Westrock Coffee Co

Results of Operations

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:

The following table sets forth selected financial information of our reportable segments for the three months ended March 31, 2024 and 2023:

Net Sales

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 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

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

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 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 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%.