Westrock Coffee Co 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following Management’s Discussion and Analysis of Financial Condition and Results of Operations describes the principal factors affecting the results of operations, financial condition, and changes in financial condition for the three months ended March 31, 2023. This discussion should be read in conjunction with the accompanying Condensed Consolidated Financial Statements, and the notes thereto set forth in Part I, Item 1 of this Quarterly Report on Form 10-Q and our December 31, 2022 Audited Consolidated Financial Statements and notes thereto included in our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) on March 21, 2023. Overview Westrock Coffee Company, a Delaware corporation (the “Company,” “Westrock,” “we,” “us,” or “our”), is a leading integrated coffee, tea, flavors, extracts, and ingredients solutions provider in the United States, providing coffee sourcing, supply chain management, product development, roasting, packaging, and distribution services to the retail, food service and restaurant, convenience store and travel center, non-commercial account, CPG, and hospitality industries around the world. Our platform is built upon four fundamental pillars that enable us to positively impact the coffee, tea, flavors, extracts, and ingredients ecosystems from crop to cup: (i) we operate a fully transparent supply chain, (ii) we develop innovative beverage solutions tailored to our customers’ specific needs, (iii) we deliver a high quality and comprehensive set of products to our customers, and (iv) we leverage our scaled international presence to serve our blue-chip customer base. These four tenets comprise the backbone of our platform and position us as a leading provider of value-added beverage solutions. By partnering with Westrock, our customers also benefit from the benchmark-setting responsible sourcing policies and strong Environmental, Social, and Governance focus surrounding our products, top tier consumer insights, and a differentiated product ideation process. Leading brands choose us because we are singularly positioned to meet their needs, while simultaneously driving a new standard for sustainably and responsibly sourced products. We operate our business in two segments: Beverage Solutions and Sustainable Sourcing & Traceability (“SS&T”). Beverage Solutions : Through this segment, we combine our product innovation and customer insights to provide value-added beverage solutions, including coffee, tea, flavors, extracts, and ingredients. We provide products in a variety of packaging, including branded and private label coffee in bags, fractional packs, and single serve cups, as well as extract solutions to be used in products such as cold brew and ready-to-drink offerings. Currently, we serve customers in the United States, Europe, and Asia through the retail, food service and restaurant, convenience store and travel center, non-commercial account, CPG and hospitality industries. Sustainable Sourcing & Traceability : Through this segment, we utilize our proprietary technology and digitally traceable supply chain to directly impact and improve the lives of our farming partners, tangible economic empowerment and an emphasis on environmental accountability and farmer literacy. Revenues primarily relate to the physical delivery and settlement of forward sales contracts for green coffee. Key Business Metrics We use Adjusted EBITDA to evaluate our performance, identify trends, formulate financial projections, and to make strategic decisions. Adjusted EBITDA We refer to EBITDA and Adjusted EBITDA in our analysis of our results of operations, which are not required by, or presented in accordance with, accounting principles generally accepted in the United States (“GAAP”). While we believe that net (loss) income, as defined by GAAP, is the most appropriate earnings measure, we also believe that EBITDA and Adjusted EBITDA are important non-GAAP supplemental measures of operating performance as they contribute to a meaningful evaluation of the Company’s future operating performance and comparisons to the Company’s past operating performance. Additionally, we use these non-GAAP financial measures in evaluating the 34 Table of Contents performance of our segments, to make operational and financial decisions and in our budgeting and planning process. The Company believes that providing these non-GAAP financial measures to investors helps investors evaluate the Company’s operating performance, profitability and business trends in a way that is consistent with how management evaluates such performance. We define “EBITDA” as net (loss) income, as defined by GAAP, before interest expense, provision for income taxes and depreciation and amortization. We define “Adjusted EBITDA” as EBITDA before equity-based compensation expense and the impact, which may be recurring in nature, of acquisition, restructuring and integration