What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-05-09 compared with 2023-11-09 · 173 added, 219 removed, 139 unchanged (74% 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 nine months ended September 30, 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, 2023 Audited Consolidated Financial Statements and notes thereto included in our Annual Report on Form 10-K filed with the U.S.

23 unchanged sentences

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, net, 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 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 transaction, 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.

2 unchanged sentences

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 and nine months ended September 30, 2023 and 2022 is as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

Net income (loss)

Interest expense, net

The reconciliation of our net loss to EBITDA and Adjusted EBITDA for the three months ended March 31, 2024 and 2023 is as follows:

Three Months Ended March 31,

Interest expense

Income tax expense (benefit)

Depreciation and amortization

Acquisition, restructuring and integration expense

Transaction, restructuring and integration expense

Change in fair value of warrant liabilities

9 unchanged sentences

Significant Developments

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 $50.0 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.

Select Milk Joint Venture

On February 15, 2024, the Company entered into a non-binding letter of intent with Select Milk Producers (“Select Milk”) to establish a joint venture that will construct and operate an extended shelf life and aseptic multi-serve bottle line facility to be co-located at Select Milk’s factory in Littlefield, Texas.

Westrock will produce and provide the joint venture with coffee extract from its extract and ready-to-drink facility in Conway, Arkansas and Select Milk will provide the joint venture with milk from its Littlefield facility.

The Company and Select Milk expect to ship the first product from these lines in the first quarter of 2026.

Convertible Notes Offering

On February 15, 2024, the Company sold and issued in a private placement $72.0 million in aggregate principal amount of 5.00% convertible senior notes due 2029 (the “Convertible Notes”).

The Convertible Notes will be unsecured and senior obligations of the Company and will accrue interest at a rate of 5.00% per annum.

The purchasers of the Convertible Notes are Westrock Group, LLC (a holder of more than 5% of the outstanding Common Shares and an affiliate of Scott Ford, the Company’s Chief Executive Officer and a member of the board of directors of the Company), Wooster Capital, LLC (an affiliate of Joe Ford, chairman of the board of directors), an affiliate of The Stephens Group, LLC (a holder of more than 5% of the outstanding Common Shares), an affiliate of Sowell Westrock, L.P.

(a holder of more than 5% of the outstanding Common Shares), HF Direct Investments Pool, LLC (a holder of more than 10% of the outstanding Common Shares), an affiliate of the Herbert Hunt family and an individual investor.

The offer and sale of the Convertible Notes was authorized and approved unanimously by the Audit & Finance Committee of the board of directors in accordance with the Company’s Related Party Transactions Policy.

See Note 11 to our Condensed Consolidated Financial Statements for additional discussion related to the Convertible Notes offering.

Credit Agreement Amendment

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

1 (the “First 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 facility (the “Delayed Draw Term Loan Facility”) in the aggregate principal amount of $50.0 million.

In January 2024, the Company borrowed the $50.0 million available to it under the terms of the Delayed Draw Term Loan Facility.

On February 15, 2024, Westrock Beverage Solutions, LLC, a Delaware limited liability company and wholly-owned subsidiary of the Company (the “Borrower”), entered into Amendment No.

3 (the “Third Amendment”) to the Credit Agreement.

The Third Amendment modified the existing covenant relief period (the “Covenant Relief Period”), which commenced on June 30, 2023 and will end on the earlier to occur of (i) April 1, 2026 and (ii) any date following June 30, 2024, on which the borrower elects to terminate the Covenant Relief Period subject to satisfaction of certain conditions.

During the Covenant Relief Period, the Company’s ability to incur additional indebtedness and make investments, restricted payments and junior debt restricted payments will be more limited.

The Third Amendment permits the Company to issue convertible notes, including the Convertible Notes.

During the Covenant Relief Period, the applicable margin for any term SOFR rate loan will range from 3.00% to 4.00% and for any ABR loan will range from 2.00% to 3.00%, in each case depending on the secured net leverage ratio.

After the Covenant Relief Period, the applicable margin for any term SOFR rate loan will range from 2.00% to 3.00% and for any ABR loan will range from 1.00% to 2.00%, in each case depending on the secured net leverage ratio.

