WEST - NASDAQ

Hello, and welcome to Westrock Coffee Company's first quarter 2025 Earnings Conference Call. My name is Howard, and I will be coordinating 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 Mounger with Westrock Coffee Company.

Thank you, and welcome to Westrock 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. 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 any forward-looking statements made today. Also, discussions during the call will use some non-GAAP financial measures as we describe business performance. The SEC filings 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, and good afternoon, everyone. Thanks for joining us today. I am happy to share with you that in the first quarter of 2025, 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 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 are 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 million 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 million and $88 million for the full year 2025, up roughly 35% over 2024. 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 then 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 sourcing resource, and low-cost processing and packaging outsourcer for the world's leading beverage brands, we enable 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 on-site 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 2024 and early 2025. These are examples of growth brought about from our delivery as 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 effort. I want to thank everybody on the team for a miraculous quarter and for all the work you are 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 am going to turn the call over to Chris Pledger, our CFO, and I will 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 roast and 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's scale-up cost to the $8.2 million in 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 segment 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 roasting 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 Conway CapEx spend 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 both higher coffee costs and tariffs on coffee imports will impact our inventory values, the cost of coffee and the tariff cost are ultimately passed through to our customers. While this puts short-term pressure on our liquidity through increased working capital, we believe we are well-positioned from a liquidity standpoint to withstand these higher costs. Like any business that sells products to consumers, we are closely monitoring the impact of the current political and macroeconomic environment 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 do not see any reason at this point in time to make any adjustments to our board guidance. With that, we will be glad to take a few questions.

Ladies and gentlemen, if you have a question or comment at this time, please press 11 on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue, simply press 11 again. Again, if you have a question or comment at this time, please press 11 on your telephone keypad. Our first question or comment comes from the line of Joseph Feldman from TESLEY Advisory Group. Mr. Feldman, your line is open.

Hi. Good morning. This is Aaron Wara. You know, my first congratulations on a great quarter, better than expected and guidance maintained. You know, I will start with the Conway. You know, I know you are running commercial runs are underway for production over there. Can you remind us of full-scale production start over here? Are we looking at, like, it seems like you 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 are 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 is the second piece. That is probably going to be in August, September time frame. 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. By the time you get through the first quarter of next year, we expect all three of those lines will be fully utilized and running at capacity. We have a third can line that we have purchased and that we have positioned that we will turn on at that point in time if we need it.

That is great. I mean, it is 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 what is your expectation for the year on the single serve side? Thank you. I will pass it on.

Sure. I will comment on what is going on in the business, and then I will defer all forward numbers speak to Chris. What is going on in the business is we are winning in the market. We have not only several private label wins. We have had a very substantive recent private label win, and we have 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 multiserve bottle, in a can, and as the market is coming to understand what product development and market kind of insights of that that fuel that product development, are available. We get people that are coming in to look at one product, and we are selling them a different product, or we are 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 this multiproduct shopping that brands and private label owners are doing in and around the Conway facility now. Chris, I will turn it over to you if you would 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 have 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 will continue to grow. That is what the new customer that Scott talked about. And then we will 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 are 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. Through the rest of the year.

That is great. Good luck with the growth ahead. I will pass it on. Thank you.

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

Hi. Good afternoon. Scott, you talked about the ramp-up at Conway and the customer order intent. Do you check with the visibility you have into orders supporting the EBITDA growth in the back half of the year? Is that something that at this point you would 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 have expanded your single serve capacity over time as you have realized the customer interest in shifting over to Westrock. Where are you in thinking about Conway's current capacity as you look ahead of 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 is next for Conway? And I do not want to get too far ahead here. More of an understanding 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 a 25,000 square foot straight line plant that we can double stack. So we could run several billion cups. We just are not going to put the machines in until we have the orders in hand. Because we have just simply been burned by that in our past, in our history. And we have learned that if we keep machines largely coming our way, twelve to eighteen months out, we are normally able to sell those out before we have to finish paying for them. And we are 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 twenty-four 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, Matt. Maybe the thing I would add to that on the RTD side, there is room in 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 is still room within the current footprint of Conway to be able to expand the facility, whether it is cans, multiserve bottles, whatnot. And then there is 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, growth, but it also gives us the ability to expand kind of the obvious adjacencies around the energy as those opportunities present themselves as well.

