Q2 2024 Westrock Coffee Co Earnings Call
Kathy Darnell: Hello, and welcome to Westrock Coffee Company's second quarter 2024 earnings conference call. My name is Kathy Darnell, and I'll be coordinating your call today.
Kathy Darnell: Burrings conference call. My name is Kathy Darnell, and I'll 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'll now hand the call over to Robert Munger with Westrock Coffee.
Kathy Darnell: Following prepared remarks, we will open the call to your questions with instructions to be given at that time. I'll now hand the call over to Robert Mounger with Westrock Coffee.
Robert Munger: Thank you, and welcome to Westrock Coffee Company's second quarter 2020 earnings conference call. Today's call is being recorded with us from Mr. Scott Ford, co-founder and chief executive officer, and Mr. Chris Pludger, chief financial officer. But now, everyone should have access to the company's second quarter earnings release issue earlier today. This information is available in the investor relations section of Westrock Coffee Company's website. Then, let's do this at WestrockCoffee.com.
Robert Munger: Thank you and welcome to Westrock Coffee Company's second quarter 2024 earnings conference call. Today's call is being recorded.
Speaker Change: 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 second quarter earnings release issued earlier today. This information is available in the investor relations section of Westrock Coffee Company's website, investors.westrockcoffee.com.
Robert Munger: Served comments made on this call include forward-looking statements, which are subject to the safe harbor revisions of the private security 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 experimentally from those described in these four forward-looking statements. Please refer to today's press release and other subsequent filings with the SEC for more detailed discussion of the risk factors that could cause actual results that differ materially from those expressed or implied in any forward-looking statements made today.
Speaker Change: 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.
Speaker Change: These four 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 four looking statements.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: 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, Robert, good afternoon everyone. We have a number of significant updates that we're pleased to share with you today in conjunction with the second quarter earnings details, which our CFO Chris Pledger will take you through in just a moment. The second quarter of 2024 marks a celebratory milestone for all of us that have labored so hard for so long to bring reality. Commencement of Commercial Operations of our Conway, Arkansas, Extract and Ready-to-Drink Facility.
Scott Ford: Thank you, Robert. Good afternoon, everyone. We have a number of significant updates that we're pleased to share with you today in conjunction with the second quarter's earnings details, which our CFO , Chris Pledger, will take you through in just a moment.
Speaker Change: The second quarter of 24 marks a celebratory milestone for all of us that have labored so hard for so long to bring to realization the commencement of commercial operations of our Conway, Arkansas extract and ready-to-drink facility.
Scott Ford: We are in full production and sales mode on our multi-serve bottle line. We have completed the startup of our RTD canning line and expect to begin commercial sales off that line in the second half of this year, and we are on target for the completion of our glass bottle line later this year. Importantly, as we continue our sales effort to fill these lines, we have several new commitments in hand that we expect will completely fill our RTD can line over the next 18 months. Our glass bottle line remains fully committed to an anchor tenant that we expect will commence purchasing product in mid-25, and our multi-serve bottle line has already been forced to add a second production shift.
Speaker Change: We are in full production and sales mode on our multi-serve bottle line. We have completed the startup of our RTD canning line and expect to begin commercial sales off that line in the second half of this year, and we are on target for the completion of our glass bottle line later this year.
Speaker Change: Importantly, as we continue our sales effort to fill these lines, we have several new commitments in hand that we expect will completely fill our RTD can line over the next 18 months.
Speaker Change: Our glass bottle line remains fully committed to an anchor tenant that we expect will commence purchasing product in mid-25, and our multi-serve bottle line has already been forced to add a second production ship.
Scott Ford: This essentially completes our commitment to having the lines in place on time and largely sold through before they begin full production. My hat is off to, and my gratitude is profound, for each of the team members that financed, designed, built, created products for, sold, and commercialized each of the production and packaging lines in this magnificent facility. I know of no other team in the world who could have accomplished these goals in this time frame and within this budget, Unprecedented and yet so typical of these fantastic individuals who sought each other out and came together from every corner of this industry to do something extraordinary for our customers, shareholders, communities, and the farmers who reside at the origin source of these vast and complex global supply chains. As an old and important mentor of mine, even Mahoney once told me, If you're not happy when you can be, you never will be.
Speaker Change: This essentially completes our commitment to having the lines in place on time and largely sold through before they begin full production.
Speaker Change: My hat is off to, and my gratitude is profound, for each of the team members that financed, designed, built, created products for, sold, and commercialized each of the production and packaging lines in this magnificent facility.
Speaker Change: I know of no other team in the world who could have accomplished these goals in this timeframe and within this budget.
Speaker Change: Unprecedented and yet so typical of these fantastic individuals who sought each other out and came together from every corner of this industry to do something extraordinary.
Speaker Change: for our customers, shareholders, communities, and the farmers who reside at the origin source of these vast and complex global supply chains.
