Westrock Coffee Company

Hello and welcome to West Rock Coffee Company's first quarter 2025 earnings conference call. My name is Howard and I'll be your coordinator your call today. Following prepared remarks, we will open the call to your questions with instructions to be given at that time. I will now hand the call over to Robert Munger with West Rock Coffee.

Thank you and welcome to West Rock Coffee Company's first quarter 2025 earnings conference call. Today's call is being recorded. With us are Mr. Scott Ford, co-founder and chief executive officer, and Mr. Chris Pledger, chief financial officer. By now, everyone should have access to the company's first quarter earnings release issued earlier today. This information is available in the investor relations section of Westrock Coffee Company's website at investors.westrockcoffee.com. Certain comments made on this call include forward-looking statements which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and beliefs concerning future events and are subject to several risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements. Please refer to today's press release and other filings with the SEC for a more detailed discussion of the risk factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statements made today. Also, discussions during the call will use some non-GAAP financial measures as we describe business performance. The SEC filing, as well as the earnings press release, provide reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures. And with that, it is my pleasure to turn the call over to Scott Ford, our co-founder and chief executive officer.

Thank you, Robert. Good afternoon, everyone. Thanks for joining us today. I'm happy to share with you that in the first quarter of 25, we continued to make great strides towards our goal of becoming the premier integrated strategic supplier to the preeminent coffee, tea, and energy beverage brands globally. We ended the first quarter with the combination of our beverage solutions and SS&T segment adjusted EBITDAs of $11.5 million, up 3.3% over the prior year, in line with our expectations and our previous guidance of essentially flat for the first quarter of 2025. With the first quarter behind us and now halfway through the second quarter, we're pleased to be able to reaffirm our guidance for both the first half of the year and for the entire year of 2025. When added together, the combination of our beverage solutions segment-adjusted EBITDA and SS&T segment-adjusted EBITDA should total between $27.5 and $34 million for the first half of the year, an increase of roughly 25% over the prior year, and track to be between $75 and $88 million for the full year 25, up roughly 35% over 24. There are a number of significant factors that create this performance, and while not detracting from the many fantastic accomplishments and goals yet to be achieved in cost controls, systems development, and new customer and product wins, the single most important element driving this performance is the commercial launch of our two new Conway Arkansas manufacturing facilities. The often mentioned country's largest roast to extract to RTD facility is literally leaping to life in front of our eyes as we have begun commercial quantity production runs for many of our new customers in this facility in the past 45 days. It has not been without its challenges. It is a feat everyone else in the industry seemed to have walked away from rather than attempting. But we meet daily on the punch list of activities we must deliver on as a team. And at this point, that list is now short, manageable, and we are highly confident we will attain our deliverables. My respect for this team is immense as I watch them daily perform Herculean tasks with grace and grit. At the exact same time as the Conway RTD facility went commercial, we also launched our second single serve cup manufacturing facility in part of the new Conway distribution center complex. Fortunately, this startup of this plant has gone seamlessly as we have over 200 people that work in our original single serve plant just 20 minutes down the road that we have tapped into for insights, staffing help, and startup workload sharing. As always, my gratitude goes out to this tremendously talented team as well. Together, these facilities encompass over a million square feet and can produce and distribute hundreds of millions of RTD cans, glass bottles, and multi-serve bottles, along with ultimately billions of single-serve cups each year. We remain convinced that consumer-driven shifts taking place in the coffee and related beverage market are going to create immense return opportunities for a few companies while stagnating others, and that our customer base positions us as one of the very few companies globally who have the technological expertise and breadth of product offerings to deliver on this type of industry-altering strategic plan. By becoming the lead innovation and development partner, dependable and sustainable sourcing resource, and low-cost processing and packaging outsourcer for the world's leading beverage brands, we enabled them to capitalize on their brand equity positions through the transition of their product portfolio in step with the movements of their end consumers. So as we speak today and as referenced on our last call, we are now bringing a second can line online in the third quarter of this year. and have a third can line now onsite and ready to install as demand continues to ramp. Our retail packaging capacity in North Carolina, which was only recently doubled, is now up for another 50% expansion, and our new single-serve plant in Conway is about to undergo another 100% capacity extension. Simply to meet the demand these iconic brands have brought to us across our product portfolio over just 24 and early 25. These are examples of growth brought about from our delivery of the leading integrated platform in the category, progress that in turn grows the value of our services to our customers, enhances our teammates' careers, manifests our pricing power on the ground daily for smallholder farmers in the developing world, and rewards our shareholders who entrusted us with their money with every expectation of a handsome return. These are important things and worthy of our greatest efforts. I want to thank everybody on the team for a miraculous quarter and for all the work you're doing now going into what will be the largest back half of the year from a production and earnings perspective in the company's history. With that, I'm going to turn the call over to Chris Pledger, our CFO, and I'll rejoin you shortly for questions. Thank you.

