Farmer Bros. Co. Reports Third Quarter Fiscal 2020 Financial Results and Provides COVID-19 Update
Third Quarter Fiscal 2020 Highlights:
- Volume of green coffee processed and sold decreased by 2.2 million to 25.7 million pounds, a 7.9% decrease over the prior year period partially due to the impact of COVID-19 pandemic discussed below;
- Green coffee pounds processed and sold through our DSD network were 8.4 million, or 32.5% of total green coffee pounds processed and sold
- Direct ship customers represented 17.1 million, or 66.4%, of total green coffee pounds processed and sold
- Distributor customers represented 0.3 million pounds, or 1.0%, of total green coffee pounds processed and sold
- Net sales were
$129.1 million , a decrease of$17.5 million , or 12.0%, from the prior year period; - Gross margin increased to 29.4% from 27.2% in the prior year period;
- Operating expenses as percentage of sales, inclusive of a
$42.0 million intangible asset impairment charge
increased to 64.4% from 31.4% in the prior year period; - Net loss was
$39.8 million compared to net loss of$51.7 million in the prior year period; and - Adjusted EBITDA was
$6.6 million compared to$4.5 million in the prior year period.*
(*Adjusted EBITDA, a non-GAAP financial measure, is reconciled to its corresponding GAAP measure at the end of this press release.)
“Farmer Brothers has moved rapidly to address unprecedented challenges associated with the COVID-19 pandemic and I am proud of the way we have adapted our operations to new ways of working,” said
COVID-19 Business Update:
The COVID-19 pandemic and the related shelter-in-place orders, as well as changes in recent consumer behavior, have had an adverse impact on certain of the Company's DSD customers, particularly restaurants, hotels, casinos and coffeehouses. Many of these customers have been forced to close or curtail operations, and are purchasing at reduced volumes if at all. As a result, in the last two weeks of March and into April, sales from the Company’s DSD customers declined between 65% to 70% from the pre COVID-19 pandemic average sales. The Company is unable to predict the rate at which these customers will resume operations and purchases as shelter-in-place restrictions are lifted. We do not expect to see a meaningful improvement in our operating results until federal, state and local government authorities ease travel bans and restrictions, quarantines, shelter-in-place orders, and shutdowns.
- Temporarily decreased compensation to executive leadership, members of the Board of Directors, and corporate team members and all exempt employees (except route sales representatives);
- Reduced headcount and furloughed employees;
- Reduced spending, including, among other items:
- Instituting a moratorium on all travel;
- Reducing plant production costs at two of our plants;
- Reducing capital expenditures;
- Implementing cost controls throughout our coffee brewing equipment program service network; and
- Reducing our DSD supply chain network costs.
- Commenced negotiations with landlords on rent, operating expenses and leases;
- Drew down
$42.0 million inApril 2020 on its$125.0 million revolving credit facility to increase the Company’s cash position and preserve financial flexibility; and - Prepared to apply for appropriate relief under the Main Street Lending program of the CARES Act as we obtain additional guidance.
We expect these actions will improve our cost structure to mitigate the impact of the COVID-19 pandemic on our operating results and liquidity, however there are no assurances at this time. As a result, we are exploring several different opportunities and access to various capital resources to provide additional near-term liquidity.
At this time it is not possible to predict the duration and scope of the COVID-19 pandemic or its short and longer-term impact on the demand for our products and services.