Speaker Change: As an old and important mentor of mine Eamon Mahoney once told me, if you're not happy when you can be, you never will be. So today we are happy to share this exceptionally good news with all of you.
Scott Ford: So today, we are happy to share this exceptionally good news with all of you. Now, having stopped momentarily to celebrate, and before I turn the call over to Chris, let me say a word or two about our current operations and outlook. The investments we made over the past two years in people, processes, and systems are paying off handsomely, and our core operating and sales metrics are the best they have been in years, hence the 200 basis point improvement in March.
Speaker Change: Now, having stopped momentarily to celebrate, and before I turn the call over to Chris, let me say a word or two about our current operations and outlook.
Chris Pledger: The investments we made over the past two years in people, processes, and systems are paying off handsomely, and our core operating and sales metrics are the best they have been in years, hence the 200 basis point improvement in margins.
Scott Ford: In fact, we were extremely pleased with every key performance metric we measure except for unit sales in our single-serve cup segment this quarter. We could have easily been up over 50% and adjusted EBITDA year over year, and not just 20, had the retail customer acted just nearly normal in the quarter. We believe the volume miss is primarily due to the trade-down in packaging size that the retail private label customer is executing across multiple products as interest rates and fuel prices continue to absorb a disproportionately higher portion of their disposable income.
Chris Pledger: In fact, we were extremely pleased with every key performance metric we measure except for unit sales in our single-serve cup segment this quarter.
Chris Pledger: We could have easily been up over 50% and adjusted EBITDA year over year, and not just 20, had the retail customer acted just nearly normal in the quarter.
Chris Pledger: We believe the volume miss is primarily due to the trade down in packaging size that the retail private label customer is executing across multiple products as interest rates and fuel prices continue to absorb a disproportionately higher portion of their disposable income.
Scott Ford: I doubt that the current single serve cut volume softness is permanent, and we have a number of new volume opportunities in this category that we are currently working on which would not only fill this hole but be very additive to our business overall.
Chris Pledger: I doubt that the current single-serve cup volume softness is permanent, and we have a number of new volume opportunities in this category that we are currently working on, which would not only fill this hole, but be very additive to our business overall.
Chris Pledger: So, I remain very optimistic about the market position and commensurate earnings power we are assembling over the next few years.
Chris Pledger: I'd like to conclude my prepared remarks by offering this important insight.
Chris Pledger: Our 24 and first half of 25 forecasts are still subject to material movement as volume onboarding discussions are likely to continue through the end of this year.
Chris Pledger: That said, we are now much better equipped to gauge the volumes we expect to move through our plants in the back half of 2025 once the onboarding transitions are completed.
Scott Ford: Therefore, we can now estimate an annualized adjusted EBITDA run rate of somewhere between 125 and 150 million dollars as we exit 2025 and enter 2026. Obviously, we have a number of potential opportunities beyond this base level, including the expected continuing development of the Select Milk Producers Joint Venture, which we now expect to wind up later this year as our sales pipeline fills for these products. I believe this is the most accurate and helpful information we can share at the moment. And so, with that, I'll now turn the call over to Chris for a review of our financial results. Chris, thanks, Scott.
Chris Pledger: Therefore, we can now estimate an annualized adjusted EBITDA run rate of somewhere between $125 and $150 million as we exit 2025 and enter 2026.
Chris Pledger: Obviously, we have a number of potential opportunities beyond this base level, including the expected continuing development of the Select Milk Producers Joint Venture, which we now expect to wind up later this year as our sales pipeline fills for these products.
Chris Pledger: I believe this is the most accurate and helpful information we can share at the moment. And so with that, I'll now turn the call over to Chris for a review of our financial results. Chris.
Chris Pledger: Thanks, Scott, and good afternoon, everyone. We're pleased with another strong quarter driven by 13% gross profit growth in our beverage solution segment, contributing to 21% growth in our consolidated adjusted EBITDA. On a consolidated basis, net sales for the second quarter were $208.4 million, down 7.3% from the second quarter of 2023. Despite the drop in sales, consolidated gross profit was up 16%, driven by operational and procurement improvements in our core coffee business, continued strength within our flavors, extracts, and ingredients platform, and almost 50% gross profit growth in our S, S&T segment. District Consolidated Justice adopted 13.7 million in the second quarter of 2024, which is a 21% increase year over year.
Chris Pledger: Thanks, Scott, and good afternoon, everyone. We're pleased with another strong quarter driven by 13% gross profit growth in our beverage solution segment, contributing to 21% growth in our consolidated adjusted EBITDA.
Chris Pledger: On a consolidated basis, net sales for the second quarter were $208.4 million, down 7.3% from the second quarter of 2023.
Chris Pledger: Despite the drop in sales, consolidated gross profit was up 16%, driven by operational and procurement improvements in our core coffee business, continued strength within our flavors, extracts, and ingredients platform, and almost 50% gross profit growth in our S, S&T segment.
Chris Pledger: This drove consolidated justice deep at 13.7 million in the second quarter of 2024, which is a 21% increase year over year.