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

We kept that separate. It is in a separate facility, and so we have kept it separate. The incremental cost of it, some of the equipment that we are using will repurpose because we had bought it. Scott talked about, you know, getting ahead of ourselves with CapEx spend. We had done a little bit of that. So we have been able to really repurpose equipment that we had planned for other customers into that facility. As we continue, we will have some growth opportunities into that in an incremental CapEx spend that is all in the budget for this year. For single serve. So it is 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 11. 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 is this obvious chase of capacity, and you are 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 are bringing across the trend, some that is really fueling this need to chase capacity?

Thank you, Todd. That is a great question, and this is going to sound this unfortunately, this does not sound like a great answer, but the truth is it is both of them. So we have gone after every whale that moved in the last three years. These wins that are coming into the factories now, they started three years ago. And, you know, you all heard about it. Well, we sold it out. Well, great. Well, you have got to finish building it. Okay. Well, then you gave a big customer delay. Okay. Yes. All that is 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 the you know, they are what is 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 have had tremendous success with them. And we have tried to keep those two efforts to the extent we can. We are not a huge team, but to the extent we can, we have 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 are getting the large ones in. Now we did not get that perfect for some of our smaller customers. We have recently changed some of the way that we are dealing with them. We have changed some of the way that we are providing service to them and the insights and communicating with them. They have been very gracious with us. Because what they get for that patience is they get an unbelievable product development and a 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 that is it has been complicated, but it is a great question, and we have actually we are within a couple of months of pulling both off.

Okay. That sounds fantastic. Thanks, Scott. And then it is more of a macro level question. I and I think it is just important for us to understand given where the facility is in the ramp curve here. But where if you just look at end markets and what you are hearing from your customers about coffee demand in general with where the sea 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 have talked about that shift from hot to cold. Give us kind of a market update and where we stand on, okay, pricing is to the point that we have destroyed some of that momentum. We have 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 shift driven. And so the marginal play in the market, which you see, you know, some of these categories are under some pressure. That is not coming through our business except in the roasting ground core coffee business. From our original business. And I would say that that is off 8 to 10%, but in the last couple of months, they have run closer to 97 to 95% of last year, up from 90 to 85. And so as the year is going on, things are actually getting better, not worse. And I know that that is contra to all the headlines because I read them every day too. But if you look at our underlying unit demand, it is improving as we go through the year, not degrading. And people say, well, how can that be with a 10% tariff on coffee? Number one, it has not come through yet. It will come through in the next sixty 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.

That is maybe just lucky, but that the factors of pricing running through really do not seem to be slowing down any of the other products except roast and ground, and it is improving.

That is great. Thanks, Scott.

Thank you. Our next question or comment comes from the line of Eric Des Lauriers from Craig Hallum Group. Your line is open.

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

Sure. That is 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 have traditionally had. So we have a whole new customer group coming into those facilities. And many of whom came to us through single serve cups or ready to drink cans or bottles. So that is what is driving our increased volume. And now as the consumer, kind of on our 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 am going to stay away from what the numbers are because one person needs to control those, and that is 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 are winning across the board in that category. And we are very grateful for it. We are 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 are doing a great job. And the 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 commercializations team teams have done, we have attracted most of the smaller brands that are scaling up as well. And that is a winning formula.

Yeah. No. Yeah. Absolutely. Great to see all that coming together here. Guess just a bit more on the capacity you have to kind of take additional wins. I am just I guess maybe from a product standpoint, like, where do you have additional capacity to kind of continue taking 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 do not have to add incremental plumbing. We do not have to add incremental floor space. We do not have to add incremental AC. You just add machines, and we have built all three of these facilities that we have upgraded for that purpose over the last three years. So, yeah, there will be a place and time when that will not be true, but it is not happening in the next few years.

Got it. Very helpful. Yeah. And then on the three lines that are coming out this year, I mean, you know, first of all, it is 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, you know, 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, you know, whether that is, you know, timing or quantities or however 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 are really two things that I think of. There is I mean, we are 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 did not want to do is 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 is not a great story for the company. And so we have had a great start to the Conway facility. We expect to continue to learn from the things we are doing. And right now, we feel really good about the position we are 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 going to be the outlook 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 are not seeing that right now, but we wanted to include a little bit of variability in case that happens in our guidance. And that is the main reason we can sit here today and reaffirm where we are because we have not seen anything in our business or in the macro environment that would give us any reason to do anything otherwise.

All very helpful and great to hear. Thank you for taking my questions.

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

Well, I would 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, you know, 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 2025, should be lining up to come in is where we are really focused right now. So we are not saying that we do not 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 are communicating well across the team. And we are really confident we are going to deliver on it. And I think it is a fascinating time in our history. Everybody can make their bet. We will see how it plays out. Thanks very much for your time.