Ranpak Holdings Corp.
Q1 2022 Earnings Call Transcript

Published: 6 May 2022

[Operator:]

Good morning. My name is Audra and I will be your conference operator today. At this time, I'd like to welcome everyone to the Ranpak Holdings First Quarter 2022 Earnings Call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question-and-answer session. [Operator Instructions] At this time, I'd like to turn the conference over to Sara Horvath.

[Sara Horvath:]

Thank you, and good morning, everyone. Before we begin, I would like to remind you that we will discuss forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those forward-looking statements as a result of various factors, including those discussed in our press release and the risk factors identified in our Form 10-K and our other filings filed with the SEC. Some of the statements and responses to your questions in this conference call may include forward-looking statements that are subject to future events and uncertainties that could cause our actual results to differ materially from these statements. Ranpak assumes no obligation and does not intend to update any such forward-looking statements. You should not place undue reliance on these forward-looking statements, all of which speak to the Company, only as of today. The earnings release we issued this morning and the presentation for today's call are posted on the Investor Relations section of our website. A copy of the release has been included in a Form 8-K that we submitted to the SEC before this call. We will also make a replay of this conference call available via webcast on the Company website. For financial information that is presented on a non-GAAP basis, we have included reconciliations to the comparable GAAP information. Please refer to the table and slide presentation accompanying today's earnings release. Lastly, we'll be filing our 10Q with the SEC for the period ending March 31st, 2022. The 10Q will be available through the SEC or on the Investor Relations section of our website. With me today, I have Omar Asali, our Chairman and CEO, and Bill Drew, our CFO. Omar will summarize our first quarter results and provide commentary on the operating landscape, and Bill will provide additional detail on the financial results before we open up the call for questions. With that, I'll turn the call over to Omar.

[Omar Asali:]

Thank you, Sara. And good morning, everyone. I appreciate you all joining us this morning. Our first quarter financial results were disappointing. However, despite a slow start to the year, we remain confident in the outlook for our business and believe our financial performance will meaningfully improve as the year progresses. Our confidence is built on the fact that that our key detractors this quarter, were derived from a combination of two distinct events, namely

[William Drew:]