Chris Pledger: Moving to our segments, Beverage Solutions contributed $163.3 million in net sales, which is a decrease of approximately 14% compared to the second quarter of last year. While we continue to see strong results from our flavors, extracts, and ingredients platform, with 7% sales growth, volumes remained under pressure in our core coffee business and, for the first time, in our single-serve cup business, driving lower sales in both of those platforms. On our first quarter call, we talked about budget-conscious, lower and middle-income consumers making fewer trips to restaurants and convenience stores.
Chris Pledger: Moving to our segments, Beverage Solutions contributed $163.3 million of net sales, which is a decrease of approximately 14% compared to the second quarter of last year.
Speaker Change: While we continue to see strong results from our Flavors, Extracts, and Ingredients platform with 7% sales growth, volumes remained under pressure in our core coffee business and for the first time in our single-serve cup business, driving lower sales in both of those platforms.
Speaker Change: On our first quarter call, we talked about budget conscious lower and middle income consumers making fewer trips to restaurants and convenience stores.
Chris Pledger: While that continues to be the case in the second quarter, we are now seeing that same consumer group, or go purchasing single-serve cups and bulk, referring to purchase smaller pack sizes as the way to stretch their paychecks.
Chris Pledger: While that continued to be the case in the second quarter,
Chris Pledger: We are now seeing that same consumer group forego purchasing single-serve cups in bulk, preferring to purchase smaller pack sizes as a way to stretch their paycheck.
Chris Pledger: This trading down negatively impacted our single-serve sales volume in the second quarter. But despite the drop in net sales, gross profit in our beverage solution segment increased 13% due to improved gross profit margins in both our coffee and tea and flavors, extracts, and ingredients platforms.
Speaker Change: Adjusted EBITDA from beverage solutions for the quarter was 13.2 million, a 13.6% increase compared to our prior year's second quarter, and our adjusted EBITDA margin in beverage solution was up 197 basis points.
Chris Pledger: And our sustainable sourcing and traceability segment sales net of intersegment revenues were 45.1 million during the second quarter of 2024, an increase of 29% compared to the second quarter of 2023, primarily due to increased sales volume. Adjusted EBITDA from our SS&T segment for the quarter was approximately $400,000 compared to an adjusted EBITDA loss of approximately $400,000 in the second quarter of 2023. With the launch of our Conway Extract and RKD facility, we took several actions intended to optimize our manufacturing footprint and reduce cost.
Speaker Change: And our sustainable sourcing and traceability segment sales net of inter-segment revenues were $45.1 million during the second quarter of 2024, an increase of 29% compared to the second quarter of 2023, primarily due to increased sales volumes.
Speaker Change: Adjusted EBITDA from our S&T segment for the quarter was approximately $400,000 compared to an adjusted EBITDA loss of approximately $400,000 in the second quarter of 2023.
Speaker Change: With the launch of our Conway Extract and RKD facility, we took several actions intended to optimize our manufacturing footprint reduced cost.
Chris Pledger: During the quarter, we consolidated our Concord, North Carolina, core coffee operations into a single facility, and we announced that during the third quarter, we'll be consolidating our extract can and bottling operation in Richmond, California, and our new Conway extract and RTD facility. In addition to the lead-in-the-sills solidations, we carried out a reduction in force, impacting SG&A functions across all the regions.
Speaker Change: During the quarter, we consolidated our Concord, North Carolina, core coffee operations into a single facility, and we announced that during the third quarter, we'll be consolidating our extract can and bottling operation in Richmond, California, and our new Conway extract and RTD facility.
Speaker Change: In addition to the completion of the facility consolidations, we carried out a reduction in force impacting SG&A functions across all departments.
Chris Pledger: We estimate annualized savings from these initiatives to be approximately $10 million, and we expect to begin fully realizing these savings on a run rate basis in the first quarter of 2020. Moving on to capital expenditures. During the second quarter, we deployed approximately $36 million of CapEx, primarily related to our Conway Extract and RTD facility. Through the end of the second quarter, we spent approximately $245 million as compared to the anticipated $315 million on the Conway facility.
Speaker Change: We estimate annualized savings from these initiatives to be approximately $10 million and we expect to begin fully realizing these savings on a run rate basis in the first quarter of 2025.
Speaker Change: Moving on to capital expenditures, during the second quarter we deployed approximately $36 million of CapEx, primarily related to our Conway Extract and RTD facility.
Speaker Change: Through the end of the second quarter, we spent approximately 245 million of the anticipated 315 million on the Conway facility. We expect to spend approximately 55 million in the back half of fiscal 2024 and the balance in the 1st half of 2025.
Chris Pledger: We expect to spend approximately $55 million in the back half of fiscal 2024 and the balance in the first half of 2025. As I mentioned last quarter, as our Conway CapEx intensity abates, and our Conway sales intensity ramps up 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 140 million of consolidated unrestricted cash and undrawn revolving credit commitments.
