Farmer Bros. Co. Reports Fourth Quarter and Fiscal 2020 Financial Results

 Farmer Bros. Co. reported financial results for its fourth quarter and fiscal year ended June 30, 2020.

Fourth Quarter Fiscal 2020 Highlights:

• Volume of green coffee processed and sold decreased by 7.7 million pounds to 19.7 million pounds, a 28.0% decrease compared to the prior year period ended June 30, 2019, partially due to the impact of the COVID-19 pandemic (“COVID-19”) discussed below;
  • Green coffee pounds processed and sold through our DSD network were 5.4 million, or 27.5% of total green coffee pounds processed and sold; and
  • Direct ship customers represented 14.3 million, or 72.5%, of total green coffee pounds processed and sold.
• Net sales were $81.1 million, a decrease of $61.0 million, or 42.9%, from the prior year period;
• Gross margin decreased to 19.2% from 26.6% in the prior year period;
• Operating expenses decreased to $29.1 million from $44.7 million in the prior year period, an increase as a percentage of sales to 35.9% from 31.5% in the prior year period;
• Net loss was $9.7 million compared to net loss of $8.8 million in the prior year period;
• Adjusted EBITDA was $0.7 million compared to $3.9 million in the prior year period;* and
• As of June 30, 2020, the total debt outstanding was $122.0 million and cash and cash equivalents was $60.0 million compared to $92.0 million and $7.0 million, respectively, in the prior year period.

Fiscal 2020 Highlights:

• Volume of green coffee processed and sold decreased by 7.4 million pounds to 100.7 million pounds, a 6.8% decrease over the prior year ended June 30, 2019, partially due to the impact of the COVID-19 pandemic discussed below;
  • Green coffee pounds processed and sold through our DSD network were 31.0 million, or 30.8% of total green coffee pounds processed and sold; and
  • Direct ship customers represented 69.7 million, or 69.2%, of total green coffee pounds processed and sold.
• Net sales were $501.3 million, a decrease of $94.6 million, or 15.9%, from the prior year;
• Gross margin decreased to 27.6% from 30.1% in the prior year;
• Operating expenses decreased to $181.1 million from $193.8 million in the prior year period, and as percentage of sales, inclusive of a $42.0 million intangible asset impairment charge, increased to 36.1% from 32.5% in the prior year;
• Net loss was $37.1 million compared to net loss of $73.6 million in the prior year; and
• Adjusted EBITDA was $18.7 million compared to $31.9 million in the prior year.*

(*Adjusted EBITDA, a non-GAAP financial measure, is reconciled to its corresponding GAAP measure at the end of this press release.)

Deverl Maserang, President and CEO said, “I’m proud of the way Farmer Brothers has continued to make good progress in executing our turnaround strategy during the fourth quarter, despite the challenges associated with the COVID-19 environment. We continued to focus on three priorities including: protecting the health and safety of our employees and customers; preserving liquidity and supporting the long-term sustainability of our business; and pivoting our business to accelerate certain operating initiatives. We successfully exceeded our previously announced targeted expense savings of approximately $6.5 million per month during the quarter and we have continued to actively manage costs as areas of the business partially return to pre-pandemic sales levels. Further, our recently announced credit facility amendment provides us with increased flexibility to proactively manage our liquidity and working capital – supporting continued execution of key strategic initiatives through what remains an uncertain business environment – while maintaining compliance with our debt financial covenants. Moving forward, we continue to take steps to enhance our operational and financial strength and ensure our long-term sustainability, while focusing on executing on our key strategic initiatives.”

Fourth Quarter and Fiscal 2020 Results:

Selected Financial Data

The selected financial data presented below under the captions “Income statement data,” “Operating data” and “Other data” summarizes certain performance measures for the three months and fiscal years ended June 30, 2020 and 2019 (unaudited).