The Credit Agreement, as amended, requires the Borrower to maintain compliance with (i) a secured net leverage ratio at levels ranging from 4.50:1.00 to 6.25:1.00 and stepping down to 4.50:1.00 by April 2026 and (ii) an interest coverage ratio of at least 1.50:1.00 on and prior to September 30, 2025 and at least 2.00:1.00 on December 31, 2025 and thereafter.

million and (ii) an anti-cash hoarding covenant, which shall be effective only during the Covenant Relief Period, requiring the Borrower to have no more than $20 million of unrestricted cash on the last day of each calendar month when revolving loans or letters of credit are outstanding or on the date of borrowing of a revolving loan.

See Note 11 to our Condensed Consolidated Financial Statements for additional discussion related to the Third Amendment.

Equity Distribution Agreement

On March 15, 2024, the Company entered into an Equity Distribution Agreement (the “Equity Distribution Agreement”) with Wells Fargo Securities, LLC and Truist Securities, Inc.

(the “Agents”), pursuant to which the Company may from time to time offer and sell shares of the Company’s common stock, par value $0.01 per share (the “Common Shares”), not to exceed 5,000,000 Common Shares in the aggregate (the “Placement Securities”) through the Agents as part of an “at the market” offering program.

The offer and sale of the Placement Securities will be made pursuant to the Company’s shelf registration statement on Form S-3 (File No.

333-274827) that was declared effective by the SEC on November 17, 2023, and a related prospectus supplement, which the Company filed with the SEC on March 15, 2024.

The Company is not obligated to sell any Placement Securities pursuant to the Equity Distribution Agreement.

Subject to the terms and conditions of the Equity Distribution Agreement, the Agents have agreed to use commercially reasonable efforts, consistent with their normal trading and sales practices, to sell Placement Securities from time to time in accordance with the Company’s placement notice, including any price, time or size limits or other customary parameters or conditions the Company may deem appropriate.

Under the Equity Distribution Agreement and subject to the terms of the placement notice delivered by the Company, an Agent may sell Placement Securities by (x) any method permitted by law and deemed to be an “at-the-market offering” as defined in Rule 415 of the Securities Act and the rules and regulations thereunder, including, without limitation, sales made directly on the Nasdaq Global Select Market at market prices prevailing at the time of sale or at prices related to prevailing market prices, on any other existing trading market for the Common Shares or to or through a market maker, and (y) any other method permitted by law, including but not limited to in privately negotiated transactions.

Subject to the terms and conditions of the Equity Distribution Agreement, the Company may also from time to time sell Placement Securities to an Agent as principal.

The Equity Distribution Agreement may be terminated for any reason, at any time by either the Company or any of the Agents upon ten days’ prior written notice to the other parties, or by the Agents at any time in certain circumstances, including the occurrence of a material adverse change in the Company.

In addition, the Equity Distribution Agreement will automatically terminate upon the earlier of (1) two years from the date of the Equity Distribution Agreement and (2) the issuance and sale of all of the Placement Securities through the Agents.

The Company will pay each Agent a commission of 1.5% of the gross proceeds from the sales of Common Shares sold by such Agent pursuant to the Equity Distribution Agreement.

The Company has agreed to provide the Agents with customary indemnification and contribution rights.

The Company has agreed to pay certain specified expenses incurred by the Agents in connection with the offering.

The Equity Distribution Agreement contains customary representations and warranties and conditions to the placements of the Placement Securities pursuant thereto.

Results of Operations

Comparison of the Three Months Ended September 30, 2023 and 2022

Comparison of the Three Months Ended March 31, 2024 and 2023

The following table sets forth our results of operations expressed as dollars and as a percentage of total revenues for the periods indicated:

September 30, 2023

September 30, 2022

March 31, 2024

March 31, 2023

Costs of sales

Selling, general and administrative expense

Acquisition, restructuring and integration expense

Transaction, restructuring and integration expense

Loss on disposal of property, plant and equipment

Total operating expenses

Income (loss) from operations

Loss from operations

Other (income) expense

Interest expense, net

Interest expense

Change in fair value of warrant liabilities

Income (loss) before income taxes and equity in earnings from unconsolidated entities

Loss before income taxes and equity in earnings from unconsolidated entities

Income tax expense (benefit)

Equity in (earnings) loss from unconsolidated entities

Net income (loss)

Net income (loss) attributable to non-controlling interest

Net income (loss) attributable to shareholders

Participating securities' share in earnings

Net (loss) income attributable to non-controlling interest

Net loss attributable to shareholders

Accretion of Series A Convertible Preferred Shares

Loss on extinguishment of Redeemable Common Equivalent Preferred Units, net

Common equivalent preferred dividends

Accumulating preferred dividends

Net income (loss) attributable to common shareholders

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

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, 2024 and 2023:

Segment Revenues:

4 unchanged sentences

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 $176.8 million for the three months ended September 30, 2023, compared to $173.5 million for the three months ended September 30, 2022, an increase of approximately 1.9%.