Speaker Change: As I mentioned last quarter, as our Conway Catholics intend to debate, and our Conway sales intend to be ramps in the first half of 2025, we expect to be free cash flow positive in the second half of 2025.
Speaker Change: At quarter end, we had approximately $140 million of consolidated unrestricted cash and undrawn revolving credit commitments.
Speaker Change: are consolidated net-secured leverage ratio as a June 30, 2024 with 6.1 tons based on an LTM adjusted EBITDA. As we set all along, we expect leverage to increase and remain elevated during the build-out of the Conway facility, and these leverage levels are in line with our expectations.
Speaker Change: Turning to our Outlook for 2024 and 2025.
Speaker Change: We are narrowing our 2024 consolidated adjusted EBITDA guidance to a range of between $60 and $65 million.
Speaker Change: from the previously announced range of 60 to 80 million to account for the softness work experiencing in our single-circuit platform and our current expectations regarding the sales ramp of customers at our Conway Extract and RTV facility.
Chris Pledger: While we expect our 2024 Consolidated Adjusted EBITDA to come in at the lower end of our original range, we are reaffirming our Adjusted Consolidated EBITDA for fiscal 2025 of $115 million. With that, we'll turn the call back over to the operator for questions. Thank you.
Speaker Change: While we expect our 2024 Consolidated Adjustability, but dot a comment at the lower end of our original range, we are reaffirming our Consolidated Adjustability, but dot for fiscal 2025, of $115 million. With that, we'll turn the call back over to the operator for questions.
Operator: Thank you. As mentioned, at this time, we'll conduct the question and answer session. To ask a question, you'll need to press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, press star 1 1 again. Please stand by while we compile our Q&A list. Your first question comes from the line of Todd Brooks with the benchmark company. Your line is now open.
Speaker Change: Thank you. As mentioned, at this time we'll conduct the question and answer session. To ask a question, you'll need to press star 1 1 on your telephone and wait for your name to be announced.
Speaker Change: To withdraw your question, press star-1-1 again, please stand by while we compile our Q&A roster.
Speaker Change: Your first question comes in the line of Todd Brooks with the benchmark company. Your line is now open.
Todd Brooks: Hey, thanks for taking my questions. It's good to talk to you guys.
Todd Brooks: Hey, thanks for taking my questions. Good to talk to you guys.
Scott Ford: Scott won't lead off, but I want to lead off with questions on two paces within the Conway facility. So it sounds like the commercialization pace as far as lines coming on is tracking to what your expectation was, and is the customer acceptance pace? tracking as expected. And then on top of that, if we could talk about the contracting case, there was a lot of positive news that you kind of flew through at the start.
Scott Ford: Scott Ford lead off.
Todd Brooks: I wanted to lead off with questions on two paces within the Conway facility. So, it sounds like the commercialization pace as far as lines coming on is tracking to what your expectation was. Is the customer acceptance pace?
Todd Brooks: tracking as expected and then on top of that if we could talk about the contracting case there was a lot of positive news that you you kind of flew through at the start but sounds like
Scott Ford: But sounds like Singlesurf can, good news there, multi-serbottle with the addition of the second line and then had known the fact that Singlesurf bottle was kind of a single tenant type of structure, so any color you could give us.
Speaker Change: Single Surf can, good news there, multi-serve bottle with the addition of the second line, and then had known the fact that single-serve bottle was kind of a single-tenant type of structure, so any color you could give us would be helpful for you.
Scott Ford: Sure, we've got a range of issues with people that we're working through across the board. So, commercialization, to some extent, is dependent not only on our teams but also on the customers. So, you've got a lot of companies doing a lot of different things right now. They are reformulating drinks, they are creating new drinks, and they're trying to get, then that same group has to come in and live in Conway for a few weeks.
Todd Brooks: Sure, we've got a range of...
Speaker Change: issues with people that we're working through across the board. So commercialization, to some extent, is dependent not only upon our teams, but the customers.
Speaker Change: So you've got a lot of companies doing a lot of different things right now. They are reformulating drinks, they are creating new drinks, and they're trying to get, then that same group has to come in and live in Conway for a few weeks. So I would say, on the whole, we are right where we need to be on that front.
Scott Ford: So, I would say, on the whole, we are right where we need to be on that front. On the contracting side, we're not trying to get into the habit of announcing every time we do or don't get a contract, but we had some major, surprising positive news that came into the house. Whether we get it all squared away to the final contract, I would imagine that we do. But at this juncture, we're trying not to make any assumptions around that front.
Todd Brooks: On the contracting side, we're not trying to get into the habit of announcing every time we do or don't get a contract, but we had some major surprising positive news that came into the house.
Todd Brooks: Whether we get it all squared away to the final contract, I would imagine that we do. But at this juncture, we're trying not to make any assumptions around that front.
