Thank you for your patience. My name is Alex, and I will be your conference operator today. I would like to welcome everyone to the Westrock Coffee Company First Quarter 2024 Earnings Conference Call. I will now hand the call over to Robert Mounger with Westrock Coffee. Please proceed.

Thank you, and welcome to Westrock Coffee Company's First Quarter 2024 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 on 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 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 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. Thank you for joining us for this pivotal financial and operational update. As most of you know, we've been engaged in the development of what we believe is the world's largest roast to extract to ready-to-drink facility. And today, we are thrilled to announce that it is now operational, producing finished, sellable product, and we have commenced the full-fledged fill-it-up mode. On top of this, our first quarter performance was simply outstanding across a number of fronts. Our first quarter adjusted EBITDA was up 32% over the prior year due to double-digit growth in every product segment, except for roast and ground coffee, which remained weak. Our Conway, Arkansas extract and ready-to-drink plant commenced operations on April 16, exactly as planned almost a year ago, and solely based on our currently committed order book, we already expect to run at roughly 75% of installed capacity utilization in 2025, our first full year of production. Our Select Milk producers joint venture for two aseptic ESL lines and requisite cold storage capabilities in Littlefield, Texas, continues on pace for an expected closing and funding in the third quarter of this year and a subsequent product launch in mid-2026. Our current indicated order book already reflects one line essentially spoken for. We are in the midst of a meaningful string of sales victories across multiple customer channels and product types, and our expected volumes for late 2024 and 2025 are anticipated to be materially higher than current run rates. With our Conway cold chain multi-serve bottle line and commercial operation, we are now in the product commercialization phase with several customers on our high-speed can line, and we continue to expect our glass bottle line to commence operations in the fourth quarter of this year, which remains completely sold out. Given these results, our updated order book outlook and our ongoing expense reduction plans, we are pleased to reaffirm our adjusted EBITDA guidance range of between $60 million and $80 million for 2024. Further, we are introducing our first preliminary view for 2025 adjusted EBITDA of roughly $115 million. This view reflects the current state of our traditional business, plus the addition of those new customers and products that we are in the final stages of contracting, commercializing, and preparing to manufacture. With that overview, I'd like to spend a few minutes drilling down on the key challenges and objectives we are executing against over the remainder of 2024 and 2025. As I'm sure everyone on this call is aware, fuel and food inflation continued to disproportionately impact a growing segment of American diners and shoppers, which in turn continues to affect our roast and ground coffee volumes. And while part of our volume decline is the result of a customer moving some low-margin roast and ground volume, the more important declines seem to be directly attributable to ongoing food price inflation. We simply see no quick fix to the reality that many end consumers will continue to struggle to afford food and beverages, especially when purchased away from home, and we will be adjusting a number of our operating expenses accordingly in the coming months. But of even greater impact to our business is the quickening transition of the coffee consumer from pots of hot coffee to cold-based and single-serve ready-to-drink style coffee offerings. This transformational shift plays directly into our strengths as we launched the Conway extract and ready-to-drink facility, and as our single-serve cup business continues to see meaningful share shift opportunities materializing. In these instances, our growing team of product development, commercialization, logistics, and operations professionals continue to be recognized across our industry as one of the premier teams to partner with globally. We are excited to be collaborating on a number of development and scale-up projects with key customers across industry segments who are global leaders in these quickly growing categories. It takes considerable effort and time to execute against this type of multi-layer consumer-driven product shift. But I believe Westrock has distinguished itself as the leading partner for consumer-facing clients to work with to capture the benefits of these rapid consumer and product shifts. You can clearly ascertain from our guidance updates that we are winning much more than our traditional fair share of these customer relationships. We view this as critically important strategically because as customers choose their product development, new product launch, and meaningful scale-up partners today, they are making decisions that will ripple through our industry for the next decade. Being dedicated to our customers' long-term success, no matter the short-term dislocation pain to our operations or to preset self-imposed financial metrics, has been a critical differentiator for Westrock in the eyes of our customers. I fully acknowledge this sometimes painful reality and appreciate the great patience that everyone has shown as we upsized the Conway plant yet again and again for expansion. But I, our executive team, and our Board remain steadfastly resolute in our belief that this is how we must have acted in order to help our growing list of customers make the transition from hot to cold and from multi-serve to single-serve coffee and energy-based drinks. It was imperative that we said yes when asked for help. For enduring the attendant dislocations over the past few years, we are today, partners with most of the leaders in the various industry sectors we service across multiple product categories. And we are being entrusted by more and more of them each quarter with a growing set of products as their strategic development, product development, ethical sourcing, logistics, and production partners. The guidance we are sharing today about our late 2024 and full year 2025 adjusted EBITDA serves, I believe, as the first, but definitely not last, major proof point of the wisdom that our investors and Board have placed in our leadership team to execute this non-conventional but value-enhancing corporate transition. I'll be glad to answer questions in a moment. But with that, let me turn the call over to our CFO, Chris Pledger, who will take you through the key metrics that underpin all of these remarks.