Third Quarter 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 and nine months ended
Three Months Ended |
Nine Months Ended |
|||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
(In thousands, except per share data) | ||||||||||||||||
Income statement data: | ||||||||||||||||
Net sales | $ | 129,139 | $ | 146,679 | $ | 420,237 | $ | 453,892 | ||||||||
Gross margin | 29.4 | % | 27.2 | % | 29.2 | % | 31.1 | % | ||||||||
Loss from operations | $ | (45,169 | ) | $ | (6,102 | ) | $ | (29,407 | ) | $ | (7,678 | ) | ||||
Net loss | $ | (39,777 | ) | $ | (51,749 | ) | $ | (27,369 | ) | (64,835 | ) | |||||
Net loss available to common stockholders per common share—diluted | $ | (2.32 | ) | $ | (3.05 | ) | $ | (1.62 | ) | $ | (3.84 | ) | ||||
Operating data: | ||||||||||||||||
Coffee pounds | 25,678 | 27,873 | 80,995 | 80,719 | ||||||||||||
EBITDA(1) | $ | (32,272 | ) | $ | 639 | $ | (1,980 | ) | $ | 2,109 | ||||||
EBITDA Margin(1) | (25.0 | )% | 0.4 | % | (0.5 | )% | 0.5 | % | ||||||||
Adjusted EBITDA(1) | $ | 6,563 | $ | 4,535 | $ | 18,028 | $ | 27,945 | ||||||||
Adjusted EBITDA Margin(1) | 5.1 | % | 3.1 | % | 4.3 | % | 6.2 | % | ||||||||
Other data: | ||||||||||||||||
Capital expenditures related to maintenance | $ | 3,163 | $ | 4,434 | $ | 10,622 | $ | 17,001 | ||||||||
Total capital expenditures | $ | 4,107 | $ | 7,273 | $ | 13,114 | $ | 30,393 | ||||||||
Depreciation and amortization expense | $ | 7,333 | $ | 7,600 | $ | 22,544 | $ | 23,230 |
(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 third quarter of fiscal 2020 were
Gross profit in the third quarter of fiscal 2020 was
Operating expenses in the third quarter of fiscal 2020 increased
Interest expense in the third quarter of fiscal 2020 decreased
In
Other, net in the third quarter of fiscal 2020 increased by
Income tax benefit was
As a result of the foregoing factors, net loss was
Non-GAAP Financial Measures:
EBITDA, EBITDA Margin, Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP (
Adjusted EBITDA was
About
Founded in 1912,
Headquartered in
Investor Conference Call
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/8i2ympzm 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 7995014.
The audio-only webcast will be archived for at least 30 days on the Investor Relations section of the
Forward-Looking Statements
Certain statements contained in this press release are not based on historical fact and are forward-looking statements within the meaning of federal securities laws and regulations. These statements are based on management's current expectations, assumptions, estimates and observations of future events and include any statements that do not directly relate to any historical or current fact. These forward-looking statements can be identified by the use of words like “anticipates,” “estimates,” “projects,” “expects,” “plans,” “believes,” “intends,” “will,” “could,” “assumes” and other words of similar meaning. Owing to the uncertainties inherent in forward-looking statements, actual results could differ materially from those set forth in forward-looking statements. The Company intends these forward-looking statements to speak only at the time of this press release and does not undertake to update or revise these statements as more information becomes available except as required under federal securities laws and the rules and regulations of the
FARMER BROS. CO.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except share and per share data)
Three Months Ended |
Nine Months Ended |
||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
Net sales | $ | 129,139 | $ | 146,679 | $ | 420,237 | $ | 453,892 | |||||||
Cost of goods sold | 91,190 | 106,779 | 297,662 | 312,513 | |||||||||||
Gross profit | 37,949 | 39,900 | 122,575 | 141,379 | |||||||||||
Selling expenses | 31,968 | 34,422 | 100,488 | 111,323 | |||||||||||
General and administrative expenses | 8,833 | 11,306 | 32,839 | 32,063 | |||||||||||
Restructuring and other transition expenses | — | 26 | — | 4,700 | |||||||||||
Net gains from sales of assets | 287 | 248 | (23,375 | ) | 971 | ||||||||||
Impairment of goodwill and intangible assets | 42,030 | — | 42,030 | — | |||||||||||
Operating expenses | 83,118 | 46,002 | 151,982 | 149,057 | |||||||||||
Loss from operations | (45,169 | ) | (6,102 | ) | (29,407 | ) | (7,678 | ) | |||||||
Other (expense) income: | |||||||||||||||
Interest expense | (2,478 | ) | (2,981 | ) | (7,885 | ) | (9,165 | ) | |||||||
Postretirement benefits curtailment and pension settlement charge | 5,760 | — | 5,760 | (10,948 | ) | ||||||||||
Other, net . | 1,076 | 495 | 2,941 | 2,105 | |||||||||||