The increase was primarily due to an $18.2 million increase in the sale of flavors, extracts and ingredients products, which was primarily driven by the acquisition of Kohana Coffee, LLC (“Kohana”) and a 43.6% increase in non-Kohana manufactured extracts volumes, partially offset by a $14.9 million decrease in the sale of coffee and tea products, which was driven by a 10.8% decrease in roast and ground coffee volumes and a 12.9% decrease in single serve cup volumes compared to the three months ended September 30, 2022.

Net Sales from our SS&T segment, net of intersegment revenues, totaled $42.8 million for the three months ended September 30, 2023, decreasing 24.7% compared to $56.8 million for the three months ended September 30, 2022.

The decrease is driven by a decrease in sales volume, as a result of a decrease in customer demand, which decreased 19.0% for the three months ended September 30, 2023 compared to the three months ended September 30, 2022.

Net Sales from our Beverage Solutions segment were $158.1 million for the three months ended March 31, 2024, compared to $181.2 million for the three months ended March 31, 2023, a decrease of approximately 12.8%.

The decrease was primarily due to a $27.6 million decrease in the sale of coffee and tea products, driven by a 23.8% decrease in roast and ground coffee volumes, partially offset by a $4.6 million increase in the sale of flavors, extracts and ingredients products, driven by a 41.5% increase in flavors, extracts and ingredients volumes.

Net Sales from our SS&T segment, net of intersegment revenues, totaled $34.4 million for the three months ended March 31, 2024, increasing 42.1% compared to $24.2 million for the three months ended March 31, 2023.

The increase is driven by an increase in sales volume, which increased 100.9%, partially offset by a 27.9% decrease in average sales price per pound for the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

The decrease in the average sales price per pound is directly correlated to the global commodities price.

Costs of Sales

In our Beverage Solutions segment, costs of sales increased to $144.9 million for the three months ended September 30, 2023, from $136.4 million for the three months ended September 30, 2022.

The increase in costs of sales was primarily driven by an increase in costs related to the acquisition of Kohana for the three months ended September 30, 2023 compared to the three months ended September 30, 2022.

In our SS&T segment, costs of sales decreased $13.2 million to $39.6 million for the three months ended September 30, 2023 compared to the three months ended September 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 three months ended September 30, 2023 included $1.2 million of net unrealized losses on forward sales and purchase contracts and mark-to-market adjustments on green coffee inventory compared to $0.5 million of net unrealized losses for the three months ended September 30, 2022.

In our Beverage Solutions segment, costs of sales decreased to $125.1 million for the three months ended March 31, 2024, from $150.7 million for the three months ended March 31, 2023.

The decrease in costs of sales was primarily driven by a decrease in the sale of coffee and tea products for the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

In our SS&T segment, costs of sales increased $9.7 million to $30.2 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

This increase is primarily due to an increase in green coffee sales volume.

Costs of sales in our SS&T segment for the three months ended March 31, 2024 included $1.6 million of net unrealized gains on forward sales and purchase contracts and mark-to-market adjustments on green coffee inventory compared to $1.2 million of net unrealized gains for the three months ended March 31, 2023.

Selling, General and Administrative Expense

Three Months Ended September 30,

Three Months Ended March 31,

Beverage Solutions

1 unchanged sentence

Total selling, general and administrative expense

Total selling, general and administrative expenses in our Beverage Solutions segment increased $5.8 million to $34.6 million for the three months ended September 30, 2023, compared to the three months ended September 30, 2022.

The increase is primarily due to a $3.0 million increase in expenses associated with the start-up of our extract and ready-to-drink facility in Conway, Arkansas compared to no such expenses during the three months ended September 30, 2022.

Additionally, during the three months ended September 30, 2023, the Company incurred approximately $2.4 million in expenses related to equity-based compensation compared to $0.7 million of such expenses during the three months ended September 30, 2022.

In our SS&T segment, selling, general and administrative costs were relatively unchanged compared to the three months ended September 30, 2022.

Acquisition, Restructuring and Integration Expense

Acquisition, restructuring and integration expenses for the three months ended September 30, 2023 were $3.1 million, approximately $1.2 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 and $1.0 million of which primarily related to non-capitalizable costs associated with registration statements.