Scott Ford: But I think that what we're experiencing at a dollar level, and the reason that we're not quite positive where we're going to come out in the latter part of the year, and the first part of next year, is because as the RTD space has experienced softness, they are actually going through, for the most part, and working through contracts they have with other vendors. And the slotting of when we start up and what we start up with and what volume we start up with, that's all very flexible.
Todd Brooks: But I think that what we're experiencing in at a dollar level estimated level in the reason that we're not quite positive where we're going to come out in the latter part of your first part of the next year is because as the RTD space has experienced softness.
Todd Brooks: They are actually going through, for the most part, and working through contracts they have with other vendors.
Todd Brooks: and the slotting of when we start up and what we start up and what volume that we start up with.
Scott Ford: And because we have the flexibility to work with people, as we're the plant that's just coming up, we are offering to help people and are working through that with our customers so that they have a smooth transition. That is why we gave you the number in the back half of the year of 25. Once all of those gives and takes are settled through, we can see where our run rate is expected to be.
Todd Brooks: That's all very flexible and because we have the flexibility to work with people as we are the plant that's just coming up, we are offering to help people and are working through that with our customers so that they have a smooth transition.
Todd Brooks: That is why we gave you the number in the back half of the year of 25 whenever all of those.
Todd Brooks: Gives and takes and are settled through.
Scott Ford: We do know the annual volumes that people plan to run with us across all of our lines at this point in time. And that, we think, based on what we can see today, we think that's a $125 to $150 million EBITDA business when all is taken in. We are not pressuring them to come in. We are being good partners and letting them come in at their own pace. And I think it's highly appreciated across the industry by people that are signing up to help us.
Todd Brooks: We can see where our run rate is expected to be. We do know the annual volumes.
Todd Brooks: that people planned to run with us across all of our lines at this point in time.
Todd Brooks: And that's, we think, as of what we can see today, we think that's a $125 to $150 million EBITDA business.
Todd Brooks: when they are all in. We are not pressuring them to come in. We are being good partners and letting them walk in at their pace, and I think it's been highly appreciated across the industry by people that are signing up to help us.
Speaker Change: That's great, thanks. And then a second follow-up and I'll jump back in queue.
Speaker Change: We know about the three lines that are commercializing this year. Can you walk through what
Speaker Change: The additional lines are slated to come on over the course of 25 in Conway as you see it now, and then just kind of remind us of the timing for the earliest of the select milk lines down in Texas could come on as well. Thanks.
Scott Ford: Right, we expect that over the course of 2025, we'll have a small can line, we will have bulk fill lines coming on, and we will also have bag-in-a-box. Those are the three things that we expect to have going on in 2025 in answer to the first part of your question.
Speaker Change: Right, we expect over the course of 25 we'll have a small canline, we will have both fill lines coming on and we will also have bagging a box.
Speaker Change: So those are the three things that we expect to turn on in 2025 in answer to the first part of your question. Where we are with select right now is frankly everybody is so busy that we didn't want to push.
Scott Ford: Where we are with Select right now, Frankly, everybody is so busy that we didn't want to push. We need to get a certain threshold of the line sold out before we turn to the banks that are going to finance the equipment side of the JV. And although we were close, we weren't quite at a number that easily made that possible, so we've delayed it by a quarter while we try to, number one, line that up, and number two, get the flexibility in the banking group for the joint venture to be able to move forward with that without having to make tradeoffs with what we're doing back home in Congress. That's great. Thanks, Scott.
Speaker Change: We need to get a certain threshold of the line sold out before we turn to the banks that are going to finance the equipment side of the JV.
Speaker Change: Although we were close, we weren't quite at a number that easily made that possible, so we've delayed it a quarter.
Speaker Change: while we try to number one, line that up and number two, get the flexibility in the banking group for the joint venture to be able to move forward with that without having to make trade-offs of what we're doing back home in Conway.
Scott Ford: That's great. Thanks, Scott
Matt Smith: Your next question comes to the line from Matt Smith with Stieple. Your line is now open.
Scott Ford: Thank you.
Speaker Change: Your next question comes in the line of Matt Smith with Steeple. Your line is now open.
Matt Smith: Hi, good morning. I'm sorry, good afternoon. I wanted to come back to the question around the implied run rate in 2025. You gave some nice color there, and I want to understand how the additional lines that are coming online in 2025, you mentioned the small can, bag in a box, and bulk fill, how you've contemplated the capacity for those lines implied in the EBITDA run rate.
Matt Smith: Hi, good morning, or I'm sorry, good afternoon. I wanted to come back to the question around the implied run rate in 2025. You gave some nice color there. And I want to understand how the additional lines that are coming online in 2025, you mentioned the small can, bag in a box, and bulk fill.
Speaker Change: how you've contemplated the capacity for those lines implied in the EBITDA run rate.
Scott Ford: At this point, we don't have any of those in our ebook album at the moment.
Speaker Change: Yeah, at this point we don't have any of those in our evening album that it's for the moment.
