant patent validity case initiated against a competitor in the German Supreme Court. The case is ongoing, and we continue to pursue it as we believe we have a strong position to receive meaningful damages, which we would expect to use to delever further.

Finally, over the longer term, something I believe strongly in is instilling an ownership culture throughout our organization, which, in my view, will translate into significant value for all of our shareholders. Accordingly, we have implemented an equity award program that extends to all of our employees. The goal is to change the mindset of the organization to one where every employee knows that his or her individual actions can help drive outcomes that he or she personally shares in. In my experience, companies with a strong ownership culture achieve more because employees become more engaged, feel a greater responsibility to each other and focus more on execution. All of this, in my view, ultimately creates value for our shareholders. I believe strongly that a true ownership culture in which everyone shares in our collective success and has skin in the game can produce tremendous results, particularly when it's combined with hard working and talented people we have at Ranpak.

Before getting into some of the details of the quarter, I'd like to point out 2 general characteristics of the business that I think are important to keep in mind when reviewing Ranpak's performance.

First, scale. Relative to our peers, we are on the smaller end, which inevitably brings with it some variability in performance quarter-over-quarter. One-off situations or outcomes can have a disproportionate impact to the upside or downside, so we try not to get too focused on a particular quarter's results.

Second, the natural rhythm of the business has historically resulted in the first and second quarters of the year providing an undersized contribution to annual performance. Historically, revenue and EBITDA build throughout the year with the fourth quarter being our largest contributor.

As you may have seen in previous investor presentations, we previously provided full year 2019 revenue and EBITDA forecasts. Going forward, we expect to continue to provide annual guidance and focus on hitting those numbers, but we will not manage the business with a view towards short-term quarterly performance. We are laser-focused on executing quarter-over-quarter. But in my view, the best path to effectively grow and manage this company and create the most shareholder value over time requires focusing on annual figures and a long-term plan.

While we remain committed to achieving our previously stated goal of $95 million pro forma adjusted EBITDA, in light of the softer performance in Q2, we are updating our full year outlook to a range of $90 million to $95 million pro forma adjusted EBITDA. We believe we have the resources and plan in place to achieve a very strong second half of 2019 and that the second quarter performance is not indicative of how we view the rest of the year.

I may be new in the seat as CEO, but I firmly believe we have a lot of low-hanging fruit in this organization to grow the top line and that the headwinds we experienced in the second quarter will not continue to be an issue for us.

With that, let me turn the call over to Trent, who will give you further details related to the quarter.

Thanks, Omar. Turning to Slide 7. You will see a summary of some of our key performance indicators. Due to the predecessor and successor periods and transaction adjustments for the business combination with One Madison, for the convenience of readers, we have presented the 3- and 6-month periods ended June 30, 2019, on a combined basis, reflecting a simple arithmetic combination of the GAAP predecessor and successor periods without further adjustment and also pro forma for constant currency and purchase accounting adjustments in order to present a meaningful comparison against the corresponding periods in the 3 and 6 months ended June 30, 2018. As Bill mentioned, we'll be filing our 10-Q shortly, which provides further information on Ranpak's operating results.

With that being said, machine placement continued to grow nicely in the quarter and is up 7.6% year-over-year to over 100,000 machines globally. Historically, growth in the installed base has been a strong leading indicator of sales on an annual basis but not necessarily from 1 quarter to the next as there can be a lag. Cushioning and Void-Fill systems continue to grow in the mid-single digits. And our smallest product line, Wrapping is growing nicely, north of 20% year-over-year. As Omar mentioned earlier, we are excited about what is ahead for our Wrapping line.

For the quarter, combined sales in our Europe, Asia Pacific division declined 2.1% on a constant currency basis, bringing year-to-date combined sales to 8.5% on a constant currency basis. The performance of the euro versus the dollar was a headwind year-over-year on actual results, but this is largely translational as our expenses in Europe and APAC are denominated in euros as well. Europe and Asia continued their solid performance but at a slower pace for the quarter as a result of likely accelerated buying at the end of Q1, ahead of an April 1 price increase that went into effect in Europe as well as some buying ahead of the anticipated Brexit vote at the end of March.

Our automation product line, headlined by our E3NEO acquisition in 2017, was weaker year-over-year as fewer automated box-sizing machines were sold in the quarter. But we are encouraged by the sales pipeline for this business and expect a significantly stronger back half of the year. We are pleased with Europe and Asia's performance year-to-date as it continues to demonstrate strength in a more challenging macro environment.