Thank you, Omar, in the deck, you'll see a summary of some of our key performance indicators. We'll also be filing a 10Q which provides further information on Ranpak's operating results. Machine placement increased 11.4% year-over-year to over a 134,500 machines globally. Another solid double-digit performance, but at a lower rate than recent history to the machine placement being suppressed due to the SAP Go-Live. Cushioning systems grew 3.5% while Void Fill installed systems increased 11.9%, and Wrapping increased to [Indiscernible] 25.9% year-over-year. Overall, net revenue for the company in the first quarter was down 1.3% year-over-year on a constant currency basis, driven by lower volumes of product shipped to largely SAP Go-Live, the associated inefficiency of getting up and running, and the macro-environment in Europe impacting some of our ability to catch up in March. North American net revenue increased 10% year-over-year with all categories up for the year and particular out performance in cushioning and wrapping. We're really pleased with what we're seeing in cushioning as this area is getting a lot of traction as industrial customers are seeking cheaper alternatives to foam and more surety of supply. Void-fill also contributed nicely to the top-line, albeit at a lower rate, given some of our e-commerce vendors experienced supply chain shortages. And overall online activity was a bit lower due to economies opening up and more dollars being spent on services and experiences rather than goods. The overall top-line growth was driven by pricing actions over the past year as volumes were down in the first two months of the quarter for the reasons previously mentioned, but encouragingly, turned positive in March as we exited on a strong note. In general, we're pleased that even with the go-live all TPS categories were up year over. In Europe and APAC, net revenue on a constant currency basis was down 6.9%, driven by lower volumes in the region, offset somewhat by higher-price year-over-year. Europe and APAC are up against an extremely challenged comparison as 1Q21 was a record quarter that benefited from numerous tailwinds that drove exceptional volume growth. At that time, e-commerce was the only option in most geographies. Industrial activity was recovering from depressed levels, paper pricing was extremely favorable in the region and sustainability tailwinds were driving paper adoption. With that context and all the challenges we experienced in Q1, we are impressed with the way the team managed to improve throughout the quarter and meaningfully narrow the gap to Q1 '21. Cushioning was the biggest attractor in the quarter on an absolute basis, as in Q1 '21, we saw outsized demand due to industrial activity catching up from being down meaningfully due to the pandemic. We also saw challenging comparisons in Void-Fill wrapping as e-commerce activity was more normalized albeit at a high level compared to Q1 '21. Automation sales more than doubled year-over-year and represented almost 5% of sales on a constant currency basis as we continue to get traction in the space with our box customization and automated [Indiscernible] solutions. Automation is one area where we have seen some supply chain disruptions for key components. But we have a solid plans for the year and are doing everything in our power to minimize disruptions and keep projects moving. Our gross profit decreased 28.8% on a constant currency basis, employing margin of 29.8% compared to 41.3% in the prior year excluding depreciation, gross margins declined from 51.7% to 39.7%. The margin headwinds were driven by increased input costs, particularly in Europe, without timely corresponding pricing offsets to SAP lower volumes resulting in unabsorbed overhead and the increased contribution from automation to overall sales as we ramp up that business. Overall, North America margins were down roughly 2.5 points in the quarter. But meaningfully improved in March due to better absorption and pricing actions going into effect, Europe and APAC was more challenging from large and standpoint down 16.1 points as energy prices impacted our material costs without any corresponding price actions to help in the quarter, automation contributed 8% of sales in the region compared to 3% prior, and we had lower PPS volumes year-over-year. Energy prices reflected in paper costs contributed approximately four points of impact and automation attracted by 3.2 points as we get this business up to scale. Higher volumes and better absorption in March helped to improve margins by roughly 4.6 points and this is prior to any pricing actions having gone in place. As a reference, had our pricing actions in North America and Europe and inflated for the entire quarter. Gross margins overall would've been 2.6 points higher to 32.4%. Adjusted EBITDA declined 31.8% year-over-year to $19.1 million, implying a 22.8% margin. The decline was driven by lower gross profit coupled with increased G&A as we continue to add talent to the organization to drive growth initiatives and PPS automation, as well as support our digital infrastructure transformation increasing salary headcount, but more than a 150 year-over-year, as well as increased IT systems costs. Overall, the key areas we're investing in this year are IT, automation, engineering and procurement. Those are immediate areas we're focused on helped us achieve our growth objectives. Given the macro uncertainty, other areas that we previously planned on ramping up are being met with higher hurdle rate. Capital expenditures for the quarter were $9.8 million driven largely by converter placement as well as some increased investment in technology infrastructure in our ongoing real estate projects. Moving briefly, the balance sheet liquidity and the cash side. Our cash balance end of the quarter was $80.5 million. More of our sales being back-end loaded in March, as well as investments in working capital and CapEx in the quarter to over cash balance lower but we expect that to level out with more normalized sales and our cash to build in the second half of the year. Our net leverage based on reported LTM adjusted EBITDA was a solid 3.0 times at the end of the quarter. This environment has emphasized what a valuable tool, a strong balance sheet is we have been putting ours to work recently in a number of ways. We have invested in working capital in an effort to ensure adequate supply of converters and paper for our customers we are also making upgrades to our key infrastructure to run the business and serve customers better and it has also enabled us to make strategic investments for the short-term and margin to help our customers. While much of our discussion is usually focused on growth, this is a business that has really attractive margins and generate substantial cash. We're using that financial profile to our advantage right now to make investments that will pay off over the next number of years. With that, I'll turn it back to Omar before we move on to questions.

