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Item 2. Management’s Discussion and Analysis

2023-08-10 compared with 2023-05-11 · 169 added, 93 removed, 164 unchanged (62% of the section changed)

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.

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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,

The reconciliation of our net loss to EBITDA and Adjusted EBITDA for the three and six months ended June 30, 2023 and 2022 is as follows:

Three Months Ended June 30,

Six Months Ended June 30,

Interest expense

Income tax benefit

Income tax expense (benefit)

Depreciation and amortization

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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.

Credit Agreement Amendment

On June 30, 2023, we entered into Amendment No.

2 (the “Second Amendment”) to the Credit Agreement.

The Second Amendment established a covenant relief period (the “Covenant Relief Period”) commencing on June 30, 2023, and ending on the earlier to occur of (i) April 1, 2025 and (ii) the date following December 31, 2023, on which the Borrower delivers to the Administrative Agent a certificate of a responsible officer (a) electing to terminate the Covenant Relief Period, (b) demonstrating a total net leverage ratio less than 3.75x and (c) attaching projections demonstrating compliance with the total net leverage ratio financial covenant (as in effect prior to giving effect to the Covenant Relief Period) until the then-existing latest maturity date.

During the Covenant Relief Period, (i) the total net leverage ratio financial covenant will be (a) 5.00x for the test period ending June 30, 2023, (b) 5.25x for the test period ending September 30, 2023, (c) 5.50x for the test periods ending on or after December 31, 2023 to and including September 30, 2024, (d) 5.00x for the test period ending December 31, 2024 and (e) 4.50x for the test period ending March 31, 2025 and (ii) the applicable margin for any term SOFR rate loan will range from 2.50% to 3.75% and for any ABR loan will range from 1.50% to 2.75%, in each case depending on the total net leverage ratio.

After the Covenant Relief Period, the total net leverage ratio financial covenant and the applicable margin for term SOFR rate loans and ABR loans will revert to the pre-amendment terms of the Credit Agreement.

During and after the Covenant Relief Period, the minimum interest coverage ratio financial covenant will be 2.00x.

As of the date of this Quarterly Report on Form 10-Q, the Company was in compliance with its financial covenants.

PIPE Investment & Amended and Restated Investor Rights Agreement

On June 29, 2023, the Company entered into a subscription agreement (the “Subscription Agreement”) with HF Direct Investments Pool, LLC (the “HF Investor”), an affiliate of HF Capital, LLC, pursuant to which the Company agreed to sell and issue to the HF Investor and the HF Investor agreed to purchase from the Company 5,000,000 shares (the “HF Subscription Amount”) of common stock, par value $0.01 per share (the “Common Shares”), of the Company at a purchase price per share of $10.00 for aggregate gross proceeds to the Company of $50 million (such transaction, the “HF Investment”).

The Subscription Agreement also provides that following the Closing, the HF Investor shall have the right to designate one (1) director to the board of directors of the Company (the “Board”), subject to the terms and conditions of the Amended and Restated Investor Rights Agreement (as defined below).

As of the date of this Quarterly Report on Form 10-Q, the HF Investor has not exercised the right to designate a director to the Board.

Additionally, on June 29, 2023 and July 18, 2023, the Company entered into definitive agreements with an affiliate of the Herbert Hunt family (the “Hunt Investor”) and the Arkansas Teacher Retirement System (the “ARTRS” and together with the Hunt Investor, the “Investors”), respectively, pursuant to which the Company agreed to sell and issue to the Investors and the Investors agreed to purchase from the Company a total of 5,000,000 Common Shares of the Company at a purchase price per share of $10.00 for aggregate gross proceeds to the Company of $50.0 million (such transactions the “PIPE Investments”).

On August 3, 2023, the Company closed the HF Investment and PIPE Investments, issuing 10.0 million Common Shares, receiving aggregate gross proceeds of $100.0 million.

In connection with the HF Investment, the HF Investor and the current parties to that certain Investor Rights Agreement, dated April 4, 2022 (the “Investor Rights Agreement”), by and among the Company, affiliates of Brown Brothers Harriman & Co.

(the “BBH Investors”), and the other parties thereto entered into an amendment and restatement of the Investor Rights Agreement (the “Amended and Restated Investor Rights Agreement”), which became effective upon closing of the HF Investment.

Among other things, the Amended and Restated Investor Rights Agreement amended the Investor Rights Agreement to provide the HF Investor with the right to designate one (1) director to Class II of the Board, subject to the HF Investor (together with certain affiliates) owning at least 5% of the capital stock of the Company and the other terms and conditions set forth therein.