During the three months ended September 30, 2022, we incurred $4.0 million of acquisition, restructuring and integration expenses, of which approximately $1.3 million related to the integration of our new enterprise resource planning system, $1.2 million related to public-company preparedness costs and $0.9 million related to startup costs for our Conway, Arkansas manufacturing facility.

Interest Expense, net

Three Months Ended September 30,

Interest expense, net

Term loan facility

Prior term loan facility

Prior term loan facility early termination fee

Total selling, general and administrative expenses in our Beverage Solutions segment increased $10.2 million to $42.0 million for the three months ended March 31, 2024, compared to the three months ended March 31, 2023.

The increase is primarily due to a $7.9 million increase in expenses associated with the start-up of our extract and ready-to-drink facility in Conway, Arkansas.

In our SS&T segment, selling, general and administrative costs were relatively unchanged compared to the three months ended March 31, 2023.

Transaction, Restructuring and Integration Expense

Transaction, restructuring and integration expenses for the three months ended March 31, 2024 were $3.0 million, approximately $2.2 million of which related to the Equity Distribution Agreement.

During the three months ended March 31, 2023, we incurred $6.6 million of transaction, restructuring and integration expenses, 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.

Interest Expense

Three Months Ended March 31,

Interest expense

Term loan and delayed draw term loan facilities

Revolving credit facility

Convertible notes payable

Convertible notes payable - related party

Supply chain finance program

Prior ABL facility

Subordinated related party debt

International trade finance lines

2 unchanged sentences

Amortization of deferred financing costs

Write-off of deferred financing costs

Payments-in-kind interest

Capitalized interest

Total non-cash interest

Total interest expense, net

Interest expense, net for the three months ended September 30, 2023 was $7.8 million compared to $13.4 million for the three months ended September 30, 2022.

The decrease is primarily due to the $4.3 million of unamortized deferred financing fees associated with the termination of our prior term loan facility and our prior ABL facility, and $1.6 million of early termination payments associated with the prior term loan facility that were incurred during the three months ended September 30, 2022.

No such costs were incurred in the three months ended September 30, 2023.

These decreases were partially offset by interest on the outstanding revolving credit facility and supply chain finance program borrowings.

Furthermore, during the three months ended September 30, 2023, the Company capitalized approximately $1.0 million of interest costs associated with the build-out of our extract and ready-to-drink facility in Conway, Arkansas, while no such interest was capitalized during the three months ended September 30, 2022.

Total interest expense

Interest expense for the three months ended March 31, 2024 was $7.6 million compared to $6.0 million for the three months ended March 31, 2023.

$1.9 million of the increase is attributable to interest expense associated with our term loan and delayed draw term loan facilities, primarily due to an increase in interest rates.

In addition, we incurred $2.0 million in interest on our supply chain finance program borrowings for the three months ended March 31, 2024 compared to no such interest for the three months ended March 31, 2023.

Furthermore, during the three months ended March 31, 2024, the Company capitalized approximately $2.8 million of interest costs associated with the build-out of our extract and ready-to-drink facility in Conway, Arkansas, while no such interest was capitalized during the three months ended March 31, 2023.

Change in Fair Value of Warrant Liabilities

Warrant liabilities are adjusted to fair value at each reporting period, with any change in fair value recognized in the Condensed Consolidated Statement of Operations.

The change in fair value of warrant liabilities for the three months ended September 30, 2023 resulted in recognition of $25.1 million of gains compared to recognition of $5.2 million of losses during the three months ended September 30, 2022.

Income Tax Expense (Benefit)

Income tax benefit for the three months ended September 30, 2023 was $5.2 million, resulting in an effective tax rate of (45.7%).

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 nontaxable income related to a change in the fair value of warrants.

Income tax benefit for the three months ended September 30, 2022 was $0.4 million, resulting in an effective tax rate of 3.2%.

Comparison of the Nine Months Ended September 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:

Nine Months Ended

September 30, 2023

September 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

Income (loss) from operations

Other (income) expense

Interest expense, net

Change in fair value of warrant liabilities

Income (loss) before income taxes and equity in earnings from unconsolidated entities

Income tax expense (benefit)

Equity in (earnings) loss from unconsolidated entities

Net income (loss)

Net income (loss) attributable to non-controlling interest

Net income (loss) attributable to shareholders

Accretion of Series A Convertible Preferred Shares

Loss on extinguishment of Redeemable Common Equivalent Preferred Units, net

Common equivalent preferred dividends

Accumulating preferred dividends

Net income (loss) attributable to common shareholders

The following table sets forth selected financial information of our reportable segments for the nine months ended September 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 $547.7 million for the nine months ended September 30, 2023, compared to $492.7 million for the nine months ended September 30, 2022, an increase of approximately 11.2%.

