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Revenue Recognition, Contracts with Customers
12 Months Ended
Dec. 31, 2022
Revenue from Contract with Customer [Abstract]  
Revenue Recognition, Contracts with Customers

Note 8 Revenue Recognition, Contracts with Customers

Description of Revenue-Generating Activities. We employ sales, marketing and customer service personnel throughout the world who sell and market our products and services to and/or through a large number of distributors as well as directly to end-users. As discussed in Note 7, “Segment and Geographic Information,” we have two operating segments which are aggregated into one reportable segment, Ranpak.

Identify Contract with the Customer. We sell paper consumables to two types of customers: distributor and direct. For both customer types, the customer is granted the right to use our machine(s) for which we charge an annual or quarterly fixed fee or may waive the fee at management’s discretion. For both arrangement types, (i.e. fixed fee and waived fee), we have determined that there is a multiple element arrangement which contains a lease component (the right to use the machine) and a non-lease component (the paper consumables). The remainder of our revenue is derived from sales of Automation products. In association to the sale of Automation products, we sell extended warranties, preventative maintenance services, spare parts and spare part packages, and consulting services.

In paper consumables sales for both distributor agreements and direct agreements, we have determined the contract to be a combination of the master service agreement (“MSA”) and purchase order (“PO”). The MSA contains general terms and conditions which govern the agreement, including general payment terms. Individual PO’s must be placed underneath the terms of the MSA to order specific paper products which we promise to deliver. The PO contains relevant details of the contract including the type of paper, quantity, unit price, total price, as well as payment terms and estimated delivery date. Under the MSA, multiple PO’s for one customer may be placed at or near the same time. In situations where there are multiple PO’s issued at or near the same time to the same customer, we treat each PO in combination with the MSA as a separate contract for revenue recognition purposes.

To provide automation solution goods and services, an agreement is documented and agreed to between Ranpak and the customer. This is in the form of a proposal contract for automation machines with separate proposals for related goods and services. Typically, machines have their own proposal, and other related goods and services such as preventative maintenance, and spare parts have a separate proposal with these goods and services all detailed. These written agreements outline the terms and conditions for respective transactions between us and our customers and represent contracts with enforceable rights. For each type of contract, there are various levels of termination provisions that each party has.

We recognize revenue from each Automation product separately, on a contract by contract basis (i.e. by individual machine). We recognize revenue on maintenance contracts and spare parts separately from their Automation products. Each contract represents its own unit of accounting. Because Automation products are highly customized with no alternative use to another party and we have an enforceable right to payment for our costs if the customer breaches the contract, we recognize automation revenue over time. We use an input method, based on cost and effort incurred to recognize automation revenue.

Performance Obligations. Our paper consumables, automation equipment, and maintenance services are determined to be distinct performance obligations. Free on loan and leased equipment is typically identified as a separate lease component in scope of ASC 842.

Transaction Price and Variable Consideration. We have forms of variable consideration present in our contracts with customers, including rebates and other discounts. We estimate variable consideration using either the expected value method or the most likely amount method. We include in the transaction price some or all of an amount of variable consideration estimated to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

For all contracts that contain a form of variable consideration, we estimate at contract inception, and periodically throughout the term of the contract, what volume of goods and/or services the customer will purchase in a given period and determine how much consideration is payable to the customer or how much consideration we would be able to recover from the customer based on the structure of the type of variable consideration. In most cases the variable consideration in contracts with customers results in amounts payable to the customer by the Company. We adjust the contract transaction price based on any changes in estimates each reporting period and perform an inception to date cumulative adjustment to the amount of revenue previously recognized.

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 of transaction price impact the amount of net revenue recognized by us in the period of adjustment.

We do not adjust consideration in contracts with customers for the effects of a significant financing component if we expect that the period between transfer of a good or service and payment for that good or service will be one year or less. This is expected to be the case for the majority of contracts.

Sales, value-added, and other taxes collected from customers and remitted to governmental authorities are excluded from revenue.

Allocation of Transaction Price. We determine the standalone selling price for a performance obligation sold on a standalone basis. We often offer rebates to customers in their contracts that are related to the amount of consumables purchased. We believe that this form of variable consideration should only be allocated to consumables because the entire amount of variable consideration relates to the customer’s purchase of and our efforts to provide consumables.

Transfer of Control. Revenue is recognized when control of the promised goods or services is transferred to customers in an amount that reflects the consideration expected to be received in exchange for those goods or services. Revenue for paper consumables is recognized based on shipping terms, which is the point in time the customer obtains control of the promised goods. Revenue for Automation equipment sales is recognized based on an input method of cost and effort incurred over time. Maintenance revenue is recognized straight-line on the basis that the level of effort is consistent over the term of the contract. Lease components within contracts with customers are recognized in accordance with ASC 842 on a straight-line basis over the terms of the PPS systems agreements with customers, which have durations of less than one year.

We allocate the consideration received from customers between the paper consumables and the converting machine based on an estimate of the relative standalone selling price. This allocation is done for presentation purposes and does not represent a significant difference in timing of revenue recognition.

The time between when a performance obligation is satisfied and when billing and payment occur is closely aligned and performance obligations do not extend beyond one year. The transfer of control of our products results in an unconditional right to receive consideration. Accordingly, we do not have any material contract assets as of December 31, 2022 and 2021.

Deferred revenue represents contractual amounts received from customers that exceed percentage of project completion that is in excess of costs incurred for automation equipment sales, as well as prepayments for machine fees that are amortized over the next quarter. Our enforceable contractual obligations have durations of less than one year and are included in current liabilities on the Consolidated Balance Sheets. During 2022 and 2021, substantially all of the beginning balance of deferred revenue was recognized into revenue. Beginning and ending balances of deferred revenue were as follows:

 

 

 

Year Ended December 31,

 

 

 

2022

 

 

2021

 

Beginning balance

 

$

3.1

 

 

$

1.4

 

Ending balance

 

$

0.9

 

 

$

3.1

 

 

In addition to the disaggregation of revenue between paper, machine lease, and other revenue, we also disaggregate our revenue by segment geography to assist in evaluating the nature, timing, and uncertainty of revenue and cash flows that may be impacted by economic factors:

 

 

 

Year Ended December 31,

 

 

 

2022

 

 

2021

 

 

2020

 

ASC 606

 

 

 

 

 

 

 

 

 

North America

 

$

111.0

 

 

$

126.7

 

 

$

110.9

 

Europe/Asia

 

 

165.4

 

 

 

209.5

 

 

 

147.7

 

Total paper and other revenue

 

$

276.4

 

 

$

336.2

 

 

$

258.6

 

ASC 842

 

 

 

 

 

 

 

 

 

Machine lease revenue

 

$

50.1

 

 

$

47.7

 

 

$

39.6

 

Net revenue

 

$

326.5

 

 

$

383.9

 

 

$

298.2

 

 

North America consists of the United States, Canada and Mexico, among others; Europe/Asia consists of European, Asian (including China), Pacific Rim, South American and African countries, among others.