Scott Ford: Okay, thank you for that. And if we could talk about the single serve pressure you're seeing, you talked about retailers trading down to smaller pack sizes; we've seen that across other categories as well. Are you filling that business? Or is that contract volume shifting to other vendors that are already set up for the small pack size? And or is this really just a matter of customers purchasing less volume over time, but you're still providing the retailer with smaller pack sizes? Yeah,
Speaker Change: Okay, thank you for that. And if we could talk about the single serve pressure you're seeing, you talked about retailers trading down to smaller pack sizes, we've seen that across other categories as well. Are you filling that business? Or is that contract volume shifting to other vendors that are already set up for the small pack size? And or is this really just a matter of customers purchasing less volume over time, but you're still providing the retailer with the smaller pack sizes? Unknown Speaker
Scott Ford: Yeah, it's the latter. Typically, and I can't tell you how the whole industry works; I just know how we work with our retailers. We tend to do a very broad spectrum of packaging sizes for them. So, actually, if the consumer is moving from a 100 count to a 50 count to a 25 count to a 10, we will do whatever the customer volume demands. So we do see, as we serve the distribution centers, precisely and exactly what the volume shift is from the consumer, through the store, through the DC, to our ability to make any product that they're pulling off the shelf. So we know that we know that we're right about that.
Speaker Change: Yeah, it's the latter.
Speaker Change: typically ends.
Speaker Change: I can't tell you how the whole industry works. I just know how we work with our retailers. We tend to do a very broad spectrum of
Speaker Change: packaging sizes for them. So, we actually, if the consumer is moving from a 100 count to a 50 count to a 25 count to a 10, we will do whatever the customer volume pulls. So, we do see, as we serve the distribution centers, precisely and exactly what the volume shift is from the consumer.
Speaker Change: through the store, through the DC, to our ability to make any product that they're pulling through at the shelf.
Scott Ford: Thank you, Scott. And maybe if I could follow up with one more question, the narrowing of the guidance range, the second half comes down call it 15 to 20 million relative to your previous expectations. You talked about the pressure on the single serve as well as some commercialization activity in Conway. Any direction you can provide on the magnitude of each one of those, and I'll leave it there. There are about 80, 20 cups and a commercialization startup.
Speaker Change: So we know that we know that we're right on that.
Speaker Change: Thank you, Saad. Maybe if I could follow up with one more question.
Speaker Change: The
Speaker Change: Narrowing of the guidance range, the second half comes down, call it $15-20 million relative to your previous expectations. You talked about the pressure and single serve as well as some commercialization activity in Conway. Any direction you can provide on the magnitude of each one of those and I'll leave it there. Thank you.
Scott Ford: It's about 80-20 cups, and commercialization started.
Speaker Change: It's about 80-20 cups and a commercialization startup.
Speaker Change: Thank you for watching, and don't forget to like, share, and subscribe to our channel.
Speaker Change: Thank you.
Sarang Vora: Your next question comes in line with Sarang Vora with a tag. Your line is now open.
Speaker Change: Uh-huh.
Speaker Change: Your next question comes in the line of Sarang Vora with TAG, your line is now open.
Sarang Vora: Great, thank you guys. First, it was great to tour the facility earlier in the summer. It gave me a lot of confidence about all these, you know, production plans and lines that you're starting. You know, my question is more about next year's production. So the small cans, the bag in the box, those production lines, can you share the timing of those openings? Like, you know, how are you in terms of ordering the equipment?
Sarang Vora: Great. Thank you, guys. So first, it was great to tour the facility earlier in the summer. Gave a lot of confidence about all these, you know, production plants and lines that you are starting.
Sarang Vora: You know my question is the mode about next year's production, so the small can, the bag in the box, those production lines, can you share the timing of those openings, like, you know, how are you in terms of, like, ordering the equipment, is it more like a second half 25 story or?
Scott Ford: Is it more like a second half of a 25 story or more like the first half? Just to make sure, because I know you said it's not in the guidance. So just trying to understand it better. Thank you.
Speaker Change: or more like a fourth half, just to make sure, because I know you said it's not in the guidance. So just trying to understand it better. Thank you.
Scott Ford: Sure, I think it's really two-fold. Number one is as we free up the product development workforce that is currently trying to launch, you know, 150 individual SKUs in Conway right now. As we work through that, this period of busyness, then we will turn to customers that are asking us for bulk fill, for hot fill bottle lines, for bag in the box. We literally are just stacked up. It's the same people in commercialization and product development that have to do the work, and so we don't feel any pressure to further press our balance sheet to turn lines on until we've got the product development group freed up to actually make the products and get them started up.
Speaker Change: Sure, I think it's really too cold. Number one is as we free up the product development workforce that is currently trying to launch.
Speaker Change: You know, 150 individuals views in Conway right now as we've worked through that.
Speaker Change: this period of busyness, then we will turn to customers that are asking us for bulk fill, for hot fill bottle lines, for bag in the box. We literally are just stacked up. It's the same people in commercialization and product development that have to do the work, and so we don't feel any pressure.
Speaker Change: to further pressure our balance sheet to turn lines on until we got the product development group freed up to actually make the products and get them started up. We are going to work through that over the course of the year. It's probably by default.
Scott Ford: We are going to work through that over the course of the year. It's probably, by default, a back half of the year impact, and it's why we didn't put anything in our guidance for it right now.
Speaker Change: a back half of the year impact, and it's why we didn't put anything in our guidance for it right now.
Sarang Vora: That's helpful. Thank you so much.
Chris Pledger: And you know, margins, especially gross margins, were much stronger back to back for the second quarter. So curious if you can share some color on how it looks in the back half, like, you know, 19 and a half 20% range or a decent range. As you look at the back half, or with all these changes happening, we need to be more careful in the expansion ahead. This is Chris. I think that I think that those margins should hold.
Speaker Change: That's helpful. Thank you so much. And you know, margins, especially gross margins were much stronger.
Speaker Change: Back-to-back for second quarter. So curious if you can share some color on how it looks in the back half is like, you know, 19 and a half, 20% range or decent range.
Speaker Change: As you look at the back half with all these changes happening, we need to be more careful in expansion ahead.
Chris Pledger: This is Chris. I think that those margins should hold. I think that what you're seeing is a great job with operational efficiency. I think that our ability to drive down our COGS as we optimize our supply chain is driving real benefits through our P&L, and those things are sustainable. So we'd expect to see those margins hold as we get through the back half of the year.
Speaker Change: This is Chris. I think that those margins should hold. I think what you're seeing is a great job of operational efficiency. I think that our ability to drive down our COGS as we optimize our supply chain is driving real benefits through our P&L. And those things are sustainable. So we'd expect to see those margins hold as we get through the back half of the year.
Speaker Change: Thank you.
Eric Deslauriers: Your next question comes from the line of Eric Deslauriers with Craig Hallam Capital Group. Your line is now open.
Speaker Change: Thank you.
Speaker Change: Your next question comes in the line of Eric DeLorais with Craig Hallam Capital Group. Your line is now open.
Chris Pledger: Great, thank you for taking my questions. First of all, on the timing of facility consolidations, I understand the annualized savings won't be fully recognized until the first part of 2025, but in terms of the actual sort of transition or consolidation, how should we think about timing there?
Eric DeLorais: Great, thank you for taking my questions. First one for me, on the timing of facility consolidations, understood the annualized savings won't be fully recognized until first part of 2025, but in terms of the actual sort of transition or consolidation, how should we think about timing there?
Chris Pledger: We started one of the consolidations of the core coffee facility in Concord, North Carolina. That took place actually towards kind of the end of the second quarter. The consolidation of the Richmond, California can and bottling facility that's going to take place kind of in the third quarter and should be complete by the end of the third quarter.
Speaker Change: We started one of the consolidation of the core coffee facility in Concord, North Carolina. That took place actually towards kind of the end of the second quarter.
Eric DeLorais: The consolidation of the
Eric DeLorais: The Richmond, California, can and bottling, that's going to take place kind of in the third quarter, and should be complete by the end of the third quarter.
Chris Pledger: Okay, great. And then those savings, should we expect to see those more on the OPEC side or the cost of goods?
Speaker Change: Okay, great. And then those savings, so we'd like to see those more on the op-oxide or cost of goods.
Chris Pledger: You'll see more on the OPEX side. You'll see some benefit on the cost of goods side, but mostly on the OPEX side.
Speaker Change: You'll see more on the OPEX side. You'll see some benefit on the cost of goods side, but mostly on the OPEX.
Chris Pledger: Makes sense. And then demand for Conway is obviously quite robust here. We're kind of getting ahead of ourselves. You guys have done a great job kind of filling those lines and commercializing that facility. But, you know, given these sort of consolidations of these other facilities, I'm kind of just wondering what sort of capacity may be left in Conway for potential additional lines or overall expansion. Just kind of wondering, as this is all coming together, how much capacity do you have left in that facility itself?
Speaker Change: Yeah, that makes sense.
Speaker Change: And then demand for Conway, obviously, you know, quite robust here, kind of getting ahead of ourselves.
Speaker Change: You guys have done a great job kind of filling those.
Speaker Change: is doing those lines commercializing that facility.
Speaker Change: But, you know, given the sort of consolidations of these other facilities, I'm kind of just wondering what sort of capacity may be left in Conway for, you know, potential additional lines or overall expansion. I'm just kind of wondering, as this is all coming together, sort of how much capacity do you have left in that facility itself?
Speaker Change: Well, we have, there's excess capacity in the existing lines that we've put in, that we're starting up now, so if you think about the can line, the glass line, and then the multi-serve bottle line, so there's capacity there to continue to grow in those, and then that also feeds itself into kind of
Speaker Change: The addition of a smaller can line media we could we could add we can add probably I think the total is around six different
Speaker Change: kind of lines in the footprint that is Conway from a space constraint perspective. So we have the ability to continue to grow in that facility as demand continues to grow. Does that answer your question? Yes. Yeah, exactly. Thank you very much for taking my questions.
Eric Deslauriers: Yes, yeah, exactly. Thank you very much for taking the time to answer my question.
Operator: I'm showing no further questions at this time and would now like to turn it back to Scott Ford for closing remarks.
Speaker Change: Thank you.
Speaker Change: I'm showing no further questions at this time and would now like to turn it back to Scott Ford for closing remarks.
Scott Ford: Thank you very much. Well, we appreciate everybody's interest. It's been a wild week in the market. I know everybody's busy, but we were thrilled with the quarter operationally. We've been working really hard to improve our metrics, and we did.
Scott Ford: Thank you very much. Well, we appreciate everybody's interest. It's been a wild week in the market. I know everybody's busy, but we were thrilled with the quarter operationally. We've been working really hard at improving our metrics. We did. We beat our, I think, the median
Scott Ford: estimate for us by about 14%. We've got a lot of momentum moving into the back half of the year. We have a ton of new customers that are starting to do new lines of business with us, even now in the third quarter. And we are excited about where we are. I think we are
Speaker Change: We are landing the brands that we wanted to land in the Conway facility. And I think you are going to see over the next 12 months an amazing
Speaker Change: development in that facility. And I just want to end this call with this is really a call to celebrate the people that have built that. And I appreciate what they've done. I'm amazed at what they've done. We've got to execute now and everybody on the team knows it.
Speaker Change: and they are doing it, and I am looking forward to seeing everybody in the third quarter where we will be in a much better place at that juncture, both contractually to post people on where we are and to give any, really any kind of variance guidance we've got into the end of the year and the first part of next year. So thank you very much for your support. We continue to be head down, delivering on a five-year project that we're about midway through, and I think we are on time and on schedule, and I am super pleased. I hope.
Speaker Change: And if you've got any questions, please still free to follow back up with us and you have a good evening. Thanks, guys.
Operator: Thank you. This does conclude the program, and you may now disconnect.
Speaker Change: Thank you. This does conclude the program and you may now disconnect.
Todd Brooks: That's great, thanks. A second follow-up, and I'll jump back and cue. We know about the three lines they're commercializing this year. Can you walk through what? Additional lines are slated to come on over the course of 25 in Conway as you see it now, and then just kind of remind us of the timing for the earliest that the select milk lines down in Texas could come on as well.
Chris Pledger: Our consolidated net-secured leverage ratio, as of June 30, 2024, was 6.1 times based on LTM adjusted EBITDA. As we said all along, we expect leverage to increase and remain elevated during the build-out of the Conway facility, and these leverage levels are in line with our expectations. Turning to our outlook for 2024 and 2025, we are narrowing our 2024 Consolidated Adjusted EBITDA guidance to a range of between $60 and $65 million from the previously announced range of $60 to $80 million to account for the softness we're experiencing in our single-serve cut platform and our current expectations regarding the sales ramp of customers at our Conway Extract and RTD facility.
Chris Pledger: This trading down negatively impacted our single-serve sales volume in the second quarter. But despite the drop in net sales, gross profit in our beverage solution segment increased 13% due to improved gross profit margins in both our coffee and flavors of extracts and ingredients plus. Adjusted EBITDA from Beverage Solutions for the quarter was $13.2 million, a 13.6% increase compared to our prior year's second quarter, and our adjusted EBITDA margin in Beverage Solutions was up 197 basis points.
Robert Munger: Also, discussions during the call will use some non-gap financial measures as we describe this as performance. The SEC follows, as well as the earnings press release, to provide reconciliation of these non-gap financial measures to those directly comparable gap measures. And with that, it's my pleasure to turn the call over to Scott Ford, our co-founder and chief executive officer.
Scott Ford: So I remain very optimistic about the market position and commitment earnings power we are assembling over the next few years. I'd like to conclude my prepared remarks by offering this important insight. Our 24 and first half of 25 forecasts are still subject to material movement as volume onboarding discussions are likely to continue through the end of this year. That said, we are now much better equipped to gauge the volumes we expect to move through our plants in the back half of 2025 once the onboarding transitions are completed.
Chris Pledger: Well, we have, there's excess capacity in the existing ones that we've put in that we're starting up now, so if you think about what came on, the glass line, and then the multi-serve bottle line, there's capacity there to continue to grow in those, and then that also feeds into kind of this. The addition of a smaller can line, we can probably add probably I think the total is around six different kinds of lines in the footprint that is Conway from a space constraint perspective. So we have the ability to continue to grow in that facility as demand continues to grow. Does that answer your question? Yes, yeah, exactly.
Scott Ford: We beat our, I think, the median estimate for us by about 14%. We've got a lot of momentum moving into the back half of the year. We have a ton of new customers that are starting to do new lines of business with us, even now in the third quarter. And we're excited about where we are. I think we are. [inaudible] Thank you, guys.