Thank you, Scott, and good afternoon, everyone. The first quarter of 2025 was a good one at Westrock Coffee Company. Despite the political and macroeconomic headwinds starting to affect consumer spending, we were able to grow our roasted ground coffee volumes year over year and deliver financial results ahead of our expectations at a consolidated level and in both of our reporting segments. On a consolidated basis in the first quarter, net sales increased by 11.1% compared to the first quarter of 2024. Our net loss was 27.2 million, while consolidated adjusted EBITDA was 8.2 million, with that result being burdened by 3.3 million in Conway scale-up operating costs. Comparatively, last year's first quarter consolidated adjusted EBITDA was 11.1 million, but with no Conway scale-up operating costs. For an accurate comparison, you would add 3.3 million in Conway scale-up costs to the 8.2 million and consolidated adjusted EBITDA to get a true picture of our quarter-over-quarter performance. On a segment basis in the first quarter, beverage solutions had a 3.8% increase in net sales, while segmented adjusted EBITDA was $9.6 million compared to $10.8 million in the first quarter of 2024. The increase in sales was driven by volume increases in roasted ground coffee of 7.6% and year-over-year growth in coffee commodity prices, which we passed through to our customers. The sustainable sourcing traceability segment saw a 44% increase in sales compared to the first quarter of 2024, driven by strong volume growth and margin capture and higher coffee prices. This resulted in segment adjusted EBITDA of $1.9 million compared to $300,000 in the first quarter of 2024. Turning to capital expenditures, in the first quarter of 2025, we spent approximately $41 million in capex, over $30 million of which was related to our Conway extract and RTD facility. As stated on our last call, we expect the balance of the Conway Cap Extend to be completed by the end of the third quarter of this year. At quarter end, we had approximately $86 million in consolidated unrestricted cash and undrawn revolving credit commitments on our $200 million line. Our leverage remains within expectations and complies with our credit agreement covenants. As with everyone in the coffee space, we continue to contend with historically high green coffee prices and should begin to experience the impact of the recently announced tariffs on our coffee costs later in the second quarter. While those higher coffee costs and tariffs on coffee imports will impact our inventory values, the cost of coffee and the tariff costs are ultimately passed through to our customers. While this puts short-term pressure on our liquidity through increased working capital, we believe we're well positioned from a liquidity standpoint to withstand these higher costs. Like any business that sells products to consumers, We're closely monitoring the impact of the current political and macroeconomic volatility on consumer confidence and consumer spending, and we are getting ahead of any potential impact on our business by closely managing our expenses. In terms of guidance, while we continue to operate in an ever-changing consumer environment, we don't see any reason at this point in time to make any adjustments to our forward guidance. With that, we'll be glad to take a few questions.

Ladies and gentlemen, if you have a question or comment at this time, please press star 11 on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue, simply press star 11 again. Again, if you have a question or comment at this time, please press star 11 on your telephone keypad. Please stand by while we compile the Q&A roster. Our first question or comment comes from the line of Joseph Felsman from Tesley Advisory Group. Mr. Felsman, your line is open.

Hi, good morning. It's Sarangora. You know, my first congratulations on a great quarter, better than expected and guidance maintained. You know, I'll start with the Conway. You know, I know you are running commercial runs are underway for production over there. Can you remind us a full-scale production start over here? Are we looking at, like, it seems like in your prepared remark you said third quarter is when you start production of a can line and then also another can line in third quarter. And is there a glass line also slated for the year? Just trying to, you know, just understand the scope of curve on the second half and, you know, the production line over here at Conway. Thank you.

Sure. This is Scott. And I think there's three things. We started the first, what we call the large can line. We started that this month. It really goes through a material ramp up in May and June. The second can line comes on in the third quarter. That's the second piece. That's probably going to be in August, September timeframes. And then the glass line turns on in the third quarter and then ramps up over three quarters, the third, the fourth, and the first to its full capacity. So by the time you get through the first quarter of next year, we expect that all three of those lines will be fully utilized and running at capacity. We have a third can line that we've purchased and that we've positioned that we will turn on at that point in time if we need it.

