Westrock Coffee Company - Q4 2022

Transcript

Operator (participant)

Hello, welcome to the Westrock Coffee Company's fourth quarter 2022 earnings conference call. My name is Valerie. I will be your conference coordinator today. Following prepared remarks, we will open the call for your questions with instructions to be given at that time. I will now hand the call over to Clay Crumbliss of ICR. Please begin.

Clay Crumbliss (Managing Director, Investor Relations)

Thank you, and welcome to Westrock Coffee Company's fourth quarter 2022 earnings conference call. Today's call is being recorded. With us are Mr. Scott Ford, Co-founder and Chief Executive Officer, and Mr. Chris Pledger, Chief Financial Officer. By now, everyone should have access to the company's fourth quarter earnings release issued earlier today. This information is available on the investor relations section of Westrock Coffee Company's website at investors.westrockcoffee.com. Certain comments made on this call include forward-looking statements which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and beliefs concerning future events and are subject to several risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements.

Please refer to today's press release and other filings with the SEC for a more detailed discussion of the risk factors that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. Also, discussions during the call will use some non-GAAP financial measures as we describe business performance. The SEC filings, as well as the earnings press release, provide reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures. With that, it is my pleasure to turn the call over to Scott Ford, our Co-founder and Chief Executive Officer.

Scott Ford (Co-founder and CEO)

Good afternoon, everyone. Thank you, Clay. I'm delighted to be here with you as we report our fourth quarter and full year 2022 financial results. As noted in the headlines of our release, our year-over-year adjusted EBITDA growth was 23% for the fourth quarter and 27% for fiscal year 2022. These are fabulous results. I am grateful to the entire Westrock Coffee team who worked tirelessly all year to deliver them. Ask anyone on the team, they can tell you, 2022 was a year of unbelievable accomplishments amid staggering challenges. We became a public company during a very difficult time for the public equity markets and have been one of the best-performing new issues of 2022.

This transaction allowed us to delever our balance sheet and provided us access to enough capital to build out not only the first, but also the second phase of our new Conway, Arkansas extract and ready-to-drink facility. With well over half of the capacity of this combined facility already under sales contracts with leading RTD coffee brands, we are excited to be positioned to enter a completely new era of EBITDA creation over the next two to three years. While we plan for the future, we operate in the here and now. In 2022, we encountered a significant number of operational level challenges. We began 2022 with the onset of the Omicron COVID variant, which delayed an expected economic recovery, and then faced a surge of inflation and gasoline price hikes through the summer, all of which negatively impacted our business.

Our year ended with the late arrival of significant production equipment for our single-serve and extract units, which created customer delivery issues and negatively impacted our costs and margins. Our team had to fight for every inch of progress in every season of what could have otherwise been a fairly impressive and reasonably easy year. Through all the good and the bad of 2022, our team worked tirelessly to deliver record adjusted EBITDA of up 20%, while also making significant advances on integrating and improving our internal operations, sales, and support functions.

These advances, coupled with the recent arrival and onboarding of our long-delayed manufacturing equipment, have set us up for another record year in 2023, even as we continue to spend as needed to build the scaled platform necessary to monetize the value of our new Conway extracts and RTD plant, which, when fully online, is set to expand our EBITDA, not by percentage factors, but quite possibly by multiples. Before I turn the call over to Chris Pledger, our CFO, let me say a word about two acquisitions we made over the past few months. In November, we closed on the acquisition of Kohana Coffee, an extract and RTD business in Richmond, California.

This acquisition was important for us in that it allowed us to add several new customers on our Beverage Solutions platform, and more importantly, it allowed us to accelerate the development, production, and distribution of RTD products in cans and multi-serve bottles for key existing customers. Similarly, the acquisition of Bixby Roasting in February allowed us to expand our growing influencer-led sales channel and add two outstanding sales executives to our team. Miles Fisher and Remington Hotchkiss are gonna be impact players for Westrock Coffee over time. These kind of incremental gains expand our platform and help drive growth as we build for our future. They are exactly the kind of acquisition opportunities we remain focused on today. With that, I'll turn the call over to Chris, who will walk you through our recent financial performance.