related costs, including management services and consulting agreements entered into in connection with the acquisition of S&D Coffee, Inc., impairment charges, changes in the fair value of warrant liabilities, non-cash mark-to-market adjustments, certain costs specifically excluded from the calculation of EBITDA under our material debt agreements, such as facility start-up costs, the write off of unamortized deferred financing costs, costs incurred as a result of the early repayment of debt, gains or losses on dispositions, and other similar or infrequent items (although we may not have had such charges in the periods presented). We believe EBITDA and Adjusted EBITDA are important supplemental measures to net (loss) income because they provide additional information to evaluate our operating performance on an unleveraged basis. In addition, Adjusted EBITDA is calculated similar to defined terms in our material debt agreements used to determine compliance with specific financial covenants. Since EBITDA and Adjusted EBITDA are not measures calculated in accordance with GAAP, they should be viewed in addition to, and not be considered as alternatives for, net (loss) income determined in accordance with GAAP. Further, our computations of EBITDA and Adjusted EBITDA may not be comparable to that reported by other companies that define EBITDA and Adjusted EBITDA differently than we do. The reconciliation of our net loss to EBITDA and Adjusted EBITDA for the three months ended March 31, 2023 and 2022 is as follows: ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended March 31, (Thousands) 2023 2022 Net loss ​ $ (4,326) ​ $ (4,705) Interest expense ​ 6,029 ​ 8,048 Income tax benefit ​ (4,359) ​ (1,584) Depreciation and amortization ​ 5,874 ​ 6,014 EBITDA ​ 3,218 ​ 7,773 Acquisition, restructuring and integration expense ​ 6,644 ​ 2,483 Change in fair value of warrant liabilities ​ ​ (5,529) ​ ​ — Management and consulting fees (S&D Coffee, Inc. acquisition) ​ 556 ​ 1,335 Equity-based compensation ​ 1,548 ​ 171 Conway extract and ready-to-drink facility start-up costs ​ 1,869 ​ — Mark-to-market adjustments ​ (1,236) ​ (1,145) Loss on disposal of property, plant and equipment ​ 896 ​ 105 Other ​ 487 ​ 672 Adjusted EBITDA ​ $ 8,453 ​ $ 11,394 ​ ​ ​ ​ ​ ​ ​ Beverage Solutions ​ 8,421 ​ 10,420 Sustainable Sourcing & Traceability ​ 32 ​ 974 Total of Reportable Segments ​ $ 8,453 ​ $ 11,394 35 Table of Contents Significant Developments Amendment to Credit Agreement ​ On February 14, 2023, the Company entered into an Incremental Assumption Agreement and Amendment No. 1 (the “Amendment”) to its Credit Agreement, which established a new class of incremental term loan commitments in the form of a senior secured delayed draw term loan credit facility (the “Delayed Draw Term Loan Facility”) in the aggregate principal amount of $50.0 million, proceeds of which may be used to fund capital expenditures related to our extract and ready-to-drink facility in Conway, Arkansas, or for general corporate purposes. ​ The interest rates under the Delayed Draw Term Loan Facility are the same as the interest rates with respect to the initial term loans under the Term Loan Facility, and the commitment fees applying to the unused portion of the Delayed Draw Term Loan Facility are the same as the commitment fees with respect to the Revolving Credit Facility. Any delayed draw term loan funded under the Delayed Draw Term Loan Facility will mature on August 29, 2027. As of the date of this Quarterly Report on Form 10-Q, no borrowings have been made under the Delayed Draw Term Loan Facility. ​ Acquisition of Bixby Roasting Co. ​ On February 28, 2023, the Company completed the acquisition of Bixby Roasting Co. (“Bixby”), a specialty-grade roaster that is a leader in the emerging influencer-led brand space. The acquisition allows Westrock to continue to expand its product marketing and development resources as it capitalizes on shifting consumer consumption trends. The acquisition includes Bixby’s roasting facility in Los Angeles, California. Falcon Facility On March 21, 2023, the Company entered into a $70 million working capital trade finance facility with multiple financial institutions through its subsidiary, Falcon. The facility replaced Falcon’s then existing working capital trade finance facility. The new facility is uncommitted and repayable on demand, with certain of Falcon’s assets pledged as collateral against the facility. The new facility will mature one year from inception. Borrowings under the new facility will bear interest at the borrower’s option at a rate equal to (a) Term SOFR, as defined in the new facility, plus a margin of 4.00% plus a liquidity premium set by the lender at the time of borrowing or (b) the Base Rate (determined by reference to the greatest of (i) the Prime Rate, as defined in the new facility, at such time, (ii) one-half of 1.00% in excess of the Federal Funds Effective Rate, as defined in the new facility, at such time, and (iii) Term SOFR for a one-month tenor in effect at such time plus 1.00%). Falcon’s facility contains certain restrictive financial covenants which require Falcon to maintain certain levels of working capital, debt, and net worth. Falcon was in compliance with these financial covenants as of March 31, 2023. 