North American combined sales were down 10.5% for the quarter due to some challenging operating conditions in North America. The North American Void-Fill solution experienced some headwinds in the quarter due to increased focus by some large customers on void-reduction efforts. We also generally saw lower buying activity from some of our larger distributors in the quarter as overall industrial activity was lower.

As we look to the remainder of the year, sales in Europe and Asia appear to have returned to more normalized levels following the typical buy-in ahead of the price increase, and we are encouraged by the activity we see there. The importance of sustainability continues to grow in Europe, so we're pleased with the momentum thus far.

In North America, we have taken steps to improve performance as we have reinvigorated our sales efforts by dedicating more resources to helping our sales team achieve their targets and expanding into new channels such as retail. There is now a clear understanding of areas of focus and strategy going forward in North America that did not exist before, which I believe can improve performance going forward. We anticipate it will be a much more data-centric and customer-focused unit going forward. As Omar mentioned, we are engaging in numerous exciting discussions that, while early, are encouraging.

We anticipate some of the headwinds we have experienced in Void-Fill to be offset. The rollout of 1-day shipping by a large customer in June has resulted in increased volumes and fewer consolidated shipments. We also have redeployed some underutilized converters to new facilities that are coming online in Q3.

Also, we held a Ranpak automation sales event in our Concord, Ohio location in the quarter for us to showcase our exciting box optimization technology for the first time directly to buyers on American soil. The pipeline for the remainder of the year for the EVO machine is robust. So although it has been a slower start, we expect Ranpak automation to be a solid contributor to growth in the second half.

Moving on to the cost side, the margin profile on Slide 8. A few key items contributed to the margin pressure we experienced in the quarter. I believe all of these areas will transition from being headwinds in the first half of the year to becoming a tailwind or at a minimum, neutral in the back half of 2019.

The first is lower sales volumes, which we expect to pick up considerably in the second half due to the rhythm of the business, with the third or fourth quarters historically being outsized contributors to annual sales as well as the top line growth initiatives we have put in place. The second is an increase in kraft paper pricing relative to a year ago, an improvement which I'll talk about more in a moment. Third, the expansion of our sales force in potential growth areas such as APAC and Europe, where we see exciting growth opportunities. And finally, additional senior management resources and positions that were added in the beginning of the second half of 2018.

Our largest input cost, kraft paper, was a significant headwind for us in 2018 when it rose on average 12% over the prior year. This was a significantly larger increase than the typical low single-digit rate we have experienced historically and which we eventually pass through to our customers. Going into 2019, we experienced an additional but smaller price increase as well. We offset a portion of this input cost inflation with the price increase in the back half of the year in 2018 and took some additional pricing this year.

Given what we have seen happening in the paper markets, we chose not to pass through the entire input cost inflation we experienced to our customers as we believe the elevated pricing environment would be temporary. As expected, the upward pressure on kraft paper appears to have recently reversed course, and we have experienced improvement in our gross margins beginning in July. Given increased supply and lower utilization rates in many of the mills, we expect kraft paper pricing to be more of a tailwind for 2020.

Pro forma SG&A expenses increased by $1.9 million or 16.4% to $13.7 million in the 3 months ended June 30, 2019, from $11.8 million for the comparable period in 2018, adjusting to a constant currency in both periods. We added some new positions that did not exist previously such as our Managing Director of Americas, Global Head of E-Commerce, Head of Growth Strategies and M&A. We also improved our financial reporting capabilities and ramped up staff to enable us to be a public company. At the closing, I came on board as CFO from Eaton. And we've added a new Head of Financial Reporting, [Scott Stanton], who has really ramped up the organization's reporting capability and public filing processes.

These additions augment the talent added in 2018, including a new marketing and new product development team, a new Head of Americas, a Global Head of E-Commerce and new General Counsel. In short, a lot of resources have been added over the past year to fill out the management team and improve the capabilities of the business. We feel like the talent we added positions us well and provides us a more potent offense for us to pursue attractive opportunities.

R&D for the quarter returned to a more normalized level year-over-year after being accelerated in the first quarter. We continue to place a strong emphasis internally on new product introduction and speeding up the time to market for products we are excited about. Some of the key products we are working on currently are a next-generation Cushioning machine, a more efficient Void-fill machine and a new automated cold-chain product that competes with styrofoam EPS.