The increase was primarily due to a $40.6 million increase in the sale of flavors, extracts and ingredients products, which was primarily driven by the acquisition of Kohana and a 16.6% increase in non-Kohana manufactured extracts volumes, a $16.3 million increase in the sale of coffee and tea products, driven by an 8.3% increase in single serve cup volumes, and increased pricing from the pass through of higher underlying green coffee prices during the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022.

Net Sales from our SS&T segment, net of intersegment revenues, totaled $102.0 million during the nine months ended September 30, 2023, decreasing 30.8% compared to $147.4 million during the nine months ended September 30, 2022.

The decrease is driven by a 32% decrease in sales volume, as a result of a decrease in customer demand, for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022.

Costs of Sales

In our Beverage Solutions segment, costs of sales increased $68.6 million to $452.9 million for the nine months ended September 30, 2023, compared to $384.3 million for the nine months ended September 30, 2022.

The increase in costs of sales was primarily driven by an increase in costs related to the acquisition of Kohana, increases in materials costs, and an increase in flavors, extracts and ingredients volume for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022.

In our SS&T segment, costs of sales decreased $45.5 million to $91.8 million for the nine months ended September 30, 2023 compared to $137.4 million for the nine months ended September 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 nine months ended September 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 $0.8 million of net unrealized losses for the nine months ended September 30, 2022.

Selling, General and Administrative Expense

Nine Months Ended September 30,

Beverage Solutions

Sustainable Sourcing & Traceability

Total selling, general and administrative expense

Total selling, general and administrative expenses in our Beverage Solutions segment increased $4.0 million to $97.8 million for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022.

The increase is primarily due to a $6.6 million increase in expenses associated with the start-up of our extract and ready-to-drink facility in Conway, Arkansas and a $5.1 million increase in equity-based compensation costs, partially offset by a $3.1 million decrease in freight costs, a $2.5 million decrease in management and consulting fees associated with the S&D Coffee, Inc.

acquisition and a $1.5 million decrease in personnel-related expenses.

In our SS&T segment, selling, general and administrative costs decreased $0.1 million, primarily due to a $0.2 million decrease in professional fees.

Acquisition, Restructuring and Integration Expense

Acquisition, restructuring and integration expenses for the nine months ended September 30, 2023 were $12.7 million, approximately $9.7 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 $2.0 million of non-capitalizable costs associated with acquisitions and registration statements.

During the nine months ended September 30, 2022, we incurred $8.7 million of acquisition, restructuring and integration expenses, of which approximately $3.7 million related to public-company preparedness costs, $2.9 million related to the integration of our new enterprise resource planning system and $1.6 million related to equity-funded startup costs.

Interest Expense, net

Nine Months Ended September 30,

Interest expense, net

Term loan facility

Prior term loan facility

Prior term loan facility early termination fee

Revolving credit facility

Supply chain finance program

Prior ABL facility

Short-term related party debt

Subordinated related party debt

International trade finance lines

International notes payable

Total cash interest

Amortization of deferred financing costs

Write-off of deferred financing costs

Payments-in-kind interest

Capitalized interest

Total non-cash interest

Total interest expense, net

Interest expense, net for the nine months ended September 30, 2023 was $21.2 million compared to $30.3 million for the nine months ended September 30, 2022.

The decrease is primarily due to lower cash interest of $3.6 million on our outstanding borrowings, as well as the $4.3 million of unamortized deferred financing fees associated with the termination of the prior term loan facility and prior ABL facility, and $1.6 million of early termination payments associated with the prior term loan facility that were incurred during the three months ended September 30, 2022.

No such costs were incurred in the three months ended September 30, 2023.

The decrease in cash interest is 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.

This decrease was partially offset by interest on the outstanding revolving credit facility and supply chain finance program borrowings for the nine months ended September 30, 2023 compared to no such interest during the nine months ended September 30, 2022.

Furthermore, during the nine months ended September 30, 2023, the Company capitalized approximately $1.0 million of interest costs associated with the build-out of our extract and ready-to-drink facility in Conway, Arkansas, while no such interest was capitalized during the nine months ended September 30, 2022.