The HF Investment and PIPE Investments were subject to the potential exercise of preemptive rights (the “BBH Preemptive Rights”) of the BBH Investors to subscribe up to their pro-rata ownership of the capital stock of the Company, under the terms of that certain Investor Rights Agreement.

On July 24, 2023, the BBH Investors exercised the BBH Preemptive Rights to purchase approximately 1.9 million Common Shares at a purchase price per share of $10.00, under the terms of the Investor Rights Agreement.

On August 7, 2023, the Company sold and issued the Common Shares to the BBH Investors, receiving aggregate gross proceeds of approximately $18.8 million.

The issuance of Common Shares pursuant to the HF Investment, PIPE Investments and BBH Preemptive Rights, is intended to be exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”), by virtue of the exemption provided by Rule 506(b) of Regulation D promulgated under the Securities Act.

Results of Operations

Comparison of the Three Months Ended March 31, 2023 and 2022

Comparison of the Three Months Ended June 30, 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:

March 31, 2023

March 31, 2022

June 30, 2023

June 30, 2022

Costs of sales

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Total operating expenses

Income (loss) from operations

(Loss) income from operations

Other (income) expense

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Loss before income taxes

Income tax benefit

Income tax expense (benefit)

Net (loss) income attributable to non-controlling interest

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Net loss attributable to common shareholders

The following table sets forth selected financial information of our reportable segments for the three months ended March 31, 2023 and 2022:

The following table sets forth selected financial information of our reportable segments for the three months ended June 30, 2023 and 2022:

Segment Revenues:

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Intersegment revenues represent sales of green coffee from our SS&T segment to our Beverage Solutions segment.

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.

Net Sales from our Beverage Solutions segment were $189.7 million for the three months ended June 30, 2023, compared to $170.9 million for the three months ended June 30, 2022, an increase of approximately 11.0%.

The increase was primarily due to a $15.0 million increase in the sale of flavors, extracts and ingredients products, which was primarily driven by an increase in sales related to the Kohana extract business and the pass through of higher underlying green coffee costs, compared to the three months ended June 30, 2022.

Net Sales from our SS&T segment, net of intersegment revenues, totaled $35.0 million for the three months ended June 30, 2023, decreasing 33.4% compared to $52.5 million for the three months ended June 30, 2022.

The decrease is driven by a decrease in sales volume, as a result of a decrease in customer demand, which decreased 31% for the three months ended June 30, 2023 compared to the three months ended June 30, 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.

In our Beverage Solutions segment, costs of sales increased to $157.2 million for the three months ended June 30, 2023, from $133.7 million for the three months ended June 30, 2022.

The increase in costs of sales was primarily driven by inflationary increases in materials and production costs, an increase in flavors, extracts and ingredients volume, and an increase in green coffee costs driven by an increase in underlying commodities pricings for the three months ended June 30, 2023 compared to the three months ended June 30, 2022.

In our SS&T segment, costs of sales decreased $19.1 million to $31.8 million for the three months ended June 30, 2023 compared to the three months ended June 30, 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.

Costs of sales in our SS&T segment for the three months ended June 30, 2023 included $1.0 million of net unrealized gains on forward sales and purchase contracts and mark-to-market adjustments on green coffee inventory compared to $1.4 million of net unrealized losses for the three months ended June 30, 2022.

Selling, General and Administrative Expense

Three Months Ended March 31,

Three Months Ended June 30,

Beverage Solutions

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Total selling, general and administrative expense

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.

Total selling, general and administrative expenses in our Beverage Solutions segment decreased $1.2 million to $31.5 million for the three months ended June 30, 2023, compared to the three months ended June 30, 2022.

The decrease is primarily due to a $0.7 million decrease in freight costs.

In our SS&T segment, selling, general and administrative costs increased $0.3 million, primarily due to a $0.2 million increase in bad debt expense compared to the three months ended June 30, 2022.

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.

Acquisition, restructuring and integration expenses for the three months ended June 30, 2023 were $2.9 million, approximately $2.2 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 duplicative systems costs.

During the three months ended June 30, 2022, we incurred $2.3 million of acquisition, restructuring and integration expenses, of which approximately $0.9 million related to public-company preparedness costs and $0.8 million related to the integration of our new enterprise resource planning system.