Innovation and introducing new products are a top priority for us going forward. In recent years, we believe the company has not been fast enough in bringing new products to the market and not focused enough on expanding the product line with more meaningful upgrades, issues we are aggressively seeking to change.

To summarize on margins, we expect the margin profile of the business to improve as the year progresses. As mentioned, we typically gain operating leverage in the third and fourth quarters due to their historically larger contribution to sales relative to the first half of the year, and we also begin to lap some of these senior management additions. So the year-over-year comparisons become more favorable beginning in the fourth quarter.

Also, the G&A associated with further geographic expansion in APAC and Europe, which I mentioned earlier, is expected to yield additional sales as the year progresses to offset the increase in overhead. These elements, coupled with more favorable paper pricing, are expected to enable us to experience margin expansion for the second half of the year.

Capital expenditures for the combined quarter were $6.8 million, bringing estimated full year CapEx to $13.2 million as we increased the installed base by over 7,000 machines or 7.6% year-over-year. CapEx on our machines typically has a very attractive payback period of roughly 15 months. So this CapEx we like to spend as it increases the portion of our fleet, utilizing our high-margin fiber consumables.

We do not sell the machines other than our E3NEO automated box-sizing equipment, but rather we achieve these fast returns on our machines by selling the high-margin paper consumable, which customers use to make their business better and environmentally friendly. In terms of capital allocation, increasing our installed base is one of the most attractive things we can do.

Moving to the balance sheet and liquidity on Slide 9. We emerged from our business combination with One Madison with debt of USD 378 million and EUR 140 million. This is all first lien term loan at LIBOR plus 400 basis points, with a step down to LIBOR plus 375 basis points once we delever below 5x. Our blended cost of debt on our term loan is just under 6% currently.

We completed the second quarter of 2019 with a strong liquidity position, including a cash balance of $11.5 million and no drawings against our $45 million revolving credible -- credit facility. As I mentioned before, we are very focused on deleveraging through a combination of growth and reducing our term loan outstanding balance to lower our cash interest expense and free us up to invest more in the business.

With that, I'll turn it back to Omar before we move on to questions.

Thank you, Trent. We have provided a lot of info in this call and discussed many exciting new initiatives that we have underway. I know some of you may be wondering what gives us confidence in our ability to achieve our plan for the remainder of the year, so I'll try to construct a bridge of how I see us achieving our goals.

Both Trent and I have discussed the high-quality management resources we have added and expansion efforts that are underway to boost the top line. We like what we are seeing so far and anticipate building further success as we get further into Q3 and enter Q4, historically, by the way, our largest quarterly contributors to annual sales as well as margin.

We have higher trial and close rate activity in North America and Europe from both a number of trial standpoint as well as dollar amounts year-over-year, and that is a great leading indicator for us. We believe Void-fill will return to be a growth engine as e-commerce continues to grow in mid-teens level.

I mentioned earlier we joined APASS, which is the Amazon packaging support and supplier network, which enables us to work with vendors upstream who want to meet Amazon standards for frustration-free packaging. Trent mentioned the impact 1-day shipping is having on volume starting in June, and we have redeployed underutilized converters to new facilities coming online in the third quarter.

We also view our automation pipeline as strong after a weaker first half of the year. We have taken pricing action earlier this year and expect to get the benefit of that for the final 6 months of the year.

On the cost side, paper pricing has come down, which if maintained, we expect to contribute to better margins on higher volumes from our growth initiatives, higher close rates and base business.

Some of the challenges on the G&A comparison begin to be lapped in Q4, and a component of our R&D will be capitalized upon completion. In short, given all these points that I mentioned, we believe we have the tools to get there. We now must execute.

Lastly, if we could briefly turn to Slide 10. I'd like to just take a moment to reiterate how excited I am about this business and the opportunities that I see in front of us. You can see that in the investments we're making, I truly believe no company is better positioned to deliver on providing sustainable protective packaging solutions to the world than Ranpak. Our mission is an important one, and we know how important our role is for businesses, shareholders and the global community. We have the talent, the high-quality products with exciting upcoming innovation and their relationships to take Ranpak to levels it hasn't seen before and to take advantage of the tremendous opportunities that we see in the near term as well as in the longer-term future. If there is one thing I want to convey on this call it's that the enthusiasm and engagement level is very high at Ranpak.