36 Table of Contents Results of Operations Comparison of the Three Months Ended March 31, 2023 and 2022 The following table sets forth our results of operations expressed as dollars and as a percentage of total revenues for the periods indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months ​ ​ ​ ​ Three Months ​ ​ ​ ​ ​ Ended % of ​ Ended % of ​ (Thousands) ​ March 31, 2023 ​ Revenues ​ March 31, 2022 ​ Revenues ​ Net sales ​ $ 205,442 ​ 100.0 % ​ $ 186,428 ​ 100.0 % ​ Costs of sales ​ 171,144 83.3 % ​ 147,997 79.4 % ​ Gross profit ​ 34,298 16.7 % ​ 38,431 20.6 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Selling, general and administrative expense ​ 34,122 16.6 % ​ 35,061 18.8 % ​ Acquisition, restructuring and integration expense ​ 6,644 3.2 % ​ 2,483 1.3 % ​ Loss on disposal of property, plant and equipment ​ 896 0.4 % ​ 105 0.1 % ​ Total operating expenses ​ 41,662 20.3 % ​ 37,649 20.2 % ​ Income (loss) from operations ​ (7,364) (3.6) % ​ 782 0.4 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other (income) expense ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest expense ​ ​ 6,029 ​ 2.9 % ​ ​ 8,048 ​ 4.3 % ​ Change in fair value of warrant liabilities ​ (5,529) (2.7) % ​ — 0.0 % ​ Other, net ​ 821 0.4 % ​ (977) (0.5) % ​ Loss before income taxes ​ (8,685) (4.2) % ​ (6,289) (3.4) % ​ Income tax benefit ​ (4,359) (2.1) % ​ (1,584) (0.8) % ​ Net loss ​ $ (4,326) (2.1) % ​ $ (4,705) (2.5) % ​ Net (loss) income attributable to non-controlling interest ​ 15 0.0 % ​ 171 0.1 % ​ Net loss attributable to shareholders ​ (4,341) (2.1) % ​ (4,876) (2.6) % ​ Accretion of Series A Convertible Preferred Shares ​ ​ (429) ​ (0.2) % ​ ​ — ​ 0.0 % ​ Accumulating preferred dividends ​ — 0.0 % ​ (6,737) (3.6) % ​ Net loss attributable to common shareholders ​ $ (4,770) (2.3) % ​ $ (11,613) (6.2) % ​ ​ 37 Table of Contents The following table sets forth selected financial information of our reportable segments for the three months ended March 31, 2023 and 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Sustainable ​ ​ Total of ​ ​ Beverage ​ Sourcing & ​ Intersegment ​ Reportable (Thousands) ​ Solutions ​ Traceability ​ Revenues (1) ​ Segments Segment Revenues: ​ ​ ​ ​ ​ 2023 ​ $ 181,209 ​ $ 25,391 ​ $ (1,158) ​ $ 205,442 ​ 2022 ​ ​ 148,362 ​ ​ 47,772 ​ ​ (9,706) ​ ​ 186,428 ​ Segment Costs of Sales: ​ ​ ​ ​ ​ ​ ​ 2023 ​ ​ 150,714 ​ ​ 20,430 ​ n/a ​ 171,144 ​ 2022 ​ ​ 114,446 ​ ​ 33,551 ​ n/a ​ 147,997 ​ Segment Gross Profit: ​ ​ ​ ​ ​ ​ ​ 2023 ​ ​ 30,495 ​ ​ 3,803 ​ n/a ​ 34,298 ​ 2022 ​ ​ 33,916 ​ ​ 4,515 ​ n/a ​ 38,431 ​ Segment Adjusted EBITDA: ​ ​ ​ ​ ​ ​ ​ 2023 ​ ​ 8,421 ​ ​ 32 ​ n/a ​ 8,453 ​ 2022 ​ ​ 10,420 ​ ​ 974 ​ n/a ​ 11,394 ​ Segment Adjusted EBITDA Margin: ​ ​ ​ ​ ​ 2023 ​ 4.6 % 0.1 % n/a ​ 4.1 % 2022 ​ 7.0 % 2.6 % n/a ​ 6.1 % (1) Intersegment revenues represent sales of green coffee from our SS&T segment to our Beverage Solutions Segment. Net Sales Net Sales from our Beverage Solutions segment were $181.2 million for the three months ended March 31, 2023, compared to $148.4 million for the three months ended March 31, 2022, an increase of approximately 22%. The increase was primarily due to a $24.7 million increase in the sale of coffee and tea products, driven by a 44% increase in single serve cup volumes, and increased pricing from the passthrough of higher underlying green coffee prices during the quarter, compared to the three months ended March 31, 2022. Net Sales from our SS&T segment totaled $24.2 million, net of intersegment revenues, during the three months ended March 31, 2023, decreasing 36% compared to $38.1 million during the three months ended March 31, 2022. The decrease is driven by a decrease in sales volume, as a result of a decrease in customer demand, which decreased 57% for the three months ended March 31, 2023 compared to the three months ended March 31, 2022. Costs of Sales In our Beverage Solutions segment, costs of sales increased to $150.7 million for the three months ended March 31, 2023, from $114.4 million for the three months ended March 31, 2022. The increase in costs of sales was driven by an increase in sales volume, specifically in single serve cups, and by inflationary increases in materials and production costs for the three months ended March 31, 2023 compared to the three months ended March 31, 2022. In our SS&T segment, costs of sales decreased $13.1 million to $20.4 million for the three months ended March 31, 2023 compared to the three months ended March 31, 2022. This decrease is primarily due to a decrease in green coffee sales volume. Costs of sales for the three months ended March 31, 2023 included $1.2 million of net unrealized gains on forward sales and purchase contracts and mark-to-market adjustments on green coffee inventory compared to $1.1 million of net unrealized gains for the three months ended March 31, 2022. 