Interest Expense

Three Months Ended March 31,

Interest expense, net

Three Months Ended June 30,

Interest expense

Term loan facility

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Revolving credit facility

Supply chain finance program

Prior ABL facility

Subordinated related party debt

International trade finance lines

International notes payable

Total cash interest

Amortization of deferred financing costs

Payments-in-kind interest

Total non-cash interest

Total interest expense

Interest expense for the three months ended June 30, 2023 was $7.4 million compared to $8.8 million for the three months ended June 30, 2022.

The decrease is primarily due to a decrease in the amount of outstanding term loans under the Term Loan Facility (as defined below) compared to the prior 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 June 30, 2023 compared to an interest rate of 9.75% on the prior term loan facility that was in place at June 30, 2022.

Income Tax Expense (Benefit)

Income tax expense for the three months ended June 30, 2023 was $6.2 million, resulting in an effective tax rate of (30.3%).

The effective tax rate for the current period differs from the federal statutory rate primarily due to an increase in the valuation allowance against domestic deferred tax assets and permanent differences, including nondeductible expenses related to a change in the fair value of warrants.

Income tax benefit for the three months ended June 30, 2022 was $1.5 million, resulting in an effective tax rate of 20.5%.

Comparison of the Six Months Ended June 30, 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:

Six Months Ended

June 30, 2023

June 30, 2022

Costs of sales

Selling, general and administrative expense

Acquisition, restructuring and integration expense

Loss on disposal of property, plant and equipment

Total operating expenses

(Loss) income from operations

Other (income) expense

Interest expense

Change in fair value of warrant liabilities

Loss before income taxes

Income tax expense (benefit)

Net (loss) income attributable to non-controlling interest

Net loss attributable to shareholders

Accretion of Series A Convertible Preferred Shares

Accumulating preferred dividends

Net loss attributable to common shareholders

The following table sets forth selected financial information of our reportable segments for the six months ended June 30, 2023 and 2022:

Segment Revenues:

Segment Costs of Sales:

Segment Gross Profit:

Segment Adjusted EBITDA:

Segment Adjusted EBITDA Margin:

Intersegment revenues represent sales of green coffee from our SS&T segment to our Beverage Solutions segment.

Net Sales from our Beverage Solutions segment were $370.9 million for the six months ended June 30, 2023, compared to $319.2 million for the six months ended June 30, 2022, an increase of approximately 16.2%.

The increase was primarily due to a $29.5 million increase in the sale of coffee and tea products, driven by a 21% increase in single serve cup volumes, a $22.6 million increase in the sale of flavors, extracts and ingredients products, which was primarily driven by an increase in sales related to the Kohana extract business, and increased pricing from the pass through of higher underlying green coffee prices during the six months ended June 30, 2023 compared to the six months ended June 30, 2022.

Net Sales from our SS&T segment, net of intersegment revenues, totaled $59.2 million during the six months ended June 30, 2023, decreasing 34.7% compared to $90.6 million during the six months ended June 30, 2022.

The decrease is driven by a 38% decrease in sales volume, as a result of a decrease in customer demand, for the six months ended June 30, 2023 compared to the six months ended June 30, 2022.

Costs of Sales

In our Beverage Solutions segment, costs of sales increased to $308.0 million for the six months ended June 30, 2023, compared to $248.1 million for the six months ended June 30, 2022.

The increase in costs of sales was primarily driven by inflationary increases in materials and production costs in our roast and ground coffee products, an increase in flavors, extracts and ingredients volume, and an increase in green coffee costs driven by an increase in underlying commodities pricings for the six months ended June 30, 2023 compared to the six months ended June 30, 2022.

In our SS&T segment, costs of sales decreased $32.2 million to $52.2 million for the six months ended June 30, 2023 compared to the six months ended June 30, 2022.

This decrease is primarily due to a decrease in green coffee sales volume.

Costs of sales in our SS&T segment for the six months ended June 30, 2023 included $2.2 million of net unrealized gains on forward sales and purchase contracts and mark-to-market adjustments on green coffee inventory compared to $0.3 million of net unrealized losses for the six months ended June 30, 2022.

Selling, General and Administrative Expense

Six Months Ended June 30,

Beverage Solutions

Sustainable Sourcing & Traceability

Total selling, general and administrative expense

Total selling, general and administrative expenses in our Beverage Solutions segment decreased $1.6 million to $63.3 million for the six months ended June 30, 2023, compared to the six months ended June 30, 2022.

The decrease is primarily due to a $2.0 million decrease in freight costs.

In our SS&T segment, selling, general and administrative costs decreased $0.2 million, primarily due to a $0.3 million decrease in professional fees compared to the six months ended June 30, 2022.

