Executive Summary / Key Takeaways

• Westrock Coffee (NASDAQ: WEST) is executing a strategy to become a premier integrated beverage solutions provider, leveraging significant investments in new facilities, particularly the large-scale Conway, Arkansas complex.
• The company's core investment thesis centers on capitalizing on consumer shifts towards cold and extract-based beverages and the industry trend towards outsourcing manufacturing to specialized partners.
• Recent financial performance shows strong Segment Adjusted EBITDA growth in both Beverage Solutions and Sustainable Sourcing Traceability segments, despite some macroeconomic headwinds impacting consumer spending and single-serve volumes.
• The Conway facility is transitioning from construction to commercial production, with key lines (multi-serve bottle, RTD can, glass bottle) coming online and largely sold out, expected to drive significant EBITDA growth starting in Q2 2025.
• Management has reaffirmed 2025 guidance, projecting combined segment adjusted EBITDA of $75 million to $88 million, and anticipates an annualized EBITDA run rate of $125 million to $150 million exiting 2025, with a target Beverage Solutions net secured leverage ratio of 2.5x to 3x by the end of 2026.

The Integrated Platform: Setting the Stage for Growth

Westrock Coffee Company is positioning itself as a leading integrated coffee, tea, flavors, extracts, and ingredients solutions provider, serving a diverse global customer base across retail, food service, and CPG industries. The company's strategic vision is built upon four pillars: operating a transparent supply chain, developing innovative beverage solutions, delivering high-quality products, and leveraging its international presence. This strategy aims to capture value from generational shifts in the beverage market, including the move towards cold and ready-to-drink formats, the increasing reliance on high-quality extracts as core ingredients, and the broader industry trend of branded companies outsourcing complex manufacturing and packaging to specialized partners.

To realize this vision, Westrock has embarked on a significant capital investment program since becoming a public company via a SPAC transaction in August 2022. Nearly $400 million has been deployed to build and equip state-of-the-art facilities, most notably the expansive one-million-square-foot complex in Conway, Arkansas. This facility, designed as the country's largest roast-to-extract-to-RTD plant, along with a new single-serve cup manufacturing facility and distribution center, forms the technological and operational backbone of Westrock's integrated platform.

The company operates through two segments: Beverage Solutions and Sustainable Sourcing Traceability (SST). The Beverage Solutions segment is the primary driver of value-added product offerings, encompassing everything from sourcing and product development to roasting, packaging, and distribution across various formats like bags, single-serve cups, multi-serve bottles, and RTD cans. The SST segment focuses on the upstream supply chain, utilizing proprietary technology for digital traceability to ensure responsible sourcing and economic empowerment for farming partners, with revenues primarily derived from forward sales of green coffee.

In the competitive landscape, Westrock operates alongside global giants like JDE Peets, Keurig Dr Pepper (KDP), Nestle (NSRGY), and J.M. Smucker (SJM). While these competitors possess greater scale and often higher profitability margins (e.g., KDP's gross margins around 50-55% vs. Westrock's TTM gross margin of 15.86%), Westrock aims to differentiate itself through its integrated "crop to cup" capabilities, deep expertise in extracts and RTD formats, and a digitally traceable supply chain that appeals to brands focused on sustainability. The Conway facility, in particular, represents a significant technological leap, designed for high efficiency and versatility across multiple beverage formats, positioning Westrock as a potentially lower-cost processing and packaging outsourcer compared to some rivals, despite their overall scale advantages. Management highlights winning over 80% of contracts competed for in 2023 and 2024 for the new Conway facility as evidence of the platform's competitive appeal.

Operational Milestones and Financial Performance

The past year has been marked by significant operational progress and strategic adjustments. In Q1 2025, the Beverage Solutions segment saw net sales increase 3.8% year-over-year to $164.1 million, driven by a 7.6% rise in core roast and ground coffee volumes and the pass-through of higher commodity prices, although single-serve cup volumes decreased by 29.3%. The SST segment's net sales surged 44.4% to $49.7 million, primarily due to a 54.2% increase in the average sales price per pound, reflecting the higher global commodity market, despite a 5.3% dip in volume.

Consolidated Adjusted EBITDA for Q1 2025 was $8.2 million, burdened by $3.3 million in Conway scale-up operating costs. This compares to $11.1 million in Q1 2024 with no such costs. For the full year 2024, consolidated adjusted EBITDA was $47.2 million, including $12.8 million of Conway scale-up costs, compared to $45.1 million in 2023. Beverage Solutions Segment Adjusted EBITDA grew 29% in 2024 to $53.6 million, and SST Segment Adjusted EBITDA increased 84% to $6.4 million, reflecting improved operational efficiencies and a return to expected performance in the sourcing segment after prior-year disruptions.

