Westrock Coffee Company, LLC (NASDAQ:WEST) Q4 2023 Earnings Call Transcript
Westrock Coffee Company, LLC (NASDAQ:WEST) Q4 2023 Earnings Call Transcript March 12, 2024
Westrock Coffee Company, LLC misses on earnings expectations. Reported EPS is $-0.23 EPS, expectations were $0.01. Westrock Coffee Company, LLC isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Thank you for standing by and welcome to Westrock Coffee Company's Fourth Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the call over to Melissa Calandruccio, Investor Relations. Please go ahead.
Melissa Calandruccio: Thank you, and welcome to Westrock Coffee Company's fourth quarter 2023 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 fourth 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 releases 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.
Scott Ford: Thank you, Melissa and good afternoon, everyone. Thank you for joining us today. The year '23 was a significant transition year for Westrock. When we entered last year, we knew it was going to be a long year of system upgrades and equipment installations. And as we explained on our quarterly calls throughout the year, the impact of these upgrades on our business were material and sometimes painful even if wholly necessary. We now enter 2024 on the backside of a number of important system migrations, capital equipment upgrades and with the new extract and ready to drink facility in Conway, Arkansas on schedule for delivery of our first commercially available products next month. After enduring the expenses brought about by these significant upgrades and improvements, we now enter the year 2024 with the infrastructure in place to scale this business multiple fold and with our current adjusted EBITDA run rate already 30% to 40% above our year-end results for 20 23.
This is due to the unrelenting and unwavering work by the entire Westrock team, our vendor partners and our customers. My heartfelt gratitude extends to each and every one of them. As we turn to '24, I'll remind you that we announced our '24 annual adjusted EBITDA forecast in connection with our Select Milk joint venture and convertible note offering announcements last month. Today, we're pleased to reiterate that our guidance for our expected adjusted EBITDA for the year 2024 should be up somewhere between 30% and 75% for the year. We have recently enjoyed several new contract wins on each of our platforms from roasting ground coffee and tea to single serve cups to extracts and to ready to drink finished goods. And while the impact of most of these new wins is slated to come online in the back half of the year, some are already starting to make modest contributions to our profitability even now.
I'd like to thank everyone who has supported us through the long two year process of modernizing and expanding our incumbent facilities, as well as constructing the new extract and RTD facility in Conway. It's required tremendous effort, persistence and patience on everyone's part and it is a delight to be able to walk through these plans today and see the new commercial realities of these investments coming to life. We chose to bear the pain of fully modernizing all parts of our business in 2023, so that when the new Conway facility was launched, those challenges would be seen in our rearview mirror and not in our face. It was an extremely difficult year because of this. There is no doubt about that. But we are now thrilled that these challenges are behind us and then we are extremely excited for 2024.
And with that, I'll turn the call over to Chris Pledger, our CFO for a review of our financial results.
Chris Pledger: Thanks, Scott, and good afternoon, everyone. When we took the company public in August of 2022, we did so to reposition the company to capture the consumer shift to single serve coffee and cold coffee products. Our financial performance both in the fourth quarter and in our full year 2023 results continues to reflect this shift by the consumer and our work to capture it. In terms of our financial performance, company net sales for the fourth quarter of 2023 were $215 million compared to $227.7 million for the fourth quarter of 2022. Consolidated gross profit for the fourth quarter of 2023 were $34.8 million and included $900,000 of non-cash mark-to-market losses compared to $34.3 million for the fourth quarter of 2022 that included $2.7 million of non-cash mark-to-market losses.
This drove consolidated adjusted EBITDA of $13.7 million for the fourth quarter of 2023 compared to $17.5 million for the fourth quarter of 2022. The delta between these two numbers is almost entirely the result of a one-time compensation accrual reversal in the fourth quarter of 2022 that was not repeated in 2023. Adjusting for the accrual reversal, consolidated adjusted EBITDA would have been essentially flat quarter-over-quarter. In our Beverage Solutions segment in the fourth quarter, we continue to see strength in our single serve cup platform as well as our sales of flavors, extracts and ingredients, which grew 30%. This was partially offset by continued softness in our traditional roast and ground coffee business. In the fourth quarter of 2023, our Beverage Solutions segment contributed $175.1 million of net sales, which is a decrease of approximately 9% compared to the fourth quarter of 2022.