Thank you, Scott, and good afternoon, everyone. As Scott mentioned, our business performed well in the first quarter, highlighted by 13% sales growth in our flavors, extracts, and ingredients platform and 8% gross profit growth in our Beverage Solutions segment, both of which contributed to 32% growth in our consolidated adjusted EBITDA. On a consolidated basis, net sales for the quarter were $192.5 million, down 6.3% from the first quarter of 2023. The drop was largely volume-driven, with continued softness in our roast and ground coffee business. This was partially offset by a 42% increase in net sales in our Sustainable Sourcing & Traceability segment and 13% sales growth in our flavors, extracts, and ingredients platform. Despite the drop in sales, consolidated gross profit was up 8.7%, driven by gross profit improvement in single-serve coffee and across flavors, extracts, and ingredients. This drove consolidated adjusted EBITDA of $11.1 million in the first quarter of 2024, which is a 32% increase year-over-year, and our adjusted EBITDA margin was up 167 basis points year-over-year. Moving to our segments, Beverage Solutions contributed $158.1 million of net sales, which is a decrease of approximately 13% compared to the first quarter of last year. While we continue to see strong results in our flavors, extracts, and ingredients platform, this growth was offset by continued softness in our traditional roast and ground coffee business. As has been widely reported in the financial news and on other earnings calls this quarter, lower and middle-income consumers remain budget-conscious. They're making fewer trips to restaurants and convenience stores. And when they do make trips, they're looking for ways to spend less, often by foregoing a beverage occasion. Likewise, U.S. grocery sales are experiencing similar volume declines as shoppers absorb significantly higher food and beverage prices. These consumer-based decisions drive the volume drop we experienced in the first quarter. But despite the drop in net sales, gross profit in our Beverage Solutions segment increased 8%, driven by double-digit gross profit growth in single-serve and across flavors, extracts, and ingredients. And adjusted EBITDA in Beverage Solutions for the quarter was $10.8 million, a 28% increase compared to our prior year first quarter, and adjusted EBITDA margin in Beverage Solutions was up 217 basis points. Our Sustainable Sourcing & Traceability segment, sales net of intersegment revenues were $34.4 million during the first quarter of 2024, an increase of 42% compared to the first quarter of 2023, primarily due to increased volumes. Adjusted EBITDA in our SS&T segment for the quarter was $300,000 compared to breakeven for the first quarter of 2023. Moving on to capital expenditures. During the first quarter, we deployed approximately $7 million of CapEx, primarily related to our Conway extract and ready-to-drink facility. Through the end of the first quarter, we spent over $200 million of the anticipated $315 million on the Conway facility, and we expect to spend approximately $90 million over the next nine months of fiscal 2024 and then the balance in the first half of 2025. As our Conway CapEx intensity abates and our Conway sales intensity ramps in the first half of 2025, we expect to be free cash flow positive in the second half of 2025. At quarter end, we had approximately $188 million of consolidated unrestricted cash and undrawn revolving credit commitments. Our consolidated net secured leverage ratio as of March 31, 2024, was 5x based on our LTM adjusted EBITDA. As we've said all along, we expect leverage to increase and remain elevated during the build-out of our Conway facility, and these leverage levels are in line with our expectations. Turning to our outlook for 2024, we are reiterating our expected consolidated adjusted EBITDA guidance of $60 million to $80 million in fiscal 2024. While we expect our second quarter results to look similar to our first quarter from an adjusted EBITDA standpoint, we expect meaningful growth in the second half of 2024 as our high-speed can lines and glass bottle lines commence operation and the volume throughput in our Conway facility intensifies. As Scott mentioned earlier on the call, we're also introducing preliminary 2025 consolidated adjusted EBITDA guidance of $115 million, which we expect to achieve as customer onboarding and product commercialization continues as planned.