38 Table of Contents Selling, General and Administrative Expense ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended March 31, ​ ​ ​ 2023 ​ 2022 ​ ​ ​ ​ % of Segment ​ ​ % of Segment ​ (Thousands) ​ Amount ​ Revenues ​ Amount ​ Revenues ​ Beverage Solutions ​ $ 31,802 17.5 % $ 32,258 21.7 % ​ Sustainable Sourcing & Traceability ​ 2,320 9.6 % 2,803 7.4 % ​ Total selling, general and administrative expense ​ $ 34,122 16.6 % $ 35,061 18.8 % ​ ​ Total selling, general and administrative expenses in our Beverage Solutions segment decreased $0.5 million to $31.8 million for the three months ended March 31, 2023, compared to the three months ended March 31, 2022. The decrease is primarily due to a $1.3 million decrease in personnel-related expenses and a $1.3 million decrease in freight costs, partially offset by $1.7 million of SG&A expenses related to the Kohana business, which was acquired in the fourth quarter of 2022. In our SS&T segment, selling, general and administrative costs decreased $0.5 million due to a $0.2 million decrease in bad debt expense and a $0.1 million decrease in personnel-related expenses. Acquisition, Restructuring and Integration Expense Acquisition, restructuring and integration expenses for the three months ended March 31, 2023 were $6.6 million, approximately $6.1 million of which related to the costs associated with the integration of our new enterprise resource planning system, including internal and external costs related to post go-live system support, and $0.5 million of which related to the acquisition of Bixby Roasting Co. During the three months ended March 31, 2022, we incurred $2.5 million of acquisition, restructuring and integration expenses, approximately $1.6 million related to public-company preparedness costs, and $0.6 million related to the integration of our new enterprise resource planning system. Interest Expense ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended March 31, ​ (Thousands) 2023 2022 ​ Interest expense, net ​ ​ ​ Cash: ​ ​ ​ Term loan facility ​ $ 2,750 ​ $ — ​ Prior term loan facility ​ ​ — ​ ​ 5,744 ​ Revolving credit facility ​ ​ 718 ​ ​ — ​ Prior ABL facility ​ — ​ 572 ​ Short-term related party debt ​ — ​ 428 ​ Subordinated related party debt ​ — ​ 200 ​ International trade finance lines ​ 1,212 ​ 198 ​ International notes payable ​ 31 ​ 84 ​ Other ​ 865 ​ 152 ​ Total cash interest ​ 5,576 ​ 7,378 ​ Non-cash: ​ ​ ​ Amortization of deferred financing costs ​ 453 ​ 523 ​ Payments-in-kind interest ​ — ​ 147 ​ Total non-cash interest ​ 453 ​ 670 ​ Total interest expense, net ​ $ 6,029 ​ $ 8,048 ​ ​ Interest expense for the three months ended March 31, 2023 was $6.0 million compared to $8.0 million for the three months ended March 31, 2022. The decrease is primarily due to a decrease in the amount of outstanding term loans under the Term Loan Facility compared to the term loan facility that was in place during the prior year. Additionally, the interest rate applicable to our Term Loan Facility was 7.4% at March 31, 2023 compared to an interest rate of 9.75% on the term loan facility that was in place at March 31, 2022. 39 Table of Contents Income Tax Benefit Income tax benefit for the three months ended March 31, 2023 was $4.4 million, resulting in an effective tax rate of 50.2%. The effective tax rate for the current period differs from the federal statutory rate primarily due to a change in the valuation allowance against domestic deferred tax assets and discrete items, including the windfall from the equity-based compensation awards. Income tax benefit for the three months ended March 31, 2022 was $1.6 million, resulting in an effective tax rate of 25.2%. Critical Accounting Estimates We make certain judgements and use certain estimates and assumptions when applying accounting principles in the preparation of our financial statements. The nature of those estimates and assumptions are material due to the levels of subjectivity and judgment necessary to account for highly uncertain factors or the susceptibility of such factors to change. We believe the current assumptions and other considerations used to estimate amounts reflected in our financial statements are appropriate. However, if actual experience differs from the assumptions and other considerations used in estimating amounts reflected in our financial statements, the resulting changes could have a material adverse effect on our results of operations and, in certain situations, could have a material adverse effect on our financial condition. For further information on our critical accounting estimates, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the notes to our audited financial statements included in our Annual Report on Form 