Westrock fee pany(WEST) - 2024 Q2 - Quarterly Report

Part I. Financial Information Item 1. Financial Statements Presents Westrock Coffee Company's unaudited condensed consolidated financial statements, covering balance sheets, operations, and cash flows, with detailed notes Condensed Consolidated Balance Sheet Highlights (Unaudited) | (In Thousands) | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Current Assets | $332,525 | $313,050 | | Total Assets | $1,056,373 | $971,514 | | Total Current Liabilities | $253,867 | $239,635 | | Total Liabilities | $700,803 | $583,558 | | Total Shareholders' Equity | $81,528 | $113,740 | Condensed Consolidated Statements of Operations Highlights (Unaudited) | (In Thousands, except per share data) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $208,389 | $224,694 | $400,889 | $430,136 | | Gross Profit | $41,403 | $35,676 | $78,677 | $69,974 | | Loss from Operations | $(16,408) | $(1,395) | $(26,540) | $(8,759) | | Net Loss | $(17,759) | $(26,811) | $(41,432) | $(31,137) | | Loss per Common Share (Basic & Diluted) | $(0.20) | $(0.35) | $(0.47) | $(0.42) | Condensed Consolidated Statements of Cash Flows Highlights (Unaudited) | (In Thousands) | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | $(15,691) | $(35,668) | | Net cash used in investing activities | $(104,760) | $(58,175) | | Net cash provided by financing activities | $108,409 | $96,385 | | Net (decrease) increase in cash | $(11,813) | $2,377 | Notes to Condensed Consolidated Financial Statements The notes detail business segments, accounting policies, and key financial items, including restructuring, revenue shifts, debt financing, and segment performance - The company operates in two segments: Beverage Solutions (coffee, tea, flavors, extracts) and Sustainable Sourcing & Traceability (green coffee trading)[20][21] - In Q2 2024, the company initiated a restructuring plan to consolidate manufacturing operations, including closing facilities in Concord, NC, and Richmond, CA, resulting in $4.1 million of severance costs recognized in the quarter[36][38] Disaggregated Revenue by Product Type (Six Months Ended June 30) | (In Thousands) | 2024 | 2023 | | :--- | :--- | :--- | | Coffee & tea | $233,845 | $291,753 | | Flavors, extracts & ingredients | $85,782 | $77,682 | | Green coffee | $79,577 | $59,208 | | Total Net Sales | $400,889 | $430,136 | - In February 2024, the company issued $72.0 million of 5.00% convertible senior notes due 2029 in a private placement, with $50.0 million purchased by related parties[79] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q2 and H1 2024 financial results, covering net sales, gross profit, Adjusted EBITDA, restructuring, segment performance, and liquidity Key Business Metrics Adjusted EBITDA, a key non-GAAP metric, increased to $13.7 million in Q2 2024, driven by improved performance in both Beverage Solutions and Sustainable Sourcing & Traceability segments Adjusted EBITDA Reconciliation (Unaudited) | (In Thousands) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Net loss | $(17,759) | $(26,811) | $(41,432) | $(31,137) | | Adjustments | ... | ... | ... | ... | | Adjusted EBITDA | $13,664 | $11,310 | $24,806 | $19,763 | Adjusted EBITDA by Segment (Three Months Ended June 30) | (In Thousands) | 2024 | 2023 | | :--- | :--- | :--- | | Beverage Solutions | $13,245 | $11,660 | | Sustainable Sourcing & Traceability | $419 | $(350) | | Total | $13,664 | $11,310 | Significant Developments Significant restructuring activities in Q2 2024, including facility consolidation and workforce reduction, are expected to generate $10.0 million in annualized savings by Q1 2025 - The company committed to a restructuring plan involving the closure of its West Winds facility in Concord, NC, and its Richmond, CA facility, consolidating production into other sites[150] - These initiatives, including workforce reductions, are projected to result in annualized savings of approximately $10.0 million, expected to be fully realized on a run-rate basis in Q1 2025[150] Results of Operations Q2 2024 saw net sales decrease by 7.3% to $208.4 million, while gross profit increased 16.0% to $41.4 million, with a wider operating loss due to increased SG&A expenses - Q2 2024 vs Q2 2023 Performance: - Net Sales: Decreased by $16.3 million (7.3%) to $208.4 million - Gross Profit: Increased by $5.7 million (16.0%) to $41.4 million, with gross margin improving from 15.9% to 19.9% - Loss from Operations: Widened to $(16.4) million from $(1.4) million, primarily due to a $17.4 million increase in SG&A expenses[151] - The Beverage Solutions segment's Q2 net sales fell 14.0% to $163.3 million, driven by a 22.1% decrease in roast and ground coffee volumes and a 14.8% decrease in single serve cup volumes[154] - The SS&T segment's Q2 net sales grew 29.1% to $45.1 million, driven by a 39.9% increase in sales volume[155] - SG&A expenses in the Beverage Solutions segment increased by $17.3 million, primarily due to an $11.9 million increase in start-up costs for the Conway, Arkansas facility[157] Liquidity and Capital Resources The company's primary liquidity sources are cash, operating cash flow, and credit facilities. In February 2024, the company amended its Credit Agreement and issued $72.0 million in convertible notes to enhance liquidity, with capital primarily deployed for the new Conway facility - Primary sources of liquidity are cash, operating activities, and the Credit Agreement, which includes a $175.0 million Revolving Credit Facility, a $175.0 million Term Loan, and a $50.0 million Delayed Draw Term Loan[177][179] - In February 2024, the company amended its credit agreement and issued $72.0 million in 5.00% convertible senior notes due 2029 to bolster its capital structure[182][186] - An at-the-market (ATM) common stock offering program was established to sell up to 5,000,000 shares, with net proceeds of $0.6 million raised in H1 2024[196] Capital Expenditures (Six Months Ended June 30) | (In Thousands) | 2024 | 2023 | | :--- | :--- | :--- | | Growth | $102,742 | $50,512 | | Maintenance | $1,043 | $1,757 | | Customer Beverage Equipment | $538 | $1,151 | | Other | $782 | $2,325 | | Total | $105,105 | $55,745 | Quantitative and Qualitative Disclosures About Market Risk No material changes have occurred in the market risks faced by the company since the disclosures in its Annual Report on Form 10-K for the year ended December 31, 2023 - There have been no material changes in market risks from those disclosed in the company's 2023 Annual Report on Form 10-K[209] Controls and Procedures Management concluded that disclosure controls and procedures were not effective as of June 30, 2024, due to material weaknesses in internal control over financial reporting - Management concluded that disclosure controls and procedures were not effective as of June 30, 2024, due to ongoing material weaknesses in internal control over financial reporting[211] - The identified material weaknesses relate to: - Ineffective design and maintenance of controls in response to risks of material misstatement - Deficiencies in the period-end financial reporting process - Lack of effective controls ensuring appropriate segregation of duties[213][214] - Remediation activities are underway, including hiring additional accounting and IT personnel, formalizing a risk assessment process, engaging third-party assistance, and implementing new controls over financial reporting and segregation of duties[215][216][217] Part II. Other Information Legal Proceedings The company is subject to various claims and legal proceedings in the ordinary course of business, not expected to materially affect its financial position or results - The company states that ongoing legal proceedings from the normal course of business are not expected to have a material adverse effect on its financial condition or results[220] Risk Factors No material changes have occurred to the risk factors affecting the company's business since those disclosed in its Annual Report on Form 10-K filed on March 15, 2024 - No material changes have occurred to the risk factors previously disclosed in the company's Annual Report on Form 10-K filed on March 15, 2024[221]