Your first question comes from the line of Ben Bienvenu with Stephens.

Congratulations.

Thanks, Ben.

I want to ask, as it relates to the 2025 guidance, which is great, super encouraging. What was it that gave you guys the confidence to give that sort of guidance, recognizing it hinges heavily on Conway? We're four months into the year or so in 2024, that signals a lot of confidence, which is great. And I'd love to hear a little bit about kind of the critical path that helps you get here to offer that guidance to us for next year.

Thank you, Ben. This is Scott. And yes, it is a bit far out for what any normal company would do on a normal guidance time frame. But we've been going through something exceptional. We've been building the world's largest roast to ready-to-drink facility. And I thought it was important, and our board thought it was important that we share with you some level of indication about what we've already sold. What we've put in front of you is what we've sold as of now that we are finalizing commercialization and actually getting ready to ramp up. We do have roughly 25% of the capacity of the facility yet to fill up, which we intend to do. And I think we will do that in the next few months. But at this point in time, we wanted to give you a sense of what we've accomplished with Conway turning on and being able to make commercial sellable product. Well, it would generate, given our current run rate in our core business and the new contracts that we've sold into Conway just coming on, it would generate that EBITDA number, and we wanted you to have some sense of what that looked like. I assure you it will change. It will move up or down based on whether things happen on time and on the marks that we think they're going to hit, but we had to start someplace, so you had a sense of the order of magnitude about what has happened as Conway turns on.

That's great and much appreciated. As we think about kind of the ramp and Chris, your comments were helpful on kind of how we should think about this next June quarter, should we think of the back half of this year as a step function change higher to get to the EBITDA range you've reiterated today for 2024 and then a steady ramp into 2025? Or Scott, I just heard your comments, I know this won't be a straight line. So anything as you expected, anything you could provide as you expected today recognizing any subject to change would be helpful in terms of us kind of calibrating our models into 2025.

We anticipate some contribution from Conway in the latter part of 2024, but the bulk of our efforts for that year involve projects unrelated to Conway that are beginning to take shape. We have been navigating an 18-month sales cycle, with many initiatives set to commence production in late 2024. This is an important factor for us. Additionally, we expect some EBITDA support in the second half of 2024, although it’s not expected to be a large figure. The significant growth phase is projected to occur across the latter part of this year and into the first half of 2025, where we expect to see substantial acceleration in our run rate as operations fully ramp up. Our estimate for this growth is approximately $115 million, assuming all parties remain aligned with their timelines, which so far they have been.

And part of the strategy is to make sure that in 2024 that we can commercialize as much as we possibly can for Conway so that you're able to run as much of Conway in 2025 as possible. So there'll certainly be a ramp. But the more we spend time commercializing what we've currently sold and sales throughout the rest of the year, the better the number that we get in 2025.

Your next question comes from the line of Todd Brooks with The Benchmark Company.

Congrats on sticking the landing as far as getting the plant up and running in April. Well done.

Thanks, Todd.