10-K filed with the SEC on March 21, 2023. As of March 31, 2023, there have been no material changes to these estimates. Liquidity and Capital Resources Our principal liquidity needs are to fund operating expenses, meet debt service obligations, and fund investment activities, which include capital expenditures. Our primary sources of liquidity and capital resources are cash on hand, cash provided by operating activities, and available borrowings under our Revolving Credit Facility. Our ability to generate cash provided by operating activities is dependent on several factors, including our ability to generate net sales and manage costs in-line with our expectations. Westrock’s net sales for the three months ended March 31, 2023 was approximately $205.4 million and was negatively affected by a decrease in green coffee sales volume, driven by a decrease in customer demand. Westrock’s cost of sales for the three months ended March 31, 2023 was approximately $171.1 million and was negatively impacted by an increase in green coffee, tea and liquid extracts costs, driven by higher single serve cup sales volumes and inflationary increases on materials costs. During the year ended December 31, 2022 and through the quarter ending March 31, 2022, we were and continue to be impacted by the negative effects of inflation on both our customer volume demand and manufacturing costs, including price increases in fuel, food, materials and labor. We attempt to mitigate the impacts of inflation wherever possible. Our mitigation strategies include working with our vendors and suppliers to ensure that we have adequate access to raw materials to reliably provide our customers with the high-quality products they expect. In addition, where possible, we seek to recover inflation-impacted costs by passing these costs onto our customers through periodic pricing increases. However, our pricing increases often lag our cost increases, including increases in commodity costs. The persistence of these negative effects on our business could adversely impact our ability to reach our revenue and other financial targets. Failure to meet our financial targets may restrict our liquidity and capital resources and our ability to maintain compliance with our financial covenants and may require us to modify, delay, or abandon some of our planned future expansion or development, or to otherwise enact operating cost reductions, which could have a material adverse effect on our business, operating results, financial condition, covenant compliance and ability to achieve our intended business objectives. ​ 40 Table of Contents Credit Agreement On August 29, 2022, the Company entered into the Credit Agreement among the Company, Westrock Beverage Solutions, LLC, as the borrower (the “Borrower”), Wells Fargo Bank, N.A., as administrative agent, collateral agent, and swingline lender, Wells Fargo Securities, LLC, as sustainability structuring agent, and each issuing bank and lender party thereto. The Credit Agreement includes a $175.0 million Revolving Credit Facility and a $175.0 million Term Loan Facility. Proceeds from the Term Loan Facility were used for paying off existing indebtedness. On February 14, 2023, the Company entered into an Incremental Assumption Agreement and Amendment No. 1 (the “Amendment”) to its Credit Agreement, which established a new class of incremental term loan commitments in the form of a senior secured delayed draw term loan credit facility (the “Delayed Draw Term Loan Facility”) in the aggregate principal amount of $50.0 million, proceeds of which may be used to fund capital expenditures related to our extract and ready-to-drink facility in Conway, Arkansas, or for general corporate purposes. ​ The Credit Agreement matures on August 29, 2027. All obligations under the Credit Agreement are guaranteed by the Company and each of the Borrower’s domestic subsidiaries, which comprise our Beverage Solutions segment, and are secured by substantially all of the Company’s assets. ​ Borrowings under the Revolving Credit Facility and the Term Loan Facility will bear interest, at the Borrower’s option, initially at an annual rate equal to (i) Term SOFR plus a credit spread adjustment of 0.10% for loans with an interest period of one month, 0.15% for loans with an interest period of three months and 0.25% for loans with an interest period of six months, as applicable, (the “Adjusted Term SOFR”) or (ii) the base rate (determined by reference to the greatest of (i) the rate of interest last quoted by The Wall Street Journal in the U.S. as the prime rate in effect, (ii) the NYFRB Rate from time to time plus 0.50% and (iii) the Adjusted Term SOFR for a one month interest period plus 1.00%, (the “Base Rate”)), in each case plus the Applicable Margin. The Applicable Margin ranges from 1.50% to 2.50% for Adjusted Term SOFR loans and from 0.50% to 1.50% for Base Rate loans, in each case depending on the total net leverage ratio. Commitment fees