That's great. I mean, it's good to see ramps starting to happen at Conway. You know, I also had a small quick follow-up question. It seems like single serve is getting a lot of traction here. I mean, your success at the Conway, expanding in North Carolina. Can you help us understand how the volumes are ramping up on the single serve side or Or what is your expectation for the year on the single serve side? Thank you. I'll pass it on.

Sure. I'll comment on what's going on in the business, and then I defer all forward numbers speak to Chris. What's going on in the business is we are winning in the market. We have not only several private label wins, we've had a very substantive recent private label win, and we've had a very large branded product win. And we are in discussions with a number of other brands where they are coming to us to take on more and more of the portfolio, which is really at the heart of the design of this business. And this $400 million investment of turning on two new plants was to become a one-stop shop where we have 35 food scientists that can do product development work and match your flavor profile in a cup, in a bag, in a multi-serve bottle, in a can. And as the market is coming to understand what product development and market kind of insights that fuel that product development are available, we get people that are coming in to look at one product and we're selling them a different product or we're selling them two other products rather than the one they came from for initially. And our single serve lift that is taking place over the course of this year is largely a result of of this multi-product shopping that brands and private label owners are doing in and around the Conway facility now. Chris, I'll turn it over to you if you'd like to clear that up or add anything.

No, that was perfect. No, I think from a volume perspective and kind of monetizing the volume, we've got a pretty significant ramp that we start to see in the second quarter. Most of that will happen in the back part of the second quarter, and then we'll continue to grow. That's what the new customer that Scott talked about And then we'll continue to grow volumes in single serve through the back half of the year as we continue to ramp volume for that customer and then have growth in some of our existing customers. So you're right. This is going to be a really good year for single serve as we continue to grow really volume sales starting in probably the last month of this quarter and through the rest of the year.

That's great. Good luck with the growth ahead. I'll pass it on. Thank you.

Thank you. Our next question or comment comes from the line of Matt Smith from Stiefel. Your line is open.

Hi, good afternoon. Scott, you talked about the ramp up at Conway and the customer order intense. Can you talk about the visibility you have into orders supporting the EBITDA growth in the back half of the year? Is that something at this point you'd have high confidence in given your discussion with the customers that are already committing to those lines? Have they locked in that volume to occur this year?

Well, I never want to get too far ahead of what I actually know. But at this point in time, we are in fact very confident that we will both be able to make the product at the volume that our customers have signed up for and that they intend to take it. And I would say that the best harbinger of kind of insight into that recently is that we have customers who are now lining up for any day that we might be down with someone else if they can take that slot. So our demand is at least as strong as we had forecasted.

Thank you. And maybe as a follow-up, you've expanded your single-serve capacity over time as you've realized the customer interest in shifting over to Westrock. Where are you in thinking about Conway's current capacity as you look ahead a year and your lines are up and running. Has there been enough demand intent and discussions and people lining up, like you said, to take other space if they drop out? Are you at a place now where you can look at the forward opportunity and consider what's next for Conway? And I don't want to get too far ahead here, just more of an understanding of how you think about the business and the growth beyond these three lines.

Right. So we are running right now, I would say we are pretty close to 85% of our theoretical throughput is actually coming out of those lines now. But we built the front part of the Conway distribution center as about 125,000 square foot straight line plant that we can double stack. So we could run several billion cups. We just aren't going to put the machines in until we have the orders in hand. because we've just simply been burned by that in our past, in our history. And we've learned that if we keep machines largely coming our way, 12 to 18 months out, we are normally able to sell those out before we have to finish paying for them. And we're going to continue to practice that model, but we could add 5 billion more cups in that facility alone. And we could do that in less than 24 months if we had the orders to do it, which is a,

meaningful shift in global market share that would fit into that plant thank you the only thing i'd add to that on the rtd side there's room in the the conway facility to be able to expand it as well and so what scott talked about earlier about positioning a third can line so that as demand comes we have the ability to install that, commercialize it, and have it up and running to meet that demand. There's still room within the current footprint of Conway to be able to expand the facility, whether it's cans, multi-serve bottles, or whatnot. And then there's room outside the facility to expand it. I think that what that gives us is the ability to not only expand as customers' demand for kind of coffee and tea extract grows, but it also gives us the ability to expand into kind of the obvious adjacencies around energy as those opportunities present themselves as well.

Thank you for that. And, Chris, just one quick follow-up for me, and then I'll pass it on. When you talk about CapEx for Conway, can you clarify if that includes the distribution center and the K-cup capacity or the single-serve cup capacity that's being added there? Thank you.