Beverage Solutions gross profit was $31 million for the quarter, down 4% compared to the fourth quarter of 2022. Adjusted EBITDA from our Beverage Solutions segment for the quarter was $11.7 million compared to $15.2 million for the prior year fourth quarter. This decline, as previously stated, was almost entirely the result of a onetime compensation accrual reversal in the fourth quarter of 2022 that was not repeated in fourth quarter 2023. In our Sustainable Sourcing and Traceability segment, we started to see a return to more normal operating results as sales net of intersegment revenues were $39.8 million during the fourth quarter of 2023, an increase of 13% compared to the fourth quarter of 2022. Adjusted EBITDA from our SS&T segment for the quarter was $2.1 million, which is $200,000 less than the prior year fourth quarter.
Turning to our annual results. For the full year 2023, total company net sales were $864.7 million which is essentially flat compared to the full year 2022. Consolidated gross profit for full year 2023 was $139.9 million and included $100,000 of non-cash mark-to-market gains. By comparison, consolidated gross profit for the full year 2022 was $152.8 million and included $3.5 million of non-cash mark-to-market losses. Consolidated adjusted EBITDA in 2023 was $45.1 million compared to $60.1 million for the prior year. For 2023, our Beverage Solutions segment contributed $722.9 million of net sales, which is an increase of approximately 5% compared to the prior year. Adjusted EBITDA for our Beverage Solutions segment was $41.6 million compared to $54 million for the full year 2022.
In 2023, our SS&T segment contributed sales net of intersegment revenues of $141.8 million, representing a 22% decrease compared to 2022. Adjusted EBITDA from our SS&T segment for the year was $3.5 million compared to $6.1 million for the prior year. Moving on to our capital expenditures. During the fourth quarter, we deployed approximately $43 million of CapEx, primarily related to our Conway extract and RTD facility. With respect to Conway, we now expect our total CapEx spend to settle around $315 million and as we ended 2023, we had already spent approximately $155 million of that amount. Our largest outlays of capital expenditures on the facility will take place over the next 6 months and then we'll start to see that spending step down in the back half of this year.
At quarter end, we had approximately $147 million of consolidated unrestricted cash and undrawn revolving credit commitments. Our consolidated net leverage ratio at December 31, 2023 was 4.4x based on fourth quarter annualized adjusted EBITDA. As previously disclosed, we recently issued $72 million of convertible notes, which mature in February of 2029. The notes, combined with covenant flexibility included as part of our recent credit agreement amendment, will allow us to fund the Conway facility expansion and our investment in the Select Milk joint venture. We believe that these are key investments that position Westrock to capitalize on the expanding customer demand for RTD products. Turning to our outlook for 2024, as noted in our business update in February, we expect consolidated adjusted EBITDA to be between $60 million and $80 million for fiscal 2024.
This guidance range is necessarily broad to account for the range of results we may experience as we begin operations in our new extract and RTD facility and the commercialization of customers in that facility. As we exit 2023, we do so with strength in the areas we expect to drive growth in future years, single serve cups and flavors, extracts and ingredients and a new approach to pricing in our traditional roasting ground business, which we expect to drive results in 2024. We are also turning the page on an ERP conversion and single serve scale up that pressured our 2023 results in the first half of the year. The business is off to a solid start in 2024 and we're pleased with our performance thus far in the first quarter with our adjusted EBITDA results coming in line with our expectations.
Given the wide range of adjusted EBITDA guidance for the year, which is largely determined by the ramp and commercialization of our Conway facility, we'll continue to update you on the progress and how it may impact our outlook for the year. With that, I'll turn the call back over to the operator for questions.
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