Chris Pledger (CFO)

Thanks, Scott. Good afternoon, everyone. I'll begin my remarks with an overview of our fourth quarter and our full year 2022 results. Then I'll provide some commentary on our outlook for 2023. Total company net sales for the fourth quarter increased 20% year-over-year to $227.7 million, while gross profit, excluding the impact of mark-to-market adjustment, decreased $1 million to $37 million. Our sales growth was driven by a 57% increase in single-serve cup volumes and increased pricing from the pass-through of higher underlying green coffee prices in the quarter.

This growth was partially offset by a 6% decrease in roast and ground coffee volumes. The year-over-year decrease in gross profit was driven by higher material and production labor costs due to inflation, in-period and out-of-period inventory adjustments, and our continued efforts to absorb the 57% growth year-over-year in single-serve cup volume. Despite these headwinds, our consolidated adjusted EBITDA for the fourth quarter was $17.5 million, an increase of approximately 23% compared to the fourth quarter of 2021, driven by reductions in SG&A, primarily related to personnel cost savings. For the full year of 2022, net sales were $867.9 million, while gross profit, excluding the impact of mark-to-market adjustments, was $156.3 million, an increase of 10% compared to full year 2021.

Consolidated adjusted EBITDA for 2022 grew 27% to $60.1 million, coming in at the low end of our guided range. As we outlined in our third quarter call, our 2022 financial results were impacted by three main factors. First, the Omicron COVID variant in the first quarter, followed by rapidly rising inflation through the middle part of the year, had a significant negative impact on U.S. consumer spending. This impacted our business in the form of lower product sales in our away from home channels, particularly in restaurants and convenience stores, and inflation impacted labor costs, freight, and material costs across all of our products. Second, it took longer and cost more in terms of equipment, labor, and material to absorb the 50% year-over-year growth in our single-serve cup orders.

As Scott mentioned, we have put additional manufacturing equipment into service in the first quarter of 2023, which is leveling out these service issues. We have additional equipment coming online in the second quarter, which will free up additional capacity. As we continue to grow our single-serve platform, we feel very good about our ability to more efficiently monetize these increased product volumes. Finally, our team has performed really well in 2022, staying disciplined and focusing on the levers we have to pull in order to respond to these significant macroeconomic and operational challenges. On a segment basis, our Beverage Solutions segment contributed $192.6 million in net sales for the fourth quarter of 2022, which represents year-over-year growth of 28%. Adjusted EBITDA in the fourth quarter of 2022 was $15.2 million, increasing 31% compared to the prior year fourth quarter.

For the full year, our Beverage Solutions segment generated $54 million adjusted EBITDA, a 30% increase over 2021, driven by 50% growth in our single-serve cup volume and 8% growth in our flavors, extracts, and ingredients products, which were partially offset by a 7% decrease in roast and ground coffee volumes. As we've said before, an important part of our growth algorithm is the mix shift over time into our higher margin single-serve in flavors, extracts, and ingredient products. Our 2022 results validate this continuing trend. Turning towards our Sustainable Sourcing & Traceability segment, or SS&T, sales net of inter-segment revenues were $35.1 million during the fourth quarter of 2022, a decrease of 12% compared to the fourth quarter of 2021.

Adjusted EBITDA was $2.3 million in the fourth quarter of 2022 compared to $2.7 million in the prior year fourth quarter. The decrease is primarily attributable to decreased volumes in the quarter. For the full year, our SS&T segment contributed sales net of inter-segment revenues of $182.6 million and Adjusted EBITDA of $6.1 million, growing 24% and 7% respectively compared to 2021. These increases are driven by a higher average sales price per pound for green coffee, which grew 35% year-over-year as sales volume decreased approximately 9% from 2021 levels. The increase in average sales price per pound is directly correlated to global commodity prices.