		Three Months Ended June 30,								Fiscal Year Ended June 30,
		2020				2019				2020				2019
(In thousands, except per share data)
Income statement data:
Net sales		$	81,083			$	142,050			$	501,320			$	595,942
Gross margin		19.2		%		26.6		%		27.6		%		30.1		%
Loss from operations		$	(13,595	)		$	(7,024	)		$	(43,002	)		$	(14,702	)
Net loss		$	(9,718	)		$	(8,760	)		$	(37,087	)		$	(73,595	)
Net loss available to common stockholders per common share—diluted		$	(0.57	)		$	(0.52	)		$	(2.19	)		$	(4.36	)
Operating data:
Coffee pounds		19,706				27,379				100,700				108,098
EBITDA (1)		$	184			$	1,508			$	(1,796	)		$	3,617
EBITDA Margin (1)		0.2		%		1.1		%		(0.4		)%		0.6		%
Adjusted EBITDA (1)		$	713			$	3,937			$	18,742			$	31,882
Adjusted EBITDA Margin (1)		0.9		%		2.8		%		3.7		%		5.3		%
Other data:
Capital expenditures related to maintenance		$	1,223			$	4,087			$	11,845			$	21,088
Total capital expenditures		$	4,446			$	4,366			$	17,560			$	34,759
Depreciation and amortization expense		$	7,352			$	7,835			$	29,896			$	31,065

^{(1) EBITDA, EBITDA Margin, Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP financial measures; a reconciliation of these non-GAAP measures to their corresponding GAAP measures is included at the end of this press release.}

Net sales in the fourth quarter of fiscal 2020 were $81.1 million, a decrease of $61.0 million, or 42.9%, from the prior year period. The decrease in net sales was driven primarily by lower sales of coffee, beverage and allied products sold through our DSD network due to COVID-19, as well as the sale of our office coffee business in July 2019, and net customer attrition. At the height of COVID-19 in April 2020, DSD sales declined 65% to 70% from the pre–COVID weekly average sales. However, due to several management initiatives, lifting of some government restrictions, and reopening of some of our customers’ businesses, our DSD revenues have improved throughout the quarter to approximately a 45% decline from pre-COVID-19 levels by June 30, 2020, and remained at these levels through the end of August 2020. The largest DSD sales declines were from restaurants, hotels and casino channels, while demand from healthcare and C-stores channels were impacted less. Our direct ship sales declined 18.5% compared to the prior year period due to lower coffee volume related to COVID-19, and the impact of coffee prices for our cost plus customers, partially offset by improved volume from our retail business, products sold to key grocery stores under their private labels, and third party e-commerce platforms.

Gross profit in the fourth quarter of fiscal 2020 was $15.5 million, a decrease of $22.2 million, or 58.8% from the prior year period and gross margin decreased to 19.2% from 26.6%. The decrease in gross profit was primarily driven by lower net sales of $61.0 million partially offset by lower cost of goods sold. The decrease in gross margin was impacted by COVID-19 and the unfavorable impact it had on our customer mix, partially offset by lower reserves for slow moving inventories, lower freight costs, lower coffee brewing equipment costs, and improved production variances resulting from the various costs savings initiatives implemented.

As previously announced, we successfully implemented several cost saving initiatives with targeted expense savings of approximately $6.5 million per month. This goal was exceeded during the fourth fiscal quarter which mitigated the COVID-19 impact on gross profit and reduced operating expenses. We continue to actively manage costs as areas of the business partially return to pre-COVID-19 sales levels.

Operating expenses in the fourth quarter of fiscal 2020 decreased $15.6 million, or 34.9%, to $29.1 million, from $44.7 million, and as a percentage of net sales increased to 35.9% compared to 31.5% of net sales, in the prior year period. The decrease in operating expenses was primarily due to a $7.2 million decrease in general and administrative expenses, and a $7.1 million decrease in selling expenses which includes a portion of the aforementioned cost savings initiatives. The decrease in general and administrative expenses was associated primarily with reductions in third party costs and lower headcount, partially offset by COVID-19 related severance costs. The decrease in selling expenses was primarily driven by lower headcount, lower DSD fleet costs, less sales commissions, lower travel expenses and other savings realized from our initiatives.

Interest expense in the fourth quarter of fiscal 2020 decreased $0.2 million to $2.6 million as compared to $2.8 million in the prior year period principally due to lower pension related interest expense, partially offset by higher interest expense on higher outstanding borrowings on our revolving credit facility. In April 2020, we borrowed an additional $42.0 million from the revolving credit facility as a precautionary measure to increase our cash position, and preserve financial flexibility. We repaid a total of $50.0 million of the borrowings in July 2020 in connection with the amendment discussed above.

Other, net in the fourth quarter of fiscal 2020 increased by $5.4 million to $7.5 million in the quarter compared to $2.1 million in the prior year period primarily due to higher amortized gains on our postretirement medical benefit plan, partially offset by mark-to-market net losses on coffee-related derivative instruments not designated as accounting hedges.