[Omar Asali:]

Thank you, Bill. In closing, while we are not pleased with our financial results in Q1, I want to emphasize a few things. One, the team did a fantastic job and putting a tremendous amount of effort that cannot be overlooked. Second, Q1 is our seasonally smallest quarter of the year. So while Q1 results are painful, we are going to do everything in our power to claw that deficit back for the remaining nine months of the year, which historically, are larger contributors to our annual performance. If you look at it on a two-year stack, even with the headwinds are for and the new ERP system implementation, our adjusted EBITDA is up versus Q1 of 2020. Third, we exited Q1 in a far better position and feel good about our ability to continue to grow our top line and improve our margin profile throughout the year. Beyond the April price increase we implemented, we will be taking additional actions in Europe to offset the energy impact. Fourth, as I have said in the past, we at Ranpak are very focused on our annual and multi-year plans. For the greater good and to invest in the future, we will have certain quarters where our financial results take a step back due to noise related to our future investments. They do not change the quality of our business and are required to achieve our desired multiyear trajectory. We are a company that is still building scale in some areas, so certain disruptions and investments may have a magnified short-term effect. It is important to highlight that we do not take these investment decisions or quarterly results slightly. The people in our board room, including myself, represent roughly 50% of the stock of Ranpak. Every decision made is to maximize the value of Ranpak over the long term for shareholders. Sometimes the see require some short-term pain as we experienced in Q1 upgrading our digital infrastructure was a critical investment for us. And one I would do all over again as it was necessary for Ranpak back to succeed on a far bigger stage. The timing of our upgrade coupled with the outbreak of war and resulting energy shock is unfortunate and put us in a position where we are coming from being behind on the margin front, but I am confident in our ability to claw our way back to the financial profile we are all accustomed to. The macro uncertainty in Europe clouds things for the near term, but we have an excellent team and a strong leading position to weather the landscape and emerged stronger. We have worked to do on gross margins in Europe, but we will address those and feel confident in our ability to continue to improve as the year progresses. Because of the slower start to Q1, at this time, we're updating our guidance for the remainder of the year. Our topline remains unchanged, although we believe we will likely be on the lower end of the range given the change landscape. So this year on a constant currency basis at our standard estimate of $1.15 to the euro, we are anticipating revenues of $425 million to $445 million, reflecting top-line growth in the area of 13% to 18%. Given the margin pressures to start the year and lower volume expectations due to the uncertain outlook in Europe, we have lowered our adjusted EBITDA forecast to a range of a $115 million to a $125 million on a constant currency basis or negative 2.5% to positive 6%, compared to 2021. Wider than our historical ranges, we believe that a potential range of outcomes in Europe warrants some additional cushion and flexibility. We're confident in our forecast and are working day and night to hit our goals. With that, let's open it up for some questions. Operator.

[Operator:]

Thank you. [Operator Instructions]. We'll take our first question from Ghansham Panjabi at Baird.

[Ghansham Panjabi:]

Thank you, good morning Omar and Bill.

[Omar Asali:]

Good morning.

[Ghansham Panjabi:]

Good morning. Can you just give us a more specific view on what you're seeing for paper volumes as far in 2Q and how you see that dynamic unfolding for the back half of the year? I'm just trying to get a better sense of how you're thinking about EBITDA between the second quarter and the second after the year. Is there any lingering impact from ERP on 2Q, etc?

[Omar Asali:]

So [Indiscernible], so on ERP, I would say we have made critical improvements. I'm not going to say, as of today, we're at 100% of where we are, but certainly we're north of 90% or 95%. And I believe by end of the quarter -- by June 30 or so, our ERP muscle is going to be where we want it to be, and hopefully we would be getting benefits out of the system, which is what we're all focused on. In terms of volume, I would say in April, it's been a decent month. ERP has not been an issue, so -- which is a good thing. Again, we're not perfect with the new system, but significantly better. And that's a good continuation of what we saw in March. Europe, in particular, had a stable month. We are up, but it's largely based on price, not volume yet [Indiscernible]. My expectation is we will deal with the pricing issue, maybe a surcharge this quarter to position us well by the end of the quarter to recover on the margin front in Europe. I'm not expecting robust volume, but I'm expecting decent volume out of Europe. Although that statement is subject to nothing dramatically changing on the war front, which is very tough for me to handicap. And from everything we're seeing with our trials with our pipeline, we are expecting a pretty good second half of the year. Although I will tell you our growth this year in light of what happens in Q1 is probably going to be predominantly price, not volume driven and the last thing that I will say -- Ghansham, sorry, just to give you some sense. We did increase the number of converters out there and that's always a good leading signed for our business. All that happened or a big portion of that happened towards the end of the quarter so the number of converters increased, but these converters, we're not out in the field producing paper. That's something that's going to be helping us in Q2 and then the second half of the year.