Two questions for you. One, if we look at the early-stage commercialization process, and you'd explained to us in the past that a lot of the timing relates to how much the customer needs to prove on the new lines, how long that acceptance period runs, which early take on the actual acceptance window versus how long it possibly could have been when we were discussing it in the future or in the past.

Holistically speaking, and not to get into which product and which SKU and which customer and all of that stuff. But holistically speaking, because a number of those things have to do with customers and also with approval processes that the customers, regulators, and authorizing agencies all have to work through, we are ahead of schedule. Whether that will continue to hold is the $64 million question. But as of right now, we are ahead of schedule.

And then second of three questions. The incremental 25% capacity that's not reflected in the fiscal 2025 guidance, why wouldn't that be sold out going into 2025, given just the demand...

That's exactly the question I asked the sales team, and they assured me that they have it under control. However, we don't have a signed agreement yet, so it isn't included in our projections.

There's a group of customers that can sign-on ahead of time because they may have moving capacity from other vendors or they have other sources. But if you've got customers where they've only got one or two other vendors, they need to be able to see product produced on the equipment. And so, a little bit of it is, once we're able to show we can produce the product and the time frame in which we said, the quality that we said, our ability to be able to sell out the rest of the line is, we feel pretty strong about that.

Okay. Great. And then my final question in the comments in the release, Scott, you talked about just the sales pipeline development efforts and several new contract wins in the quarter. I'm wondering how broad the contract wins are. Now that you brought customers, many of them new to Westrock in through Conway. What type of contract wins are you getting? And how far does it branch out as far as cross-selling into single-serve or roast and ground or other potential opportunities?

We have had a combination of experiences. We have gained new customers through Conway, and this has led to successful contracts in roast and ground coffee. As we engaged in discussions about roast and ground, we also secured contracts for single-serve cups. One particular customer started with roast and ground and is now interested in single-serve cups, looking to expand their beverage offerings. It's encouraging to see a range of customers, from large retailers who have never launched private label in these categories to private label providers wanting to switch vendors. Additionally, we have a good mix of emerging brands in the ready-to-drink single-serve coffee space alongside larger brands considering expanding their product lines over time. Conway has provided a fantastic opportunity for us to connect, discuss our capabilities, and I believe we have signed contracts in all our product categories and customer channels in the past six months due to this engagement. Personally, I feel that in the next six months, we might significantly surpass these wins.

Your next question comes from the line of Matt Smith with Stifel.

I have a couple of questions. Last quarter, you mentioned the wide range of EBITDA in 2024, which reflects the need to maintain some flexibility to prioritize customer onboarding versus fully running production through Conway. Can you discuss the timing of that customer onboarding and how it will impact the use of line capacity? Specifically, as we approach the second half of 2024 and you're running cans and glass bottles, are you still alternating between production and trying to fill the remaining 25% of contracts?

I think we've got all of the above going on, Matt. And it's been less than 90 days since we spoke to you last. It's not like we have any huge amount of additional visibility into exactly when the third and fourth quarter commercialization, production runs will start. But so far, everything is on track. And so that's why we're able to, at least pencil out for them if we land that in 2024, whenever that might be, what will 2025 look like? And as Pledger has said multiple times, and it said in just, but it's actually true, we have a lot more visibility into what we're going to do in 2025 than we do in 2024 because of all the processes we have to line up with all the various...

I appreciate that. And one last one for me. You mentioned in the prepared remarks about a customer moving on from low-margin roast and ground. Can you just provide a little more color on what’s behind the customer moving on and what they're pivoting to?

What they're pivoting to, I'm not really privy to. It's not really my business. It was a large kind of wholesale type roast and ground piece of business that had been done, the old Sustainable Sourcing and Traceability plant. And at the end of the day, as we exchanged out our accounting systems and started taking a hard look at all of our costs and all the redundancies and all of the support that pulled on, there were better customers for us than that one. And also, we are managing the transition from customers where we do commodity work versus customers where we do important brand work for them. And in that transition, we had one move on, and it's about half of the volume decrease we experienced in the quarter over the prior year in roast-and-ground.