Income tax expense was $1.0 million in each of the fourth quarter of fiscal 2020 and prior year period. The tax expense in the fourth quarter of fiscal 2020 was primarily due to changes in accumulated other comprehensive income, while the prior year period was driven by state income tax expense.

As a result of the foregoing factors, net loss was $9.7 million in the fourth quarter of fiscal 2020 as compared to net loss of $8.8 million in the prior year period. Net loss available to common stockholders was $9.9 million, or $0.57 per common share, in the fourth quarter of fiscal 2020, compared to net loss available to common stockholders of $8.9 million, or $0.52 per common share, in the prior year period.

Our capital expenditures for the fiscal year ended June 30, 2020 were $17.6 million, representing lower maintenance capital spend of $11.8 million, a 49.5% reduction compared to the prior year period. These spending reductions were driven by several key initiatives put in place, including a focus on refurbished CBE equipment to drive cost savings, and reductions across some capital categories due to additional cost controls put in place due to COVID-19.

As of June 30, 2020, the outstanding debt on our revolver was $122.0 million, an increase of $30.0 million since June 30, 2019. However, our cash increased by $53.0 million to $60.0 million as of June 30, 2020, compared to $7.0 million as of June 30, 2019. We continue to focus on prudent working capital management, and the liquidity improvements resulting from these actions will provide additional financial and operational flexibility during and after COVID-19.

Subsequent to the end of the fiscal fourth quarter ended June 30, 2020, in July 2020, we amended our existing senior secured revolving credit facility. As of September 1, 2020, the Company’s total debt was $66.8 million and the Company had cash on hand of $8.2 million and $31.8 million of availability on its amended credit facility.

Non-GAAP Financial Measures:

EBITDA, EBITDA Margin, Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP (U.S. generally accepted accounting principles) financial measures within the meaning of the rules of the Securities and Exchange Commission (“SEC”). See the Non-GAAP Financial Measures section on why the Company believes these supplemental measures are useful, reconciliations to the most directly comparable GAAP measure, and the limitations on the use of these supplemental measures.

Adjusted EBITDA was $0.7 million in the fourth quarter of fiscal 2020, as compared to $3.9 million in the prior year period, and Adjusted EBITDA Margin was 0.9% in the fourth quarter of fiscal 2020, as compared to 2.8% in the prior year period.

About Farmer Bros. Co.

Founded in 1912, Farmer Bros. Co. is a national coffee roaster, wholesaler and distributor of coffee, tea and culinary products. The Company’s product lines include organic, Direct Trade and sustainably-produced coffee. With a robust line of coffee, hot and iced teas, cappuccino mixes, spices, and baking/biscuit mixes, the Company delivers extensive beverage planning services and culinary products to its U.S. based customers. The Company serves a wide variety of customers, from small independent restaurants and foodservice operators to large institutional buyers like restaurant, department and convenience store chains, hotels, casinos, healthcare facilities, and gourmet coffee houses, as well as grocery chains with private brand coffee and consumer branded coffee and tea products, and foodservice distributors.

Headquartered in Northlake, Texas, Farmer Bros. Co. generated net sales of $501.3 million in fiscal 2020 and has approximately 1,210 employees nationwide. The Company’s primary brands include Farmer Brothers^®, Artisan Collection by Farmer Brothers^™, Superior^®, Metropolitan^™, China Mist^® and Boyds^®.

Investor Conference Call

Deverl Maserang, Chief Executive Officer, and Scott Drake, Chief Financial Officer, will host an audio-only investor conference call today, September 10, 2020, at 5:00 p.m. Eastern time (4:00 p.m. Central time) to review the Company’s financial results for the fourth quarter and fiscal year ended June 30, 2020. The Company’s earnings press release will be available on the Company’s website at www.farmerbros.com under “Investor Relations.”

The call will be open to all interested investors through a live audio web broadcast via the Internet at https://edge.media-server.com/mmc/p/ugsarwnu and at the Company’s website www.farmerbros.com under “Investor Relations.”  The call also will be available to investors and analysts by dialing Toll Free: 1-(844) 423-9890 or international: 1-(716) 247-5805. The passcode/ID is 5273545.

The audio-only webcast will be archived for at least 30 days on the Investor Relations section of the Farmer Bros. Co. website, and will be available approximately two hours after the end of the live webcast.

Contact: 
Joele Frank, Wilkinson Brimmer Katcher
Leigh Parrish
212-355-4449