[Ghansham Panjabi:]

Thanks so much, that's a very comprehensive note. For my second question can you just give us a sense on the same dynamic specific to machine shipments, which were very strong in the first quarter, irrespective with some of the challenges you highlighted? How do you see machine placements unfolding for the rest of the year? And maybe you could just give us some level of quantification on the backlogs relative to historical averages.

[Omar Asali:]

Yeah, I'll have Bill take that one.

[William Drew:]

Sure. Machine placements as you pointed out, Ghansham, they were still solid in Q1 which is great to see. That, as Omar said, was pretty back-end loaded, right as we were getting our feet underneath us on that system and getting machine ships. So a lot of that happened in March, so you didn't really get the flow-through on the paper side. Just when discussing the outlook with the teams in the different regions across the world, demand for additional machines and trials and close activity is solid, so we feel good about continuing to place machines at a good clip throughout the year will be as robust as last year where it was in the mid-teens. Probably not just given some of the uncertainty, but we still feel good about the demand that's out there for continued placements.

[Ghansham Panjabi:]

And just one final one for me. Will the June price increase catch you up where you need to be on price cost?

[William Drew:]

It will get us very close. We're expecting margins to continue to improve throughout the year. Q2 will still have some pressure, obviously, just given the timing of the increase going into place in Europe. But in Q3 and Q4, we expect those margins to get back closer to where we historically have been.

[Ghansham Panjabi:]

Very good. Thanks so much.

[Operator:]

Next on, we'll move to Adam Samuelson at Goldman Sachs.

[Adam Samuelson:]

Yes. Thank you. Good morning, everyone.

[Omar Asali:]

Morning, Adam.

[Adam Samuelson:]

Morning. My first question is -- I'm trying to disaggregate the volume performance in the quarter a little bit. I'm just thinking about your installed base was up 11% year-over-year in the period, the paper volumes were down '21. So on a same-store like-for-like installed base your paper volumes are down closer to 30. And I guess I'm trying to understand the trajectory from here. How much of that paper decline will you directly attribute to the ERP issue? How much would you attribute to software customer activity, particularly in e-commerce space? And maybe I'll stop there and have some follow-ups.

[Omar Asali:]

I think -- let me start with a high level bridge and then I'll have Bill walk you through some detail. As I think about the quarter and I know ERP certainly was a big deal, ERP combined with war happening in our biggest region and impacting March was a pretty tough combination. And obviously that's what we did not see at the beginning of the quarter. But as I look at our numbers, at our topline, and this will flow through into obviously volume and into your questions on demand. We probably have something around $3.1 million of buy-in given the ERP downtime at the beginning of the year. That impacted this quarter where people bought some in December. The trucker issue in Ukraine or the Ukrainian, I should say trucker issues, basically moving back to our country to join the war is something obviously we did not know, we did not anticipate, and that impacted us by more than $2 million in March. We also had some customers in March in Eastern Europe, Poland, etc, delays some orders that were in our book, and that was north of $2 million as well. And then as Bill said, we couldn't take pricing action given we we're implementing a new system and that probably impacted the us by another €3 million or so for the quarter. So if you add these up, you get to more than €10 million. That was predominantly a hit in Europe, gave them both ERP, as well as the whole trucker issue and delayed orders issue given the war What we are seeing is, obviously, some of these numbers are starting to normalize. I do think on the demand side, in particular in e-commerce, it remains at a high level. The growth rates are not like what we saw last year. And frankly, what is very tough for us to assess is, is that the new normal level in e-commerce and it'll stay at these levels or is there further weakness that we may see going on in particular, in Europe, if consumer sentiment changes? That's the piece that's a lot harder for us to assess and that's what we try to reflect in our updated guidance and give a broader range on EBITDA because it's very tough to handicap that impact. In the U.S., I would say traditional e-commerce guys have had decent volumes with us, not huge. We continue to see okay pickup in activity in retailers doing more in their e-commerce business, but they're starting off a smaller base. Bill, I don't know if you want to add something.