on the daily unused amount of commitments under the Revolving Credit Facility range from 0.20% to 0.35% depending on the total net leverage ratio. At March 31, 2023, we had $55.0 million of outstanding borrowings under the Revolving Credit Facility, with a weighted average interest rate of 7.3%, and the interest rate applicable to our Term Loan Facility was 7.4%. ​ The interest rates under the Delayed Draw Term Loan Facility are the same as the interest rates with respect to the initial term loans under the Term Loan Facility, and the commitment fees applying to the unused portion of the Delayed Draw Term Loan Facility are the same as the commitment fees with respect to the Revolving Credit Facility. Any delayed draw term loan funded under the Delayed Draw Term Loan Facility will mature on August 29, 2027. As of the date of this Quarterly Report on Form 10-Q, no borrowings have been made under the Delayed Draw Term Loan Facility. ​ The Term Loan Facility requires quarterly principal payments during the first three years of approximately $2.2 million (1.25% of the original principal balance). Quarterly payments increase to approximately $3.3 million and $4.4 million (1.875% and 2.5% of the original principal balance) during the fourth and fifth years, respectively. ​ We incurred $6.0 million of financing fees in connection with the Credit Agreement. $3.0 million of the fees were allocated to the Term Loan Facility and are being amortized utilizing the frozen effective yield method based on the interest rate in place at the issuance of the Term Loan Facility. $3.0 million of the fees were allocated to the Revolving Credit Facility, are reported within other long-term assets on the Condensed Consolidated Balance Sheets and are being amortized ratably over the term of the Revolving Credit Facility. We had $2.6 million of standby letters of credit outstanding at March 31, 2023. ​ The Credit Agreement contains two financial covenants requiring maintenance of a total net leverage ratio not to exceed 4.50 to 1.00, with a stepdown to 4.00 to 1.00 on the 18-month anniversary of the closing date of Credit Agreement (with an option to increase to 4.50 to 1.00 following certain permitted acquisitions), and an interest coverage ratio of at least 1.50 to 1.00 (the “Financial Covenants”). As of March 31, 2023, the Company was in compliance with the Financial Covenants. ​ 41 Table of Contents International Debt and Lending Facilities ​ On March 21, 2023, the Company entered into a $70 million working capital trade finance facility with multiple financial institutions through its subsidiary, Falcon. The facility replaced Falcon’s then existing working capital trade finance facility. The new facility is uncommitted and repayable on demand, with certain of Falcon’s assets pledged as collateral against the facility. The new facility will mature one year from inception. Borrowings under the new facility will bear interest at the borrower’s option at a rate equal to (a) Term SOFR plus a margin of 4.00% plus a liquidity premium set by the lender at the time of borrowing or (b) the Base Rate (determined by reference to the greatest of (i) the Prime Rate at such time, (ii) one-half of 1.00% in excess of the Federal Funds Effective Rate at such time, and (iii) Term SOFR for a one-month tenor in effect at such time plus 1.00%). At March 31, 2023, there was $35.0 million of borrowings outstanding under the facility, which is recorded in short-term debt in the Condensed Consolidated Balance Sheets. Falcon’s facility contains certain restrictive financial covenants which require Falcon to maintain certain levels of working capital, debt, and net worth. Falcon was in compliance with these financial covenants as of March 31, 2023. ​ Westrock Coffee International, LLC, through its subsidiary Rwanda Trading Company, maintains two mortgage-backed lending facilities with a local bank in Rwanda: (a) a short-term trade finance facility with a balance of $7.8 million at March 31, 2023 and (b) a long-term note payable with a balance of $1.5 million at March 31, 2023. ​ Current and Long-Term Liquidity ​ Our liquidity needs are to fund operating expenses, meet debt service obligations, and fund both current and long-term investment activities, which include capital expenditures. We expect to use cash from operations and borrowings available under the Credit Agreement, as amended, to fund our near-term growth strategies, which include, (i) extending and enhancing product offerings through innovation, (ii) expanding our customer base, (iii) expanding geographically, (iv) funding accretive acquisitions, and (v) continuing to drive margin expansion. ​ A key component of our long-term growth strategy will be to complete the build-out of our extract and ready-to-drink manufacturing facility in Conway, Arkansas, which will utilize state-of-the-art equipment specifically designed to efficiently manufacture and package a wide range of beverages, such