With that, operator, let me turn it over to questions.

(Operator Instructions) Our first question comes from Kris Tuttle of SoundView Technology.

Okay. The first one I had, had to do with the beginning of the call, you discussed your plans to go more direct, I guess, I would say, towards top retailers. And I wanted to understand a little bit more about that. Are you risking alienating your distribution network? Or mechanically, how is that going to work?

Yes. This is Omar. I'm not sure that we were saying we plan to go direct through the retail channel. Our interest is building that channel. We could partner with the appropriate distributors there. We have a lot of partnerships, as you know, with the industrial distributors. And we do a little bit of direct in e-commerce. So we would be using the same playbook.

We think the success we've seen in the industrial channel through distribution can be emulated in retail. And what we're seeing with retailers, as we're talking to them, is the opportunity of ship-from-store as well as through their DCs. And frankly, in some areas, our opportunity to place some of our products on the shelf.

So it will be a mix of approaches with retail. But in many cases, we could be working with our distribution partners.

Okay. So you're -- it's more that you're taking up more leadership in the high-level selling, and they're still handling the fulfillment and the actual kind of delivery of their products and services.

That's exactly correct. A big part of what we're doing, as you know, post the transaction, is emphasizing more top-to-top relationships and discussions that can help our business, frankly, across different areas, retail being one, but even our existing channels as well.

Okay. And then one other -- another question just on the basics here. So kraft paper is a big input item for you. Do you -- to what degree do you get involved in the actual manufacturing of the paper? Or is that something that just gets done contractually for you and you guys essentially outsource the production of it?

Yes. Kraft paper, just to give you a sense, is roughly 80% of our cash COGS. So it's a big piece of our input cost. We have certain standards, and we have certain requirements and specifications as the paper needs to work with our converters. And that's, frankly, our specialty is the interaction between our machines and the paper. And we have external suppliers that work with us to meet our standards and requirements. And then we will do some paper conversion in our different facilities. But we rely on these third-party suppliers where we are buyers from them. And globally, we have roughly 25 of those relationships where we buy paper from.

Okay. And I take it that's not a hedgeable kind of commodity?

Yes. That's correct. The way it works, by the way, in our business is we have more or less annual contracts where we set price for the next year of supply that we need. And so we're locked in. And what you're hearing from us in this call is in the second half of the year, given what has occurred in pricing in some of our negotiations and discussions, actually, kraft paper is going to be, hopefully, a meaningful tailwind for the next 6 months after what we've endured in 2018 with double-digit increase and frankly, early on in '19. So I think now part of our excitement about the second half of the year is you'll see better margins flow given the price in kraft paper.

Okay. And one last one for me, and then I'll let others proceed. But you talked about improving the visibility of the company, which I think [is all] goodness. From the investor standpoint, obviously, the share price has retreated substantially since June. It's been cut in half. So the other part of the visibility question is your visibility with investors [because] in the way you guys kind of came public, you didn't necessarily have the same street following as a conventional IPO. So I wondered if you might share some of your views on how high that is on the priority list and what things you might do to begin to work on that.

Sorry. What was high on the priority list? We lost you for like literally 2 seconds.

Oh, it's your visibility with investors given the share price and lack of analyst coverage, things like that, just because of the way the company became public.

Yes. Yes, sure. Obviously, we're disappointed in how we are trading. And frankly, I see a business that's a lot stronger despite Q2 performance that's a lot stronger than what our share price implies. You will see us in the next few months, we are participating in more conferences, which we'll be announcing publicly. I personally -- and again, this is Omar. We'll be speaking in a number of those. We will be talking to more investors, broadening sort of our shareholder register.

As you know, sort of getting the story out there post our transaction takes a little bit of time and effort. But there is a big focus on really building a true public story as well as talking to more in the research community, which is discussions that are ongoing to hopefully have some of them pick up coverage.

So I think this is all stuff that we're pretty focused on. And stay tuned in the next couple of quarters. Hopefully, you'll see some tangible results.

(Operator Instructions) It does appear we have no further questions. I will now turn the conference back over to management for closing comments.

Thank you, Cynthia, and thank you, everyone, for joining us today and for your interest in Ranpak. We look forward to getting back together on the Q3 call. Thank you.

Thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your line at this time, and have a great day.