We've kept that separate. It's in a separate facility, and so we've kept it separate. The incremental cost of it, some of the equipment that we're using, we're repurposing because we had bought it. Scott talked about getting ahead of ourselves with CapEx spend. We had done a little bit of that, so we've been able to really repurpose equipment that we had planned for other customers into that facility. We'll have some growth opportunities into that in an incremental CapEx spend that's all in the budget for this year. for single-serve. So it's separate from just kind of what we traditionally have talked about as it relates to Conway.

Thank you. Again, ladies and gentlemen, if you have a question or comment at this time, please press star 1-1 on your telephone keypad. Our next question or comment comes from the line of Todd Brooks from The Benchmark Company. Sir, your line is open.

Hey, thanks, and thanks for taking my questions. Scott, the first one, and there's this obvious chase of capacity, and you're certainly seeing it in single serve, and I think you talked about doubling the capacity in Conway, and you talked about the success with cross-selling. Is the success skewed more to winning whales that just take down so much volume with one account win, or is it the breadth of people that you're bringing across the transom that's really fueling this need to chase capacity?

Thank you, Todd. That is a great question, and this is going to sound – this is going to – unfortunately, this doesn't sound like a great answer, but the truth is it's both of them. So we have gone after every whale that moved in the last three years. These winds that are coming into the factories now, They started three years ago and y'all heard about it. Well, we sold it out. Well, great. Well, you've got to finish building it. Okay. Well, then you gave a big customer delay. Okay. Yes, all that's true. But when they do line up and they do come in, they fill the plant rapidly and we scale rapidly. So the big whales have been the drivers and we have focused on taking care of them because they are what's going to drive our volume, which drives our economics. At the same time, we have had a different team of sales and customer support people that have been working what I would say are the next 10 to 15 largest players in those categories. And we've had tremendous success with them. And we've tried to keep those two efforts to the extent we can. We're not a huge team, but to the extent we can, we've tried to keep those two efforts separated so that the smaller customers are being fit in in a way and at a scale that they can run while we're getting the large ones in. Now, we didn't get that perfect for some of our smaller customers. We have recently changed some of the way that we're dealing with them. We've changed some of the way that we are providing service to them and the insights and communicating with them. They've been very gracious with us because what they get for that patient is they get an unbelievable product development team and an unbelievable cost. because they ride on the back of the infrastructure that the whales drive. And so they benefit once we get them all in and lined up. So it's been complicated, but it's a great question. And we've actually, we are within a couple of months of pulling both off.

Okay, that sounds fantastic. Thanks, Scott. And then it's more of a macro level question. And I'd I think it's just important for us to understand, given where the facility is and the ramp curve here, but if you look at end markets and what you're hearing from your customers about coffee demand in general with where the C price is and potential tariff overlay coming on board, where are we just from a consumption? You talked the entire history of this relationship. You've talked about that shift from hot to cold. Can you give us kind of a market update and where we stand on, okay, pricing is to the point that we've destroyed some of that momentum, we've deferred it. Just what your take is on the overall market given the backdrop and where the consumer is right now.

Right. And as we have talked about on previous calls, as a share winner, we are being overrun with share shift. And so our numbers are holding. We can honor our guidance. because it was all share-ship driven. And so the marginal play in the market, which you see some of these categories are under some pressure, that's not coming through our business except in the roasting ground core coffee business from our original business. And I would say that that's off 8% to 10%. But in the last couple of months, they've run closer to 97% to 95%. of last year up from 90 to 85. And so as the year's going on, things are actually getting better, not worse. And I know that that's contra to all the headlines because I read them every day too. But if you look at our underlying unit demand, it's improving as we go through the year, not degrading. And people say, well, how can that be with a 10% tariff on coffees? Number one, it hasn't come through yet. It'll come through in the next 60 days. But number two, The day the tariffs were announced, the C price dropped the same amount. So our customers, if they had been paying tariffs the day tariffs were announced, they would have paid the exact same total price that they paid the day before. Now, that's maybe just lucky, but the factors of pricing running through really don't seem to be slowing down any of the other products except roasting ground, and it's improving.

That's great. Thanks, Scott.

Thank you. Our next question or comment comes from a line of Eric DeLaurier from Craig Hallam Group. Your line is open.

Great. Thank you for taking my questions. First one for me is a bit of a follow-up on that last question here. So, you know, overall, coffee prices, record highs. You know, there's some volume headwinds, as you just mentioned. Obviously, you've had some really nice wins, particularly in single serve, to help kind of offset those headwinds. Can you just expand a bit more on some of those recent wins that are helping offset those, and then I guess a bit more so how much capacity you have to kind of continue offsetting these potential headwinds with additional wins here? Thank you.

