Westrock Coffee Company — 2023 Form 10-K Summary
Business context and reporting period
Westrock is an integrated provider of coffee, tea, flavors, extracts and ingredients, serving retail, foodservice, restaurant, convenience, CPG and hospitality customers. It reports two segments: Beverage Solutions and Sustainable Sourcing & Traceability (SS&T). This annual filing covers the fiscal year ended December 31, 2023; the comparisons below are primarily with 2022.
Financial performance and liquidity
| Metric | 2023 | 2022 |
|---|---|---|
| Net sales | $864.7 million | $867.9 million |
| Gross profit / margin | $139.9 million / 16.2% | $152.8 million / 17.6% |
| Operating income (loss) | $(20.4) million | $8.7 million |
| Net loss | $(34.6) million | $(55.5) million |
| Net loss attributable to common shareholders | $(34.7) million; $(0.43) per share | $(77.6) million; $(1.60) per share |
| Adjusted EBITDA | $45.1 million; 5.2% margin | $60.1 million; 6.9% margin |
| Cash from (used in) operating activities | $(64.1) million | $(56.6) million |
| Capital expenditures | $164.6 million | $63.3 million |
- Revenue mix shifted: Beverage Solutions sales rose 5.5% to $722.9 million, while SS&T sales, net of intersegment revenue, fell 22.3% to $141.8 million. Flavors, extracts and ingredients revenue increased $49.9 million; coffee and tea sales declined.
- Beverage Solutions Adjusted EBITDA declined to $41.6 million from $54.0 million; SS&T Adjusted EBITDA declined to $3.5 million from $6.1 million. Adjusted EBITDA is a non-GAAP measure and includes management-defined adjustments.
- Cash and cash equivalents were $37.2 million at year-end, plus $0.6 million of restricted cash. Current assets were $313.1 million and current liabilities $239.6 million.
- Reported total debt was $279.0 million, versus $219.7 million a year earlier. At year-end, $65.0 million was drawn on the revolving facility and $110.0 million remained undrawn before consideration of $2.6 million in standby letters of credit. The separate supply-chain finance program had $78.1 million outstanding.
- Assets totaled $971.5 million and shareholders’ equity $113.7 million. Goodwill was $116.1 million; management reported no goodwill impairment for 2023.
Material changes versus 2022
- Net sales were essentially flat, but gross profit fell $12.9 million and gross margin contracted 1.4 percentage points. Operating results moved from $8.7 million of income to a $20.4 million loss, reflecting lower gross profit and higher operating expenses.
- Net loss narrowed, partly reflecting a $10.2 million gain from the change in fair value of warrant liabilities, compared with a $29.7 million loss in 2022. This non-cash valuation item materially affects year-to-year comparability.
- Operating cash use increased by $7.4 million. Investing cash use rose to $168.4 million, principally reflecting $164.6 million of capital expenditures, much of it growth spending for the Conway facility.
- In August 2023, the company issued shares in equity financings for aggregate gross proceeds of approximately $118.8 million. It also acquired Bixby Roasting Co. in February 2023 and acquired the remaining 15% interest in Falcon Coffees, making Falcon wholly owned.
Outlook, risks and unusual items
- Westrock expected the Conway, Arkansas extract and ready-to-drink facility to begin commercial production in 2024; it expected material facility capital expenditures to be completed by the first quarter of 2025. The filing gives no specific 2024 revenue or earnings guidance. Management said liquidity sources were expected to fund operations and near-term plans for at least twelve months, while noting that missed targets could require additional capital, delayed growth spending or cost reductions.
- After year-end, the company borrowed $50 million under its delayed-draw term facility in January 2024 and issued $72 million of 5.00% convertible senior notes due 2029 in February. The notes have an initial conversion price of $12.84. These post-period transactions are not included in 2023 year-end balances.
- A February 2024 non-binding letter of intent with Select Milk Producers contemplated a joint venture for an aseptic beverage facility; first shipments were expected in the first quarter of 2026, subject to the proposed project proceeding.
- Debt covenant terms were amended in February 2024. They include leverage and interest-coverage tests, a minimum liquidity covenant of $15 million beginning March 2024, and restrictions on cash balances during the covenant relief period. The company reported covenant compliance as of the filing date.
- Key risks include sustained operating losses and negative operating cash flow, execution and funding of Conway construction, variable-rate debt, commodity and input-cost volatility, customer and receivables concentration, and reliance on the supply-chain finance program. The top five customers represented approximately 39% of 2023 sales; one customer accounted for 10.4% of sales. Five customers represented 44% of year-end trade receivables.
- After February 26, 2028, holders may require cash redemption of Series A preferred shares, subject to applicable law and debt agreements. Assuming all 23.5 million shares remain outstanding and the liquidation preference remains $11.50, the company estimated a minimum aggregate payment of approximately $270.4 million.
- Unusual expenses included $11.7 million of Conway facility start-up costs, $14.6 million of transaction, restructuring and integration expense, and $8.7 million of equity-based compensation. These items affect reported results and the company’s non-GAAP adjustments.
- Management concluded that disclosure controls and internal control over financial reporting were ineffective at December 31, 2023 because of material weaknesses involving risk assessment, period-end reporting, segregation of duties and IT general controls. Remediation was underway. The financial-statement auditor gave an unqualified opinion on the consolidated statements but was not engaged to audit internal-control effectiveness.
- The filing describes corrections to prior-period disclosures and material adjustments involving 2023 cash-flow presentation and year-end operating lease balances. Investors should review the related control-deficiency and correction disclosures; the filing states that some other identified disclosure errors were immaterial.
Important facts for investors to verify
- Whether Conway construction, commissioning, commercial production and remaining capital spending meet management’s stated timing and funding expectations.
- Operating cash flow, working-capital requirements and liquidity, including availability and terms of the revolver, supply-chain finance program and Falcon trade-finance facility.
- Compliance with amended debt covenants and the effect of variable interest rates and scheduled debt maturities.
- Whether margin and Adjusted EBITDA trends improve, particularly in Beverage Solutions, and whether extract and ingredients growth offsets lower coffee and tea volumes.
- Progress and testing of internal-control remediation, and any further corrections or restatements disclosed in subsequent filings.
- Potential customer or receivables concentration changes, and the future cash requirements associated with Series A preferred-share redemption rights.