During the year, the volume of green coffee from our SS&T segment that is utilized by our Beverage Solutions segment grew 173%, which is important in that it keeps margin within the system and it expands the coverage of our traceable and transparent supply chains. With respect to our capital expenditures, during the fourth quarter, we incurred approximately $40 million of CapEx, $30 million of which was growth capital related to our extract and RTD facility in Conway, Arkansas. These expenditures primarily consisted of infrastructure spending and equipment deposits for our glass and can lines. We incurred $5 million of growth CapEx tied to the continued single-serve capacity expansion in our Little Rock, Arkansas facility.

This single-serve CapEx is already having a benefit in 2023, as new machines are allowing us to increase production to align with customer demand and to improve the overall efficiency of our single-serve cup operation. On a project basis, we continue to anticipate that the total CapEx cost of phases one and two of our Conway extract and RTD facility will be $275 million, and that once it's fully online, we will generate approximately $100 million in EBITDA per year. As Scott mentioned, this project remains on time and on budget, and we look forward to the first product being produced in Conway in the first quarter of 2024. At quarter end, we had approximately $192 million of consolidated unrestricted cash in undrawn revolving credit commitments..

Our consolidated net leverage ratio at December thirty-first was 2.9 times based on fourth quarter annualized adjusted EBITDA. We believe we have ample access to liquidity to achieve our near-term growth targets and capital expenditure needs. As we look ahead to 2023, we expect adjusted EBITDA to grow between 10% and 25%, which translates to a range of $66 million to $75 million in adjusted EBITDA. This guidance represents our current expectations regarding the performance of the business. However, actual results may differ materially from these estimates. We expect our 2023 financial performance to be driven by several significant new customer and product wins that will come online in 2023. Growth in our extract volume as our expansion project in Concord, North Carolina is complete in May, and we benefit from the volume growth that expansion allows.

Growth in single-serve cup volumes as we get the full year benefit of the increased single-serve volume we experienced in the second half of 2022. Growth in RTD can sales as we continue to scale our operations in Richmond, California, and operational improvements we are putting in place to more efficiently monetize all of these opportunities. We will continue to closely manage costs in our existing business while we continue to invest in the equipment and, more importantly, in the team that will deliver the growth to come from our Conway extract and RTD facility in 2024. With that, I'll hand the call back over to the operator for questions.

Operator (participant)

Thank you. Ladies and gentlemen, if you'd like to ask a question, please press star one one on your phone. Again, to ask a question, please press star one one. One moment, please. Our first question comes from the line of Todd Brooks of Benchmark. Your line is open.

Todd Brooks (Managing Director and Senior Analyst)

Hey, thank you. Good evening, gentlemen. A couple of questions for you. One, just looping back to the equipment delay that you talked about in later in Q4 that's kind of slid into Q1. Is there any way to size the impact so that we can think about maybe what type of drag that was on Q4 results?

Scott Ford (Co-founder and CEO)

This is Scott. Hey, Todd. Well, frankly, you would get a debate. The reality is those are the main line that was late was due in October and is now coming in May. It was coming out of Europe, where everybody was kind of slow to get back going. We were able to fill part of that gap by going to Israel and getting a couple of machines that could alleviate, I would say, most of the burden of being caught short. If you look at the aggregate picture, absent that, I think it probably cost us a few million dollars

There are people that would say, "Well, on a net-net basis, you know, because orders came in in this sequence instead of that one, it might not have cost us quite that much." I think it probably cost us a few million dollars in EBITDA, and it was a major pain in the neck with our customers. It was a, it was a really nasty spell. I'd say the good news that came out of that is when we look at all of the things that are going on in Conway, we've changed all of our program management, and we now put every call, every vendor on the phone every week, and we are doing site visits to actually see it. Don't tell me that it's being done.

We're gonna send somebody, our head of engineering's in Europe for the next three weeks right now, of walking through and laying eyes on exactly the machine that's coming our way. We've changed some of the payment terms so that we kind of get some of that level back out. There's a multitude of factors there. Almost all of them are bad, and almost all of them are now behind.

Todd Brooks (Managing Director and Senior Analyst)

Great. Thanks, Scott. I think when you, when you were talking about, 50% of the capacity under contract at Conway, you're now talking about the blended capacity between phase one and phase two, correct? You've actually filled, some more of that incremental, capacity with the two new phases during the course of this quarter.

Scott Ford (Co-founder and CEO)

Yeah. You're right. We are referencing not only phase one, but phase two. The thing that I would say that is most important to take away from the Conway expansion is that as we accelerated liquid extract into that facility, which we used to do in North Carolina, and we were playing around with when and if to bring that into Conway, bringing liquid extract in at the scale we are bringing it in will support our customers' other bottling facilities where they desperately need help. It will help support our operations on the West Coast and the East Coast, and it is engendering a number of conversations about products, SKUs, and customer relationships that, quite frankly, were never on our list of, I would say, benefits that came out of accelerating the liquid extract phase.

50% is a rough number for the whole combined series of packaging lines that are going in, but the acceleration of the extract manufacturing is what is really starting to change the conversation with our customers because the need for these are. It's really hard to explain, the depth of the need that is in the market for these products right now.

Todd Brooks (Managing Director and Senior Analyst)

That's great. Thanks, Scott. One more for Chris, and then I'll hop back in queue. Chris, when you look at the forward guidance for EBITDA growth of 10% to 25%, as you're looking at variables that drive you to one end of that spectrum or the other, can you highlight two or three that would unlock where you land in that guidance range? Thank you.

Chris Pledger (CFO)

I think it's a couple of things. I think as we looked at it this year, we weren't gonna make any predictions about what was gonna happen with inflation. We just took the year as it is, and just assumed that it would continue the way that it is. You know, bad things could happen, and it could continue to impact customer demand, and that would negatively impact our ability to hit the higher end of that range. That would put you to the lower end of the range.

The other thing that I'm excited about this year is that we've got a number of new customer and new product wins. The lion's share of those wins are in our single-serve and our extracts side of the business, which as we talk about our growth algorithm and being able to move to the higher margin part of the business, being able to accelerate that into 2023, recognizing that that's gonna be a huge part of the story in 2024 is a huge plus and I guess tailwind for the business. Being able to deliver those customers, we don't always control exactly the timing of when those customer contracts will come online.

Having those customers come online when we expect them to with the volume that we expect to have them is something that would plus or minus provide some sort of benefit to us being towards the higher range of the guidance.

Todd Brooks (Managing Director and Senior Analyst)

Okay, great. Thanks to you both.

Operator (participant)

Thank you. Again, ladies and gentlemen, if you'd like to ask a question, please press star one one on your telephone. Again, to ask a question, please press star one one. One moment for our next question. Our next question comes from the line of Sarang Vora of Telsey Advisory Group. Your line is open.

Sarang Vora (Research Analyst)

Hi. Good afternoon, guys. You know, just staying on the guidance, the prior question, on the guidance, how do you... You know, the, the Beverage Solutions is the main segment over here. It seems like, you know, sales were stronger in the fourth quarter. Seems like new customer are onboarding, you know, as you look out at 2023. Help us understand, if you can provide any sales outlook or a range or color on how we should think about sales in 2023, especially, you know, Beverage Solutions versus SS&T. It seems like SS&T is primarily impacted by lower coffee prices, but it's just a forward future business versus the core business, which is Beverage Solutions.

Can you help us understand, any color on the sales, for 2023, like how we should think between the segments? Thank you.

Chris Pledger (CFO)

We talked a lot about this and whether or not it was, whether or not it was really valuable to put to put sales guidance out in addition to EBITDA guidance and recognize that we had done that as part of the de-SPAC transaction. When you look at, and we talked about this on prior calls, and I know we've had these conversations around the impact of the commodity price on our sales. Because we don't know what that's gonna be, it's hard to put guidance on on where the C price is. If you think about last year, we sort of planned for the C price to be around $2.20 for the year. And if you look at where it is now, it'd be below that as you embark into 2023.

The reality is that we don't know where that's gonna stay for the year, whether it's gonna go up or down. Given the pass-through nature of coffee in our, in our net sales, it's something that we decided not to provide guidance on. I think when you see the growth in the customers and the new products, net sales is clearly gonna go up from where it is now. A lower commodity price is gonna offset the sales, which is why we continue to focus everybody on our EBITDA generation.

Sarang Vora (Research Analyst)

That's cool. You know, I just have a quick follow-up on the Conway. It seems like demand trends for the Conway facility are very strong. Can you provide any color on, you know, customer profile that's getting attracted or type of product like, you know, cans, as well as any milestones like, you know, we should track for the year, saying equipment delays or talent acquisitions? How are you planning the rollout till, like, 2024 for the Conway facility? Any milestones you can share?

Scott Ford (Co-founder and CEO)

Sure.

Sarang Vora (Research Analyst)

-we should monitor. Thank you.

Scott Ford (Co-founder and CEO)

All good questions. Sounds like you've been sitting in on our daily meetings on the Conway project. The team has come together very nicely. We probably have 12 people that are leading experts in their field from an engineering perspective, from a plant general manager perspective, from a quality assurance perspective, from a financial expert that had multiple plants reporting up to her. We have put together. Really, it's impressive, and we just took our board through it the other day, and we've got a very seasoned. I think we have a Fortune 500 board. They were absolutely blown away with the talent and the individual backgrounds of the people that we have brought on to run this Conway project. We're feeling super about the people.

You get down to being on time, on budget. On time, we are on time. We're actually slightly ahead, maybe up to 30 to 60 days on some of the first phases of the general contracting work. You get down to on budget. On budget, we are so far actually slightly ahead of budget. We won't keep those advantages, but we're out of the blocks and around the first lap in good position. We've got a good crew. We're on time. We're on budget. On the other side of it is the customer reaction to being willing to put in pieces of equipment. This is a little bit why you go back to Todd's question a moment ago. How are you counting phase one and phase two?

Well, they are morphing because as customers come in and say, "Hold on. I need you to put in this piece of kind of equipment. I need you to put in a small can line. I need you to put in a large can of line. I need you to put in a glass bottle line. I need a multi-serve bottle with the following characteristics versus one with another set of characteristics." As we've been working with our customers, and these are the major coffee brands in the world, both at the startup level, whether you're a West Coast startup phenomenon, an influencer-led brand, or you're one of the staple coffee brands in the country, the chances are very likely you're gonna end up being a customer of this facility.

We are doing, not to steal, Too many algebraic alliterations. We are doing the algebra of what takes care of the most customers to maximize our EBITDA in that facility and meets their needs so that we remain their primary first solution. That is a fairly tricky proposition, but we are making great progress on it. The sales force is going back out here in the next month with all new sales literature, all new capacities. Frankly, if half to two-thirds of the people that tell us what they want actually come through and go all the way through the contracting, we're oversold by a large amount. We are over-indexed on demand for any of our capacity, and several of the lines are already 100% full.

Todd Brooks (Managing Director and Senior Analyst)

That's great. Thank you so much. I'll pass it on to others.

Chris Pledger (CFO)

Thank you. One moment, please. Our next question comes from the line of Ben Bienvenu of Stephens Inc. Your line is open.

Jim Salera (Senior Research Analyst)

Hey, guys. Jim Salera on for Ben. I wanted to ask on the competitive landscape and how that looks today, is the launch of the Conway facility and as you guys ramp up kind of making waves, or is it not going noticed by your competitors?

Scott Ford (Co-founder and CEO)

No, everybody in the industry knows about it. It's a fairly small industry. People smaller than us are trying to figure out how they can actually do handoffs up to the scale impact that we bring to their product line. People that compete with us are ratcheting down and fighting harder. People that are bigger than us are absolutely enthralled by what we've done and how that fits in their view of the world long term. All of that's going on.

Jim Salera (Senior Research Analyst)

Okay, great. And maybe a follow-up on the last question. You know, overall kind of macro factors, I mean, you guys have seen really strong demand thus far. Is there any risk that if the economy worsens or, you know, the consumer ends up in a tougher position that some of that demand rolls off?

Scott Ford (Co-founder and CEO)

Yeah, sure. There is obviously. A lot of our products are not particularly, you know, that sensitive to macroeconomics, but, you know, a lot of, you know, like hot black coffee at C-station and C-stores, it is. When you go back to Chris's point about where are we in the 10% to 25% growth in EBITDA, where do we land? A lot of it depends on kind of the assumption you make around that, because we're assuming that what is today is all through the year. That's a little bit of a break from where we were last year when we were trying to guess when people were coming back to the office, when COVID was gonna abate and people were gonna start traveling again.

We actually built some guesses like that into our numbers. This year we said, we know we don't know. Just build it. If they're here today and buying that volume, carry it forward, add the new wins, and just build it that way and don't guess. That's how we did it. Jim, you come all the way back around to if we're half right on this, we're not coming back to the equity market to get any more money from this market anytime in the foreseeable future.

If we can get to these kinds of EBITDA numbers, our ability to carry the financing through the expanded credit facilities that Chris and his team have brought in, all this, "Hey, now that you've done, an offering, you've got to come back and do another offering and put out a bunch of stock," it is not likely to happen if we get anywhere close to these numbers. That's kind of the other side of the loop, which our board is a shareholder-owning board, and they have zero interest in selling equity anywhere near these prices. We went out and structured the whole de-SPAC and credit arrangement, where if we can hit numbers like what Chris has laid out in our guidance, we never have to go back to the equity market.

You can pretty well assure as the largest single shareholder, I'm really hard bent on that one. I've got everybody's attention around here on a daily basis to deliver against that.

Jim Salera (Senior Research Analyst)

Great. Maybe one last question if I can sneak in for Chris. Just kind of segueing off that answer. Can you maybe just talk a little bit about your capital position today and kind of where the balance sheet positions you to check off all the boxes in your growth plans?

Chris Pledger (CFO)

Yeah. I mean, as we finished the year, we had $17 million in cash, and we had a completely undrawn $175 million revolver. You saw the announcement earlier in the first quarter, where we added $50 million of incremental borrowing capacity to our in form of a de-delayed draw term loan, which gives us additional access to capital. Then we're looking at ways that, you know, you can maximize working capital in order to be able to make sure that we have all the liquidity we need in order to execute. We feel really good about where we are. I mean, like Scott said, you know, we plan the whole transaction for building out Conway.

As long as we continue to stay disciplined, we continue to deliver, we have no concerns about being able to do that.

Jim Salera (Senior Research Analyst)

Great. Thanks, guys. I'll pass it on.

Chris Pledger (CFO)

Thank you. One moment, please. We do have a follow-up question from Todd Brooks of Benchmark. Your line is open.

Todd Brooks (Managing Director and Senior Analyst)

Hey, thanks for giving me a couple follow-up questions here. First, Scott, and this is my ignorance on the coffee market, but if you could talk about Bixby.

These influencer brands mean and what their skill set and capability really unlocks for WestRock as you pull that operation in.

Scott Ford (Co-founder and CEO)

Sure. It's a reasonably small business as it sits today, but they probably have the leading influencer brand market position on the West Coast. As you go through, there was a great article, and, sorry, You know, Todd, I'll see if I can find it and send it back around to you. There was a great article about it used to be that people would say, "I have a product idea. Now I have a method of creating a brand. Now I'm gonna spend money to create product awareness and brand affinity with the consumer. Now I'm gonna actually pay people to put it on the shelf." That entire retail model has been turned upside down by the digital revolution. You now have people that have already built brands.

They might be wrestlers or boxers or makeup artists or guitarists, I don't know. They built a brand where they have literally tens of millions of followers who want to be associated with these, with these people, these influencers. What Miles Fisher and Remington Hotchkiss had done, which is a lot like what Elizabeth McLaughlin here in our group has, had started a small group in this, that kind of mines this vein. They had actually built a kitchen or a roasting facility in California, where these influencers can come in and actually start to try products, create products, and then we've brought in the scaled manufacturing and purchasing power behind it so that these people can scale up really quickly. We're talking about getting, you know, into, as an illustration, all of the Walmart, all of the Targets.