Change in Fair Value of Warrant Liabilities

The change in fair value of warrant liabilities for the nine months ended September 30, 2023 resulted in recognition of $18.8 million of gains compared to recognition of $5.2 million of losses during the nine months ended September 30, 2022.

The change in fair value of warrant liabilities for the three months ended March 31, 2024 resulted in recognition of $0.1 million of gains compared to recognition of $5.5 million of gains during the three months ended March 31, 2023.

Income Tax Expense (Benefit)

Income tax benefit for the nine months ended September 30, 2023 was $3.3 million, resulting in an effective tax rate of (18.7%).

Income tax benefit for the nine months ended September 30, 2022 was $3.5 million, resulting in an effective tax rate of 13.0%.

Income tax expense for the three months ended March 31, 2024 was $5.8 million, resulting in an effective tax rate of (32.6)%.

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 certain permanent differences, including nondeductible expenses related to executive compensation.

Income tax benefit for the three months ended March 31, 2023 was $4.4 million, resulting in an effective tax rate of 50.2%.

Critical Accounting Estimates

4 unchanged sentences

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 15, 2024.

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

As of March 31, 2024, 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 primary sources of liquidity and capital resources are cash on hand, cash provided by operating activities, and available borrowings under our Credit Agreement.

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.

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.

Failure to meet our financial targets, including any adverse impact from changes or delays in the estimated timing and volume of products to be commercialized in our extract and ready-to-drink manufacturing facility in Conway, Arkansas, 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.

2 unchanged sentences

Credit Agreement

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.

Proceeds from the Term Loan Facility were used for paying off existing indebtedness.

The Revolving Credit Facility and the Term Loan Facility will mature on August 29, 2027.

The Company is party to 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”), (b) a senior secured first lien term loan facility in an initial aggregate principal amount of $175.0 million (the “Term Loan Facility”), and (c) 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.

The Revolving Credit Facility, the Term Loan Facility and the Delayed Draw 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.

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 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 September 30, 2023, we had $45.0 million of outstanding borrowings under the Revolving Credit Facility, with a weighted average interest rate of 9.0%, and the interest rate applicable to our Term Loan Facility was 9.2%, 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 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.

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 September 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.

Borrowings under the Revolving Credit Facility, the Term Loan Facility and the Delayed Draw Term Loan Facility will bear interest, at the Borrower’s option, initially at an annual rate equal to (a) 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 (b) 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.

At March 31, 2024, the interest rate applicable to our Term Loan Facility was 9.2%, and the interest rate applicable to our Delayed Draw Term Loan Facility was 8.7%.

At March 31, 2024, no amounts were outstanding under the Revolving Credit Facility and we had $2.6 million of standby letters of credit outstanding.

On February 15, 2024, Westrock Beverage Solutions, LLC, a Delaware limited liability company and wholly owned subsidiary of the Company (the “Borrower”), entered into Amendment No.

3 (the “Third Amendment”) to the Credit Agreement.

During the Covenant Relief Period, the Company’s ability to incur additional indebtedness and make investments, restricted payments and junior debt restricted payments will be more limited.

The Third Amendment permits the Company to issue convertible notes, including the Convertible Notes.

During the Covenant Relief Period, the Applicable Margin for any term SOFR rate loan will range from 3.00% to 4.00% and for any ABR loan will range from 2.00% to 3.00%, in each case depending on the secured net leverage ratio.

After the Covenant Relief Period, the Applicable Margin for any term SOFR rate loan will range from 2.00% to 3.00% and for any ABR loan will range from 1.00% to 2.00%, in each case depending on the secured net leverage ratio.

The Credit Agreement, as amended, also includes (i) a minimum liquidity covenant requiring the Borrower not to permit its liquidity, measured as of the last business day of each calendar month commencing March 29, 2024, to be less than $15 million and (ii) an anti-cash hoarding covenant, which shall be effective only during the Covenant Relief Period, requiring the Borrower to have no more than $20 million of unrestricted cash on the last day of each calendar month when revolving loans or letters of credit are outstanding or on the date of borrowing of a revolving loan.

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

The Term Loan Facility and Delayed Draw Term Loan Facility requires quarterly principal payments totaling approximately $2.8 million (1.25% of the original principal balance).

Quarterly payments increase to approximately $4.2 million and $5.6 million (1.875% and 2.5% of the original principal balance) during the final two years of the agreements, respectively.