[William Drew:]

Sure. Adam, just to give you a sense of how we're thinking about the rest of the year which I think will give you a little bit more normalized view. We are expecting at the low end of our range, lower volumes in each quarter compared to 2021 largely. And then top-line making that up on price. And this is going to be largely driven just by lower utilization of the machine-based. So we're baking in high single-digit, low double-digit declines in utilization per machine, which will be offset by, of course, the pricing as well as the increased machine placement. So I do think a big chunk of what you saw that 21% decline in Q1, a big chunk of that was driven by just getting up to speed on the ERP system. And then you did have some impacts, as we stated, from some lower e-commerce activity, as some folks in North America had supply-chain shortages, which seem to be resolved, and then just generally a bit lower activity on e-commerce front as things have opened up.

[Adam Samuelson:]

All right. That color is really helpful. And I guess maybe if I'm thinking about how taking all those points, Bill, and thinking about that in the context of your constant currency revenue guidance, which is unchanged as a range that you're saying more at the low-end, is it? Obviously there was the impact in the first quarter, but has the expectation on volume utilization through the installed base for the rest of the year come down offset by higher price? I'm just trying to think about how given the first quarter performance and where we are just how we're still holding the constant currency revenue guidance where it is.

[William Drew:]

That's correct, Adam.

[Adam Samuelson:]

Okay. And then just a clarifying question, just -- because you're reporting -- you're giving guidance on a constant currency basis of the 115 euro-over-euros, about 106 today. So in practice, you reported results on -- in dollars relative -- actually relative to where you were in -- at the end of February, that's about 4% to 5% lower given your euro exposure in the move in the currency. Is that the late framing?

[Omar Asali:]

Yes. I think just for a rule of thumb, about five points makes sense. So if you were talking about guidance, that spot, right, you'd be at, call it 405 and 110 on the low-end and call it 428 and 120 at the high-end. And we've used the 1.15 since we've gone public. That's been the average over the past five years. It's been the average over the past year. So there's been a lot of volatility obviously in the currency. And actually, if I look at the forecast for what's out there for next year, just -- if I pull up the FCFX or FXFC screen on the Bloomberg, it's at 1.15 as well. So we feel like it's a good barometer to get folks a view of the business just on a stable currency basis.

[Adam Samuelson:]

Okay. I appreciate the color, Asali. Thank you.

[Operator:]

We'll move next to Stefanos Crist at CJS Securities.

[Stefanos Crist:]

Hey, good morning, Omar and Bill.

[Omar Asali:]

Good morning, [Indiscernible]

[Stefanos Crist:]

I do want to clarify on one of the previous questions just on the revenue guidance. Can you just give us your thoughts on pricing and volume and how that's changed since you initially gave the guidance?

[Omar Asali:]

Sure. On the volume side, when we were going into the year we were originally looking at volumes in the mid to high single-digits. I think obviously that's come down given the first quarter and then what we're seeing in terms of uncertainty in the European region. Price obviously has gone up, right? In terms of our expectations, we originally were not baking in any sort of energy surcharge. So those are kind of the two moving pieces there. And I think you know we've also just dialed down probably the assumed machine placement just given the macro in Europe. Obviously, if there is a resolution sooner than that, that can ramp back up with additional volume and growth in the back half of the year. But that's not what we we're planning on.

[Stefanos Crist:]

Got it. Thank you. Can you just give us just status update on the three new facilities, just given supply constraints. Are those still on your targets to be completed?

[William Drew:]

The Connecticut facility for automation is very much on target and our automation plan is intact and expectations for this year remained the same and we continue to see the same robust demand. Our new facility in Europe is also on target and that will combine automation on our bps business and that will be ready end of the year, maybe beginning of next year. Our localized plan in China, we are revisiting that, and in light of the new geopolitical world, I suspect we will be localizing in the region, but we're revisiting a few details and the precise geography of where we want to be. So, that's going to be delayed a little bit.