A key operational focus has been the commercialization of the Conway facility. As of the Q1 2025 earnings call, the facility had begun commercial quantity production runs for new customers. The multi-serve bottle line is in full production, necessitating a second shift. The RTD canning line startup is complete, with commercial sales ramping up in Q2 2025 and expected to be fully utilized over the next 18 months. The glass bottle line is on track for completion and phased production between Q3 2025 and Q1 2026, fully committed to an anchor tenant. A second RTD can line is coming online in Q3 2025, funded in part by a $25 million increase to the revolving credit facility in January 2025, and a third can line is already on-site. Capacity expansions are also underway at the North Carolina retail packaging lines (50%) and the new Conway single-serve plant (100%) to meet demand.

These operational advancements are coupled with cost-saving initiatives, including consolidating manufacturing facilities (closing West Winds and Richmond plants) and a reduction in force, expected to yield approximately $10 million in annualized savings fully realized by Q1 2025.

Liquidity remains a critical focus during this high-investment phase. As of March 31, 2025, the company had $33.1 million in cash and cash equivalents and $8.9 million in restricted cash. Total debt stood at $483.4 million, including $147.5 million drawn on the Revolving Credit Facility and $71.6 million in Convertible Notes. The company utilizes a supply chain finance program ($95.4 million outstanding at Q1 2025) and a green coffee repurchase program ($13.6 million obligation at Q1 2025) to manage working capital, which is pressured by historically high green coffee prices. The secured net leverage ratio was 5.31x at March 31, 2025, within the amended covenant of 6.00x for Q2 2025. Management has indicated a willingness to adjust capital expenditures or operating expenses if needed to maintain covenant compliance.

Outlook and Risks

Westrock's outlook is heavily tied to the successful ramp-up and commercialization of the Conway facility and the onboarding of new customer volumes. Management reaffirmed guidance for 2025, projecting combined Beverage Solutions and SST Segment Adjusted EBITDA of $27.5 million to $34 million for the first half of the year, representing approximately 25% growth over the prior year period. For the full year 2025, combined segment adjusted EBITDA is projected to be between $75 million and $88 million, an increase of roughly 35% over 2024. This guidance incorporates approximately $10 million to $15 million of scale-up operating costs associated with Conway.

Looking further ahead, the company anticipates a significant step-up in earnings power as the Conway facility reaches full operational scale. Management estimates an annualized adjusted EBITDA run rate of $125 million to $150 million as they exit 2025 and enter 2026. The midpoint of the 2026 consolidated adjusted EBITDA guidance is $140 million, which includes no Conway scale-up costs, implying the facility is fully scaled by then. This projected growth is expected to significantly improve the company's leverage profile, with the Beverage Solutions net secured leverage ratio targeted to decrease from 4.7x at the end of 2024 to 3.0x by the end of 2026, aiming for a long-term range of 2.5x to 3x post-Conway expansion.

The guidance is underpinned by executed contracts with over a dozen premier global CPG brands and retailers that are expected to fill over 80% of the initial Conway capacity, with many beginning commercial volumes in Q1 2025. These new customers are anticipated to eventually contribute more annual EBITDA than the current base business. The ramp-up schedule, with later line startups and phased volume increases, results in a heavier volume and earnings contribution in the second half of 2025.

Despite the optimistic outlook, several risks could impact execution. Macroeconomic headwinds and potential decreases in consumer spending, particularly if higher coffee commodity costs and potential tariffs are fully passed through to consumers, could dampen demand for coffee products, especially in price-sensitive categories like single-serve. While Westrock passes on commodity costs, the lag in pricing adjustments and the need for increased working capital due to high green coffee prices ($93.6 million in raw materials inventory at Q1 2025) present liquidity pressures. Execution risk at the new, complex Conway facility remains, although management expresses confidence in the team's ability to overcome challenges. Compliance with debt covenants, particularly the secured net leverage ratio during the ramp-up phase, requires careful management. Furthermore, the potential future redemption of Series A Preferred Shares after February 2028 (estimated at least $270.4 million for shares outstanding at Q1 2025) could create a significant liquidity event.

Conclusion

Westrock Coffee is in a transformative phase, moving from a period of heavy investment to the anticipated realization of significant earnings growth driven by its integrated platform and the state-of-the-art Conway facility. The company's strategy to become a specialized, integrated partner to leading beverage brands, capitalizing on key market trends and leveraging its technological capabilities, appears to be gaining traction, evidenced by the volume commitments secured for the new facility.

While macroeconomic pressures and commodity volatility present challenges, and execution risk during the Conway ramp-up is inherent, the reaffirmed guidance and projected EBITDA growth and leverage reduction signal management's confidence in delivering on the investment thesis. The successful commercialization of Conway and the full onboarding of new customer volumes are critical milestones to watch, as they are expected to fundamentally alter Westrock's financial profile and competitive standing in the coming years. The story of Westrock is now one of execution, aiming to translate built capacity and secured contracts into sustained profitability and value creation for shareholders.