Your next question comes from the line of Sarang Vora with TAG.

Great, and my congratulations as well on the opening of Conway, a big venture started, so great.

Thank you.

Just digging deeper on the 2025 EBITDA guidance, $115 million, that is driven a lot. The growth is coming mainly from Conway. So can you help us understand the margin profile of this new business compared to your old business? I know the Flavors, Extracts, and Ingredients segment is significantly higher margin on the growth side. So just trying to understand like as we look out at 2025, like how does your gross margin profile inflect as well and cost. So if you can share a little more color on the profile of Conway, that would be great.

Sure. And we will do a lot more of that for you as this year goes on. But at a high level, the Conway plant has a higher margin than most of our traditional businesses, and parts of the Conway plant have a much higher margin, post-profit margin, EBITDA margin than our traditional businesses, and that's in the extract world. And so the balance of where we are making extract and shipping it out to some people versus running it through a lower margin further process or packaging process, if you will. That will create what the blended margin of Conway will look like. There will be places where we just do extract sales in bulk and in places where we do extract sales into a finished product. The finished product line, it's not the greatest business in the world from a margin and capital return perspective, but it's a really good business compared to when coupled with the extract sales business. And I think you're going to see the industry continue to line up in that regard. Our core theory is simply this, Sarang. And I know that you want a specific margin number, which we will take you through later in the fall. The core principle is this: Our collective industries have faced off against our customers in the ways that the companies wanted to do business. They want to sell just extract. They want to do a canning process. They want to run a cold chain. They want to do product development and have you pay them a fee. That's the way the industry has been structured, and what basically we bet on was that people would want to see all of those things under one roof where they could then embed their own product development engineers and food scientists and then they could say, I want to turn this into a can, this into a bottle. This I want extract where I can fill my own bottle. This I want to blend with milk, this I want to do with oat milk, this I want to do with an alternative plant-based milk. Providing that vehicle for people to bring their own food scientists in and say, you tell us how you want to pick and match various functions and services we can provide, and we'll let you do that. That has garnered an immense response from our customers. Now you're asking me exactly how that set of blocks will land and how the numbers will play out, and I can't answer that yet any more than I can give you the specific guidance by quarter for 2024. But I think you get the idea that it is a meaningful lift to the core EBITDA that the business and the aggregate reports.

No. Some of your margins are twice your current margin profile, so I understand your point. I was just trying to see if you have an idea of how high the margins can go. That's helpful. I have a quick question about the expense reduction plan. I know you mentioned in the press release that you're aiming to cut back on certain costs. Can you help us understand which areas were somewhat out of control from a cost standpoint? Also, how do you plan to address the cost reduction?

I believe that activating the Conway facility along with its distribution center opens up opportunities to optimize our manufacturing capabilities. This allows us to consolidate operations where they are most profitable. With the facility now operational and the distribution center in place, we are reassessing our other operations to determine how we can enhance our business and explore ways to streamline our assets. If we can reduce expenses during this process, it will be a beneficial move for us.

That concludes our Q&A session. I will now turn the conference back over to Scott Ford, Chief Executive Officer, for closing remarks.

I believe we have addressed all the essential initial questions, and you have received our insights at each level. I want to emphasize that we are very pleased with our operations in the first quarter. We are making significant progress on our margins and expenses in our core business, and we successfully launched Conway right on schedule, which many did not expect. It was exciting to see the first product produced, shipped, and sold. We are highly optimistic about the next 9 to 12 months regarding this. There is still a lot of flexibility and uncertainty about how things will unfold, but we thought it was important to give you an idea of what to expect for 2025 if everything continues on its current path. We hope this helps you with your valuation considerations, as these are the types of discussions we have with our Board, which is primarily comprised of institutions and family offices that have provided the majority of financing for our operations. Since they seek this information and deserve an answer, we wanted to share it publicly as well. We appreciate your support and interest, and we wish you a good afternoon. Thank you.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.