We incurred a total of $2.4 million in financing fees in connection with the Third Amendment.

Approximately $1.3 million of the fees were allocated to the Term Loan Facility and are being amortized over the remaining term of the Term Loan Facility utilizing the frozen effective yield method based on the interest rate in place at the issuance of the

Term Loan Facility.

Approximately $1.0 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 remaining term of the Revolving Credit Facility.

Convertible Notes

On February 15, 2024, the Company sold and issued in a private placement $72.0 million in aggregate principal amount of 5.00% convertible senior notes due 2029 (the “Convertible Notes”), of which $50.0 million was from related parties.

The Convertible Notes are unsecured, senior obligations of the Company and accrue interest at a rate of 5.00% per annum.

The Convertible Notes are carried at amortized cost and are recorded in long-term debt, net and convertible notes payable – related party, net on the Condensed Consolidated Balance Sheets.

At March 31, 2024, the carrying value of the Convertible Notes was $71.5 million, of which $49.7 million was from related parties.

We incurred a total of $0.5 million of financing fees in connection with the Convertible Notes, which were ratably allocated to the convertible notes payable and the convertible notes payable – related party, respectively, and are being amortized into interest expense over the remaining term of the Convertible Notes utilizing the effective interest rate method.

Pursuant to the terms of the Convertible Notes, noteholders may convert their Convertible Notes at their option only in the following circumstances:

(i) during the period commencing on August 15, 2024, and prior to the close of business on the trading day immediately preceding August 15, 2028, if the closing price for at least 20 trading days (whether or not consecutive) during the period of any 30 consecutive trading days in the immediately preceding calendar quarter is equal to or greater than 130% of the conversion price;

(ii) during the period commencing on August 15, 2028, and prior to the close of business on the second scheduled trading day immediately preceding February 15, 2029, at any time;

and (iii) during the 35 trading days following the effective date of certain fundamental change transactions that occur prior to the close of business on the trading day immediately preceding August 15, 2028.

The Company will settle conversions by paying or delivering, as applicable, at the Company’s election, cash, Common Shares, or a combination of cash and Common Shares.

The Company may not issue more than 19.99% of the issued and outstanding Common Shares immediately prior to the issuance of the Convertible Notes in respect of the conversion of the Convertible Notes.

The initial conversion price of the Convertible Notes is $12.84, which corresponds to an initial conversion rate of approximately 77.88 Common Shares per $1,000 principal amount of Convertible Notes.

The conversion price and conversion rate are subject to customary adjustments.

International Debt and Lending Facilities

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

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

The facility is uncommitted and repayable on demand, with certain of Falcon’s assets pledged as collateral against the facility.

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 was set to mature one year from inception.

Borrowings under the facility bore interest at the borrower’s option at a rate equal to (a) Term SOFR, as defined in the 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 facility, at such time, (ii) one-half of 1.00% in excess of the Federal Funds Effective Rate, as defined in the facility, at such time, and (iii) Term SOFR for a one-month tenor in effect at such time plus 1.00%).

On March 8, 2024, Falcon renewed its working capital trade finance facility with multiple institutions.

The facility size was reduced from $70.0 million to $55.0 million and remains uncommitted and repayable on demand, with certain of Falcon’s assets pledged as collateral against the facility.

The facility will mature one year from inception.

Borrowings under the 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 September 30, 2023, there was $42.5 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 September 30, 2023.

Borrowings under the 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, as defined in the facility, at such time, (ii) one-half of 1.00% in excess of the Federal Funds Effective Rate, as defined in the facility, at such time, and (iii) Term SOFR for a one-month tenor in effect at such time plus 1.00%).

At March 31, 2024, there was $27.8 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, 2024.

On September 28, 2023, we entered into a $5.0 million unsecured working capital trade finance facility with responsAbility Climate Smart Agriculture & Food Systems Fund through our subsidiary, Falcon.

2 unchanged sentences

Government Securities Business Days before the Quotation Day;

or (b) the most recent applicable Term SOFR (as of Quotation Day) for the shortest period (for which Term SOFR is available) which exceeds the applicable interest period of that loan, in each case plus the applicable margin.

At September 30, 2023, there was $5.0 million of outstanding borrowings under the facility, which is recorded in long-term debt, net on the Condensed Consolidated Balance Sheets.

or (b) the most recent applicable Term SOFR (as of the Quotation Day) for the shortest period (for which Term SOFR is available) which exceeds the applicable interest period of that loan, in each case plus the applicable margin.