Sure. That's a bit of a nuanced question, and you kind of have to look at it product by product. So if you look at traditional what we call core coffee and tea, we have been winning in certain categories. of late, largely in the retail category, to go with the restaurant and C-store business that we've traditionally had. So we have a whole new customer group coming in to those facilities, many of whom came to us through single-serve cups or ready-to-drink cans or bottles. So that's what's driving our increased volume. And now, as the consumer, kind of on a comparable basis, customer by customer, is strengthening a little bit through this spring. Those numbers are actually kind of pulling through and our volumes are up for the first time in a long time in the aggregate. I think I'm going to stay away from what the numbers are because one person needs to control those and that's Chris. If you look at the single serve business, we are winning both private label and major brands that are leaving other platforms. Period, full stop. We're winning across the board in that category and we're very grateful for it. We're thankful for it. We take nothing for granted. Those teams work ridiculously hard to be precise and perfect in every cup they turn out, and they're doing a great job. And ready to drink is we just turned on the largest, lowest cost factory of anybody in the world. And, of course, it attracted the major brands. And fortunately, because of the work that the product development and commercialization teams have done, we've attracted most of the smaller brands that are scaling up as well. And that's a winning formula.

really what we're doing yeah yeah absolutely um it's great to see all that um coming together here um i guess just um a bit more on the capacity you have to kind of take additional wins i'm just i guess maybe from a product standpoint like where do you have additional capacity to kind of continue take me share everywhere everywhere everywhere got it because at this juncture we built

One of the reasons that we spent so much money the last three years was to build the infrastructure that once you started winning, once you got up, you stay up by being super aggressive on price and service, and then you just have to add incremental machines. We don't have to add incremental plumbing. We don't have to add incremental floor space. We don't have to add incremental AC. You just add machines, and we've built all three of these facilities that we've upgraded for that purpose over the last three years. So, yeah, there will be a place and time when that won't be true, but it's not happening in the next few years.

Got it. That's very helpful. And then on the three lines that are coming out this year, I mean, you know, first of all, it's great to hear that everything is progressing as planned. Can you just help us understand where there might be some variability in the outlook? Guidance does have a low and a high end. Just kind of wondering if you can help us understand a bit more the potential puts and takes as this ramp progresses, whether that's timing or quantities or wherever you want to take it. Just kind of wondering, just trying to get a better sense of the low and high end of the ranges and what could cause that.

Hey, this is Chris. I think there's really two things that I think of. We're in the process of scaling a very large new facility, and so we included some variability in that scale-up just to give us some wiggle room if things went slower than what we would have expected. At the end of the day, this is a fantastic story for the business, and what we didn't want to do was just stick a lights out number out there with the expectation that if we stumble a little bit or we undershoot that a little bit that somehow it's not a great story for the company. And so we've had a great start to the Conway facility. We expect to continue to learn from the things we're doing and right now we feel really good about the position we're in. So that was part of it is creating some variability as we scale that facility. And the other thing is just really what ultimately is gonna be the outlook for for the consumer. Where we feel good about our business, at the end of the day, if you take a combination of high coffee costs, you take some of the variability in tariffs and how that might impact, maybe not us directly, but how that might impact the consumer writ large, are they going to look at making different beverage choices as a way to be able to offset higher expenses in another area? We're not seeing that right now, but we want to a little bit of variability in case that happens in our guidance. And that's the main reason we can sit here today and reaffirm where we are because we haven't seen anything in our business or in the macro environment that would give us any reason to do anything otherwise.

It's all very helpful and great to hear. Thank you for taking my questions.

Thank you. I'm sure no additional questions in the queue at this time. I'd like to turn the conference back over to Mr. Scott Ford, CEO, for any closing remarks.

Well, I'd just like to say thank you for your interest. We appreciate you guys all hopping on the call. We are pleased, but we also recognize that the first quarter was the easy one. That was basically up single digits over last year. This one is a steeper climb because the volumes start to really move in. And the third quarter, which is where all of the volume to make the numbers in 25 should be lining up to come in is where we're really focused right now. So we're not saying that we don't have a lot to do, but we are saying we think we have the shortest list of things to accomplish to deliver the numbers that we showed our investors three years ago when we raised the money to go build these plants. We have the shortest list of things to do to accomplish those goals that we have ever had. We have them in sight. We have them accounted for. We have dedicated people working on each one of them. We're communicating well across the team. And we're really confident we're going to deliver on it. And I think it's a fascinating time in our history. Everybody can make their bet. We'll see how it plays out. Thanks very much for your time.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.