as canned or bottled cold brew coffees, lattes, assorted teas, and juice-based products. The Company expects to incur approximately $275.0 million of capital expenditures over the next three (3) years to complete the enhanced build-out of the facility. ​ We believe cash from operations and available borrowings under our Revolving Credit Facility and Delayed Draw Down Term Loan Facility will provide sufficient cash on-hand to complete the build-out. However, the Company will continuously evaluate its liquidity needs, and may seek to opportunistically access additional liquidity, including through either the debt or equity capital markets. If it is determined that we have insufficient liquidity to fund the Conway build-out or fund our acquisition strategy, we may delay the build-out of the Conway facility and/or modify the scope of the build-out and we may reprioritize our strategy to focus on organic growth opportunities, which may have an adverse impact on our ability to achieve our growth objectives. ​ Warrant Proceeds As of March 31, 2023, we had 19,144,120 outstanding Warrants to purchase 19,144,120 Common Shares, exercisable at an exercise price of $11.50 per share, which expire on the earliest to occur of August 26, 2027 (i.e. the five year anniversary of the Closing), redemption or liquidation. The exercise of warrants, and any proceeds we may receive from their exercise, are highly dependent on the price of our Common Shares and the spread between the exercise price of the Warrant and the price of our Common Shares at the time of exercise. For example, to the extent that the price of our Common Shares exceeds $11.50 per share, it is more likely that holders of our Warrants will exercise their Warrants. If the price of our Common Shares is less than $11.50 per share, it is unlikely that such holders will exercise their Warrants. Even if our Warrants are in the money, there can be no assurance that Warrant holders will exercise their Warrants prior to their expiration. Our Public Warrants under certain conditions, as described in their warrant agreement, are redeemable by the Company at a price of $0.01 per warrant or on a cashless basis. Our Private Placement Warrants are not redeemable so long as they are held by the Riverview Sponsor or its permitted transferees (except as otherwise set forth herein). As such, it is possible that we may never generate any or only very limited cash proceeds from the 42 Table of Contents exercise of our Warrants. As of the date of this Report on Form 10-Q, we have neither included nor intend to include any potential cash proceeds from the exercise of our Warrants in our short-term or long-term liquidity sources or capital resource planning. We do not expect to rely on the cash exercise of Warrants to fund our operations. Instead, we intend to rely on our primary sources of cash discussed above to continue to support our operations. Therefore, the availability or unavailability of any proceeds from the exercise of our Warrants is not expected to affect our ability to fund our operations. We will continue to evaluate the probability of Warrant exercise over the life of our Warrants and the merit of including potential cash proceeds from the exercise thereof in our liquidity sources and capital resources planning. To the extent such Warrants are exercised, additional Common Shares will be issued, which will result in dilution to the holders of our Common Shares and increase the number of Common Shares eligible for resale in the public market. Sales of substantial numbers of such shares in the public market could adversely affect the market price of our Common Shares, which increases the likelihood of periods when our Warrants will not be in the money prior to their expiration. Redemptions of Series A Preferred Shares After February 26, 2028 (i.e. the five-and-half year anniversary of the Closing), any holder of Series A Preferred Shares may require Westrock to redeem all or any whole number of such holder’s Series A Preferred Shares in cash, subject to applicable law and the terms of any credit agreement or similar arrangement pursuant to which a third-party lender provides debt financing to Westrock or its subsidiaries, at a redemption price per share equal to the greater of (a) the liquidation preference and (b) the product of (i) the number of Common Shares that would have been obtained from converting one Series A Preferred Share on the redemption notice date and (ii) the simple average of the daily volume-weighted average price per Common Share for the ten (10) trading days ending on and including the trading day immediately preceding the redemption notice date. Assuming that the liquidation preference of the Series A Preferred Shares remains $11.50 per share and all 23,566,229 Series A Preferred Shares remain outstanding after February 26, 2028, we estimate an aggregate redemption payment of at least approximately $271.0 million. If Westrock was required