[Stefanos Crist:]

Got it. Thank you.

[Operator:]

Next we'll move on to Alexander Leach at Berenberg Capital Markets.

[Alexander Leach:]

Hi, guys. Thanks for taking my questions. Could you start with giving us some more detail on the lower volumes you experienced first quarter? Can you quantify what's attributable to SAP and downtime out of the 21.3 were down in the quarter. How much was attributable to Russia and then how much was attributable to some lower customer demand in the European region?

[William Drew:]

Sure, Alex, I'm happy to. As Omar mentioned, There was some buy-in in the fourth quarter related to the SEP implementation, where customers were purchasing ahead in case of any disruption. So like what that at around €3 million a little bit more than that in terms of top-line line variability and pick up are some of the the truck driver availability issues in Europe. We would estimate that to be around €2 million in top-line impact. And then on some of the push-outs with distributors deciding that they but they wanted to take products in April rather than May. We've put that at around €2 million as well, just given what we saw unfolding throughout the month, may have been a little bit higher. And then that plus kind of the pricing impact of the delayed implementation that would all total up to around €10 million in top-line.

[Alexander Leach:]

Great. And how do we think about price stickiness given that's what's really driving growth fee you guys this year? Is there any risk the top-line if there was some normalization in price tool?

[Omar Asali:]

Sorry, Alex, can you ask I that again?

[Alexander Leach:]

How do you think about price stickiness given us will struggling growth and full-year 2022? And if there is any risk to top-line at some normalization and price on a moles longer-term big?

[Omar Asali:]

I think as we think about it frankly, we've been in discussions with with our customers and this is largely focused on Europe. The energy situation is not Ranpak specific, so what's happening with NAT gas and, you know, the elevated levels, it's impacting pretty much every player in Europe, whether it's an industrial player or frankly the consumer as they were consuming energy in their own home. And our customers, we've been speaking openly with them about passing through some of that unusual activity. And again, we may do it in the form of a price increase and or a surcharge, and we would do it transparently where if the energy market eases, if things improve in Europe on that front, we're happy to pass along the savings down the road. So I think the driving force behind it being energy-driven, being driven by what's happening with the war makes it stickier. People understand that. Now the question is, what's going to happen with demand and consumer sentiment in Europe. And honestly, that's very tough to assess. As you can tell from what we're telling you about our guidance for the rest of the year, we're not assuming a robust Europe. We're not assuming that we maintain volume or productivity of our converters. We're trying to be a little bit cautious. But that's going to depend on the trajectory that happens in the continent. And with the war, and frankly, that's not just a relevant point for Europe. If things get materially worse, it could impact the rest of the globe as well. So that's something that we're watching. But I think the nature of what's driving our price increase, which is predominantly the energy situation. Given our communication with our customers, with our distributors and end-users, we feel they understand it and it will be, it will be sticky. And we are all hoping for a more stable future for us and for them where these prices become a bit more [Indiscernible].

[Alexander Leach:]

And if I could just fit one more in. You mentioned those a bit of a lag with implementing price increases. So price came in at 16.5% in the quarter how much more of an increase in price should we expect for the remaining three quarters for the year?

[William Drew:]

I mean, just from competitive reasons, we don't want to get too specific in terms of any plans. But in a way tell you that we are focused on just getting back to our margin profile, right as we exit the year and we'll be able to structure different increases as we need to in order to achieve that. Whether it's through a surcharge that Omar mentioned as well as other price increase just on traditional paper, Price increase -- we'll be looking to both of those mechanisms to make sure that we're calling back our margin as we exit the year Q3 and Q4 in a much better spot.

[Omar Asali:]

The way l would triangulate our thinking without giving specifics as expect in this quarter, you will see some improvement in the margin profile, and that in the second half we will get pretty close to our historical margin profile. That's what we are solving for.