Acquisition, Restructuring and Integration Expense

Acquisition, restructuring and integration expenses for the six months ended June 30, 2023 were $9.5 million, approximately $8.3 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 duplicative systems costs and $0.5 million of which related to the acquisition of Bixby Roasting Co.

During the six months ended June 30, 2022, we incurred $4.8 million of acquisition, restructuring and integration expenses, of which approximately $2.5 million related to public-company preparedness costs and $1.4 million related to the integration of our new enterprise resource planning system.

Interest Expense

Six Months Ended June 30,

Interest expense

Term loan facility

Prior term loan facility

Revolving credit facility

Supply chain finance program

Prior ABL facility

Short-term related party debt

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Total non-cash interest

Total interest expense, net

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.

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%.

Total interest expense

Interest expense for the six months ended June 30, 2023 was $13.4 million compared to $16.9 million for the six months ended June 30, 2022.

Income Tax Expense (Benefit)

Income tax expense for the six months ended June 30, 2023 was $1.9 million, resulting in an effective tax rate of (6.4%).

Income tax benefit for the six months ended June 30, 2022 was $3.1 million, resulting in an effective tax rate of 22.7%.

Critical Accounting Estimates

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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.

As of June 30, 2023, there have been no material changes to these estimates.

Liquidity and Capital Resources

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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.

On June 30, 2023, we amended the Credit Agreement to provide greater access to available borrowings and covenant relief, and in August 2023, the Company sold and issued approximately 11.9 million Common Shares pursuant to the terms of the HF Investment, PIPE Investments and BBH Preemptive Rights, receiving aggregate gross proceeds of approximately $118.8 million.

The proceeds from this equity issuance will be used for capital expenditures related to our extract and ready-to-drink facility in Conway, Arkansas.

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.

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.

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.

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.

On August 29, 2022, we entered into a credit agreement (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) a senior secured first lien revolving credit facility in an initial aggregate principal amount of $175.0 million (the “Revolving Credit Facility”) and (b) a senior secured first lien term

loan facility in an initial aggregate principal amount of $175.0 million (the “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.

The Credit Agreement matures on August 29, 2027.

The Revolving Credit Facility and the Term Loan Facility will mature 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.

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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.

The Credit Agreement contains two financial covenants requiring the maintenance of a total net leverage ratio and an interest coverage ratio (the “Financial Covenants”).

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%.

At June 30, 2023, we had $80.0 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%, and we had $2.6 million of standby letters of credit outstanding.

On February 14, 2023, we entered into an Incremental Assumption Agreement and Amendment No.

1 (the “Amendment”) to the 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 existing 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.

On June 30, 2023, we entered into Amendment No.

2 (the “Second Amendment”) to the Credit Agreement.

During and after the Covenant Relief Period, the minimum interest coverage ratio financial covenant will be 2.00x.

As of June 30, 2023, we were in compliance with the Financial Covenants.

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.

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.

On March 21, 2023, we entered into a $70 million working capital trade finance facility with multiple financial institutions through our subsidiary, Falcon.

The facility replaced Falcon’s then existing working capital trade finance facility.

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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.

At June 30, 2023, there was $32.8 million of outstanding borrowings 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.

Falcon was in compliance with these financial covenants as of June 30, 2023.

Westrock Coffee International, LLC, through its subsidiary Rwanda Trading Company, maintains two mortgage and inventory-backed lending facilities with a local bank in Rwanda:

(a) a short-term trade finance facility with a balance of $8.8 million at June 30, 2023 and (b) a long-term note payable with a balance of $1.4 million at June 30, 2023.

Additionally, Rwanda Trading Company maintains three short-term futures contract-backed lending facilities from international institutions with outstanding balances of $2.5 million, $1.2 million and $0.9 million at June 30, 2023.

Current and Long-Term Liquidity

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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.

We believe proceeds from the HF Investment, PIPE Investments and BBH Preemptive Rights, 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.

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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.

As of June 30, 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.

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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

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.

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 exercise of our Warrants.

As of the date of this Quarterly 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.

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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.

Future purchase obligations of $193.3 million as of June 30, 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.

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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:

Three months ended March 31, 2023

Three months ended March 31, 2022

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.

Capital expenditures for the six months ended June 30, 2023 and 2022 were as follows:

Six months ended June 30, 2023

Six months ended June 30, 2022

We expect to continue to invest to expand our extract and ready-to-drink product manufacturing capacity in Conway, Arkansas.

As of June 30, 2023, approximately $78.0 million has been spent towards the 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.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis