Q4 2023 Earnings Summary
- The company is ahead of schedule on the Conway extract and ready-to-drink (RTD) facility, with first commercially available products expected in April, potentially accelerating revenue and EBITDA growth. The facility is about two months ahead of schedule on equipment installations, which could allow the company to reach the high end of its EBITDA guidance range.
- Management expects significant EBITDA growth in 2024, with guidance for consolidated adjusted EBITDA between $60 million and $80 million, representing an increase of 30% to 75% over 2023. This growth is driven by new customer wins, the ramp-up of the Conway facility, and improved performance in core business segments.
- The company has announced a 50-50 joint venture with Select Milk Producers, which is expected to be a "very powerful earnings adder" starting in 2026, enhancing profitability in the Flavors, Extraction & Ingredients division.
- The company's 2024 guidance heavily relies on the successful ramp-up and commercialization of the Conway facility, introducing significant risk if delays or issues occur. As stated by the executive, "we feel good about...being able to get to the bottom end of our range. And then what we do after that is really Conway depending."
- The planned capital expenditures for the Conway facility are substantial, with an expected total CapEx spend of $315 million. The highest spending is anticipated in the first and second quarters, which could pressure cash flow and increase leverage. "Our largest outlays capital expenditures on the facility will take place over the next 6 months..."
- There is uncertainty regarding customer acquisition for the Conway facility, as the company has not disclosed specific customers, potentially impacting future revenue predictions. When asked about customer details, the executive responded, "I don't want to go into who it is."
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Conway Ramp-up and EBITDA Guidance
Q: What are your expectations for Conway's ramp-up and its impact on EBITDA guidance?
A: The company is ahead of schedule on Conway facility installations, being about two months ahead on every line. Commercialization projects are ongoing across all product formats—multi-serve bottles, cans, and glass bottles—with sequential start-ups. If customers ramp up faster, they could reach the high end of the $60 million to $80 million EBITDA guidance range. The base business is expected to achieve the bottom end of the range, with Conway contributing to potential upside depending on the pace of customer commercialization. -
Managing Customer Onboarding at Conway
Q: How are you managing customer onboarding to ensure a smooth ramp-up at Conway?
A: The company is aligning production windows with when customers come in for commercialization, encouraging them to meet their schedules to avoid a rush. This approach helps control the ramp-up and ensures production capacity matches customer demand. -
Margin Implications of Conway Ramp-up
Q: What are the margin implications as Conway ramps up?
A: The ramp-up of Conway is not expected to create margin compression, as expenses will turn on in sequence with the ramp. Growth in higher-margin areas like single-serve and extracts is anticipated. Volumes from Conway are expected to ramp in the back half of the year, positively impacting margins. -
CapEx and Cash Flow Timing for Conway
Q: How should we view CapEx and cash flow timing for Conway?
A: Total CapEx for Conway is expected to be $315 million, with $155 million spent through the end of the year. The highest spending is anticipated in the first and second quarters, with a step-down in the latter part of the year. The company expects to start generating free cash flow in the third quarter of next year. -
New Pricing Approach in Roast and Ground Business
Q: Can you elaborate on the new pricing approach in the roast and ground business?
A: With enhanced cost transparency from a systems rebuild, the company can now adjust pricing customer-by-customer and SKU-by-SKU. This allows them to better rationalize prices, sometimes lowering or raising them based on specific cost data, without changing the contract structure. -
Joint Venture with Select Milk Producers
Q: Can you provide details on the JV with Select Milk Producers?
A: It is a 50-50 joint venture, with both parties capitalizing it and the JV borrowing funds to complete equipment. The JV will lease equipment placed in a facility that Select is building. Revenue will flow through the sale of extracts, with conversion profit shared through the JV. This is expected to significantly contribute to earnings in 2026. -
Preproduction Costs Trend
Q: Will preproduction costs continue as production begins at Conway?
A: Preproduction costs are expected to start tailing off as salable production begins. Currently, these costs are capitalized and will be released pro rata over the next two years as volumes increase. -
Details on Customers and Product Commercializations
Q: Any details on the initial customers and product commercializations at Conway?
A: Commercialization projects are underway across all packaging formats, with multi-serve bottles coming online first. Products should be on shelves in early summer as customers align with large retailer resets. The company is working with large leading brands in the coffee space but has not disclosed specific names.
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