[Alexander Leach:]

Okay great. Thank you guys.

[Operator:]

And next one we move on to Greg Palm at Craig-Hallum

[Greg Palm:]

Morning. Thanks I guess just starting off. I mean, I understand some of the impacts in Europe. I mean, obviously a lot of that, it's outside your control but looking back at Q4, your commentary certainly didn't imply that there were, I guess, any major disruptions associated with the ERP implementation and those comments we're back in late February, so I'm still trying to reconcile that. Were you expecting maybe a bigger ramp in March? Because even if I adjust for call it the 10 million of impacts there were still quite a bit of shortfall relative to expectations, so just trying to tie that out.

[Omar Asali:]

Yes. Basically, the summary, Greg, is we were expecting a much better March in Europe in particular. We had a good March, and when I say good March, compared to where we started from an ERP standpoint. But certainly the war and its impact hurt our plans. So when we went live in January, we expected every month in the quarter would get better. Our plan worked out more or less in North America. Of course, I'm not going to tell you it's worked out precisely, exactly what the numbers we anticipated, but close enough. And that gives you a sense of what we were expecting. And North America ended up delivering top-line growth, of course, largely driven by price. But given implementing a new ERP system and delivering that, we were feeling pretty good about what we delivered in North America. We had the same exact expectation in Europe. And then obviously, when we gave our Q4 sort of earnings report, it was very early in the war. It was very tough to assess where the war is taking us, and we had the view that we would be delivering results that were in-line with expectations for a company that implemented an ERP system. Clearly you want to -- we spoke -- in that Earnings Call, we did not know a lot of drivers who were originally from Ukraine are not going to show up. We -- it was tough to see what our customers are going to do with delaying orders, etc. So we're trying to give you a sense of the numbers. But a lot of things happen that changed the landscape with the war that really hurt our business in March. And that clearly had an impact on our plan in terms of how we envisioned implementing ERP.

[Greg Palm:]

Yup, that makes sense. In terms of supply, you mentioned, you're still receiving product, I think from all suppliers. Have you made any meaningful changes over the last few months? Were you forced to purchase on the spot market at all due to those supply disruptions, I know you've got some exposure to Russia specifically.

[Omar Asali:]

We are -- we did make some changes. We continue to make some. We're not done with our changes on the supply side. I will tell you the following. On supply side, we still are getting some paper from Russia. We expect to continue to do that. It's decreasing. And I expect that to change materially based on our plan in the second half of the year, where we would be getting a lot less paper from there. We're getting paper from other sources. Some European players, some other international players helping our European business. I feel pretty good about our plan. From everything, hearing from all of our discussions with different suppliers and mills. I do not anticipate running into issues in terms of securing paper supply. And that's something I know that I said back in February. So when the war started, obviously, our Russian customer exposure is de minimis, and then our Russian mill exposure was a meaningful number. But from everything we know, we are not nervous about securing supply. Now, at some level, we have to adjust pricing, and it might be that we're paying slightly more. And if we do, then we will deal with that in our price increases, etc. By securing supply for the rest of the year, given what we're seeing and reducing the Russian exposure is not going to be an issue.

[Greg Palm:]

Okay. That's good to hear. I guess last one you talked a lot about the negative impacts of what's going on across the energy markets and those costs. I'm curious if you've thought about maybe the positive driver that could become for increased adoption of paper in lieu of resin, just given resin costs have continued to increase, given what's going on in the energy markets. Any thoughts on that or is it too early to know?

[Omar Asali:]

I think it's a little bit too early to know. I will tell you we watch very closely how we compare to the resin market. And I've had some folks ask

[Greg Palm:]

I got it. All right. Well, thanks, and best of luck going forward.

[Omar Asali:]

Thank you.

[Operator:]

And that just conclude our question-and-answer session. At this time, I'll turn the conference back over to our presenters for any closing remarks.

[Omar Asali:]

Thank you. And thanks everybody for joining us today. We look forward to speaking again next quarter.

[Operator:]

And that does conclude today's conference. Thank you for your participation. You may now disconnect.