by the holders to redeem a significant number of Series A Preferred Shares, Westrock may not have enough cash available (including through draws on its credit facility) for other purposes such as paying dividends on the Common Shares, repurchases of Common Shares, financing acquisitions or other expansions, paying employee incentives and executing its business strategy. An outflow of a significant amount of cash from Westrock as a result of redemptions of the Series A Preferred Shares may cause a deterioration in the financial condition of Westrock and our ability to pay our other obligations and/or execute our business strategy. The impact of such redemptions on Westrock will depend, among other things, on the financial condition of Westrock at the time of such redemptions, including the amount of available cash on hand and ability to draw on Westrock’s credit facilities or obtain other sources of financing, the business strategies and objectives of Westrock at that time and the magnitude of such redemptions. Additionally, we may reserve cash, refrain from pursuing other business objectives and/or direct cash away from other business objectives to ensure that we have sufficient available cash to satisfy holder redemptions and this may adversely affect our business and financial condition and ability to execute on our business strategy. ​ Contractual and Other Obligations ​ Our material contractual and other obligations include the payment of principal and interest under our debt obligations and future purchase of inventory obligations. Our Term Loan Facility requires quarterly principal payments during the first three years of approximately $2.2 million (1.25% of the original principal balance). Quarterly payments increase to approximately $3.3 million and $4.4 million (1.875% and 2.5% of the original principal balance) during the fourth and fifth years, respectively. We have no other material obligations to pay principal amounts of our long-term debt obligations prior to their maturity. Future purchase obligations of $278.4 million as of March 31, 2023 consist of commitments for the purchase of inventory over the next 12 months. These obligations represent the minimum contractual obligations expected under the normal course of business. There are no material purchase obligations beyond 12 months. 43 Table of Contents We have future obligations to repurchase $10.2 million of inventory associated with repurchase agreements in which the Company’s SS&T segment has sold inventory to a third party and from whom the Company’s Beverage Solution segment has an obligation to repurchase. Capital Expenditures We categorize our capital expenditures as (i) growth, (ii) maintenance, (iii) customer beverage equipment or (iv) other. We define growth capital expenditures as investments in our manufacturing facilities that will contribute to revenue growth by increasing production capacity, improving production efficiencies, or related to production of new products. Maintenance capital expenditures are those necessary to keep our existing manufacturing equipment fully operational. Customer beverage equipment represents Company-owned equipment that is deployed in our customers’ locations. Capital expenditures for the three months ended March 31, 2023 and 2022 were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Customer ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Beverage ​ ​ ​ ​ ​ ​ (Thousands) ​ Growth ​ Maintenance ​ Equipment ​ Other ​ Total Three months ended March 31, 2023 ​ $ 17,766 ​ $ 311 ​ $ 566 ​ $ 982 ​ $ 19,625 Three months ended March 31, 2022 ​ $ 6,781 ​ $ 514 ​ $ 1,013 ​ $ 389 ​ $ 8,697 ​ We expect to invest to expand our extract and ready-to-drink product manufacturing capacity in Conway, Arkansas, for which we currently expect to spend approximately $275 million over the next 3 years. As of March 31, 2023, approximately $40.0 million has been spent towards our Conway facility. If circumstances warrant, we may need to take measures to conserve cash, which may include a suspension, delay, or reduction in growth and/or maintenance capital expenditures. We continually assess our capital expenditure plans in light of developments impacting our business, including the needs of our customers. Off-Balance Sheet Arrangements As of the date of this Quarterly Report on Form 10-Q, we do not have any off-balance sheet arrangements. Recent Accounting Pronouncements See Note 3, Summary of Significant Accounting Policies, to the Condensed Consolidated Financial Statements included in Item I of Part 1 of this Quarterly Report on Form 10-Q for a detailed discussion of recent accounting pronouncements. 44 Table of Contents Item 3. Quantitative and Qualitative Disclosures About Market Risk ​ There have been no material changes in the market risks discussed in Item 7A “Quantitative and Qualitative Disclosures Regarding Market Risk” in our Annual Report on Form 10-K filed with the SEC on March 21, 2023.