These are the kind of brands that are going in there, and they go from zero to full product arrays in less than nine months. This is really a sales force and a selling site acquisition for us. We're really high on these two guys and their small team. They now work on Elizabeth's team. You know, we already had probably the leading influencer brand coffee launch customer already in our stable. Putting those together and having them, she's actually out there on the West Coast right now, focused on developing the full strategy to deliver not only roast and ground products, single-serve products, but you're gonna see a lot of these folks have a mass following that will get them in the ready-to-drink space.

Pretty exciting just from a sales perspective.

Todd Brooks (Managing Director and Senior Analyst)

Okay, thanks, Scott. Chris, one follow-up for you. Maybe not quantifying the exact gross margin percentages in a product segment, but if you look at a May delivery of that key piece of equipment in the single-serve side, if you were looking at maybe first half versus second half 2023 gross margins for single-serve, just what type of basis point lift would you expect to see between the two halves once you're fully equipped to really ramp into this new business that you brought on? Thanks.

Chris Pledger (CFO)

It should be. I mean, it should be somewhat significant. I think the key, what happens when you have the necessary equipment to meet the volume that you're trying to produce and the throughput that you have, you're able to really look at your production from a portfolio basis. Not only having the machines, but having the machines allows you to be able to do the preventative maintenance. It allows you to be able to pick and choose what you're gonna turn on when in order to be able to maximize the throughput that you need. It's not just about volume, it's also about being able to produce more efficiently and with less waste.

We're excited about when a couple of the machines that Scott mentioned, you know, that came in in the first quarter, we've got the other machinery coming in in the second quarter. What that really does is allows us, it gives us the flexibility and the comfort to be able to execute on the single-serve cup volume in a more stable manner. When you do that, there's there are benefits throughout the entire platform to being able to do that.

Todd Brooks (Managing Director and Senior Analyst)

If I was kind of drawing a glide path for it, we'd see meaningful improvement in the second half, but probably annualize that segment of.

Chris Pledger (CFO)

Correct

Todd Brooks (Managing Director and Senior Analyst)

solutions getting to where you want in 2024 then?

Chris Pledger (CFO)

Correct. I think it'll be a little, small improvement in the first half. I think you'll see bigger improvement in the second half.

Todd Brooks (Managing Director and Senior Analyst)

Perfect. Thank you both.

Operator (participant)

Thank you. I'm showing no further questions at this time. Let's turn the call back over to Scott Ford, CEO, for any closing remarks.

Scott Ford (Co-founder and CEO)

Well, thank y'all for joining us. It has been 2022. We really are focused right now on making sure that the issues that we are dealing with from getting new equipment in the single serve and getting that to full scale is effectively and timely delivered. We are also working through a series of system conversions that we went through at the beginning of the year in North Carolina in the traditional S&D business. We have basically caught up with all of those issues coming out of the other side of the system conversion. We have new extract facilities that are turning on in the first half of the year, this year in North Carolina. That is kind of the bridge that creates the fiscal year 2023 outlook.

Then we have Conway on time to start up in the first quarter of 2024. You know, we are simply focused on trying to put several years together in a row of growth rates like the one that you just experienced here. This one was a little harder to make than we would have thought. I'm sure there'll be new things in 2023, but the team has really started to gel. We're only doing some small acquisitions. We're not, you know, we've had people do this financing, do this big deal, do this big deal, and we're like, "Look, we are focusing, we are simplifying, and we are executing." That is what 2022, and I will pause and give Jeff Bozz $0.05 for creating that phrase, because I did steal it.

That is really the sum total of what we're working on in 2023. Thank you for being with us today, and I hope you have a great evening. Thanks.

Operator (participant)

Thank you. Ladies and gentlemen, this does conclude today's conference. You may all disconnect. Have a great day.