At March 31, 2024, there was $5.0 million of outstanding borrowings under the facility, of which $4.5 million and $0.5 million, is recorded in long-term debt, net and current maturities of long-term debt, respectively, on 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 tangible net worth.

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

Falcon was in compliance with these financial covenants as of March 31, 2024.

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 $8.5 million at September 30, 2023 and (b) a long-term note payable with a balance of $1.4 million at September 30, 2023.

Additionally, Rwanda Trading Company maintains three short-term futures contract-backed lending facilities from international institutions with outstanding balances of $0.8 million, $0.7 million and $0.6 million at September 30, 2023.

(a) a short-term trade finance facility with a balance of $6.7 million at March 31, 2024 and (b) a long-term note payable with a balance of $1.0 million at March 31, 2024.

Supply Chain Finance Program

The Company is party to a supply chain finance program (the “Program”) with a third-party financing provider to provide better working capital usage by deferring payments for certain raw materials.

Under the Program, the financing provider remits payment to the Company’s suppliers for approved invoices, and the Company repays the financing provider the amount of the approved invoices, plus a financing charge, on 180-day terms.

The Program is uncommitted and the financing provider may, at its sole discretion, cancel the Program at any time.

The Company may request cancellation of the Program in whole or in respect of one or more approved suppliers.

Due to the extension of payment terms beyond the original due date of approved invoices, obligations under the Program are recorded outside of accounts payable, within our supply chain finance program, on our Consolidated Balance Sheets.

As of March 31, 2024, there were $78.7 million obligations outstanding under the Program.

At-the-Market Common Stock Offering Program

We have an effective shelf registration statement on file with the SEC (the “Registration Statement”) to offer and sell various securities from time to time.

Under the registration statement, we have established an at-the-market common stock offering program (the “ATM Program”) to sell shares of common stock not to exceed 5,000,000 shares of Common Stock in the aggregate.

During the three months ended March 31, 2024, we did not make any sales under the ATM Program.

This program is intended to provide additional financial flexibility and an alternative mechanism to access the capital markets at an efficient cost as and when we need financing, including for acquisitions.

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 proceeds from the equity issuance in August

2023, 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.

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.

A key component of our long-term growth strategy is 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.

We expect that the material capital expenditures related to the facility will be completed by the first quarter of 2025.

We believe proceeds from the Delayed Draw Term Loans, Convertible Notes, cash from operations and borrowings available under the Revolving Credit Facility will provide sufficient cash on-hand 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, (v) continuing to drive margin expansion and (vi) completing the build-out of our extract and ready-to-drink manufacturing facility in Conway, Arkansas.

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.

1 unchanged sentence

Warrant Proceeds

As of September 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.

As of March 31, 2024, 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, 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.

3 unchanged sentences

Our Westrock 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 Westrock Private Placement Warrants are not redeemable so long as they are held by the Riverview Sponsor or its permitted transferees.

Our Westrock Private Placement Warrants, of which there were 2,026,046 outstanding at March 31,2024, are not redeemable so long as they are held by the existing holders or their permitted transferees.

As such, it is possible that we may never generate any or only very limited cash proceeds from the exercise of our warrants.

7 unchanged sentences

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.

After February 26, 2028, 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 23,511,922 Series A Preferred Shares remain outstanding after February 26, 2028, we estimate an aggregate redemption payment of at least approximately $270.4 million.

1 unchanged sentence

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.

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.

1 unchanged sentence

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.

Our Term Loan Facility and Delayed Draw Term Loan Facility require quarterly principal payments of 1.25% of the original principal.

Quarterly payments increase 1.875% and 2.5% of the original principal balance during the fourth and fifth years of the Credit Facility, 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 $234.0 million as of September 30, 2023 consist of commitments for the purchase of inventory over the next 12 months.

Future purchase obligations of $160.1 million as of March 31, 2024 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.

6 unchanged sentences

Customer beverage equipment represents Company-owned equipment that is deployed in our customers’ locations.

Capital expenditures for the nine months ended September 30, 2023 and 2022 were as follows:

Nine months ended September 30, 2023

Nine months ended September 30, 2022

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

Capital expenditures for the three months ended March 31, 2024 and 2023 were as follows:

Three months ended March 31, 2024

Three months ended March 31, 2023

During 2024, we expect to continue to invest to expand our extract and ready-to-drink product manufacturing capacity in Conway, Arkansas.

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.

7 unchanged sentences

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