Total other expense | 4,358 | (2,486 | ) | 816 | (18,008 | ) | |||||||||
Loss before taxes | (40,811 | ) | (8,588 | ) | (28,591 | ) | (25,686 | ) | |||||||
Income tax (benefit) expense | (1,034 | ) | 43,161 | (1,222 | ) | 39,149 | |||||||||
Net loss | $ | (39,777 | ) | $ | (51,749 | ) | $ | (27,369 | ) | $ | (64,835 | ) | |||
Less: Cumulative preferred dividends, undeclared and unpaid | 139 | 134 | 414 | 400 | |||||||||||
Net loss available to common stockholders | $ | (39,916 | ) | $ | (51,883 | ) | $ | (27,783 | ) | $ | (65,235 | ) | |||
Net loss available to common stockholders per common share—basic | $ | (2.32 | ) | $ | (3.05 | ) | $ | (1.62 | ) | $ | (3.84 | ) | |||
Net loss available to common stockholders per common share—diluted | $ | (2.32 | ) | $ | (3.05 | ) | $ | (1.62 | ) | $ | (3.84 | ) | |||
Weighted average common shares outstanding—basic | 17,230,879 | 17,003,206 | 17,161,477 | 16,982,247 | |||||||||||
Weighted average common shares outstanding—diluted | 17,230,879 | 17,003,206 | 17,161,477 | 16,982,247 |
FARMER BROS. CO.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands, except share and per share data)
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 26,389 | $ | 6,983 | |||
Accounts receivable, net | 50,889 | 55,155 | |||||
Inventories | 85,934 | 87,910 | |||||
Income tax receivable | 1,020 | 1,191 | |||||
Short-term derivative assets | 2,833 | 1,865 | |||||
Prepaid expenses | 6,230 | 6,804 | |||||
Total current assets | 173,295 | 159,908 | |||||
Property, plant and equipment, net | 169,361 | 189,458 | |||||
— | 36,224 | ||||||
Intangible assets, net | 21,264 | 28,878 | |||||
Other assets | 9,144 | 9,468 | |||||
Long-term derivatives assets | 470 | 674 | |||||
Right-of-use operating lease assets | 21,789 | — | |||||
Total assets | $ | 395,323 | $ | 424,610 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | 59,577 | 72,771 | |||||
Accrued payroll expenses | 14,329 | 14,518 | |||||
Operating leases liabilities - current | 6,031 | — | |||||
Short-term derivative liabilities | 1,401 | 1,474 | |||||
Other current liabilities | 6,476 | 7,309 | |||||
Total current liabilities | 87,814 | 96,072 | |||||
Long-term borrowings under revolving credit facility | 80,000 | 92,000 | |||||
Accrued pension liabilities | 45,145 | 47,216 | |||||
Accrued postretirement benefits | 9,065 | 23,024 | |||||
Accrued workers’ compensation liabilities | 5,000 | 4,747 | |||||
Operating lease liabilities - noncurrent | 16,010 | — | |||||
Other long-term liabilities | 4,553 | 4,057 | |||||
Total liabilities | $ | 247,587 | $ | 267,116 | |||
Commitments and contingencies | |||||||
Stockholders’ equity: | |||||||
Preferred stock, Series A Convertible Participating Cumulative Perpetual Preferred Stock, 21,000 shares authorized; 14,700 shares issued and outstanding as of and |
15 | 15 | |||||
Common stock, 17,231,473 and 17,042,132 shares issued and outstanding as of |
17,234 | 17,042 | |||||
Additional paid-in capital | 61,027 | 57,912 | |||||
Retained earnings | 118,394 | 146,177 | |||||
Accumulated other comprehensive loss | (48,934 | ) | (63,652 | ) | |||
Total stockholders’ equity | $ | 147,736 | $ | 157,494 | |||
Total liabilities and stockholders’ equity | $ | 395,323 | $ | 424,610 |
FARMER BROS. CO. | |||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) | |||||||
(In thousands) | |||||||
Nine Months Ended |
|||||||
2020 | 2019 | ||||||
Cash flows from operating activities: | |||||||
Net loss | $ | (27,369 | ) | $ | (64,835 | ) | |
Adjustments to reconcile net loss to net cash used in operating activities: | |||||||
Depreciation and amortization | 22,544 | 23,230 | |||||
Restructuring and other transition expenses, net of payments | — | 1,886 | |||||
Deferred income taxes | — | 40,078 | |||||
Impairment of goodwill and intangible assets | 42,030 | — | |||||
Postretirement benefits curtailment and pension settlement charge | (5,760 | ) | 10,948 | ||||
Net gains from sales of assets | (23,375 | ) | 971 | ||||
Net losses on derivative instruments | 9,830 | 9,228 | |||||
Other adjustments | 3,698 | 4,981 | |||||
Change in operating assets and liabilities: | |||||||
Accounts receivable | 3,745 | (7,651 | ) | ||||
Inventories | 1,004 | 3,937 | |||||
Derivative assets/liabilities, net | (2,472 | ) | (13,229 | ) | |||
Other assets | 1,510 | 180 | |||||
Accounts payable | (13,194 | ) | 8,466 | ||||
Accrued expenses and other liabilities | (4,126 | ) | (10,690 | ) | |||
Net cash provided by operating activities | $ | 8,065 | $ | 7,500 | |||
Cash flows from investing activities: | |||||||
Purchases of property, plant and equipment | (13,114 | ) | (30,393 | ) | |||
Proceeds from sales of property, plant and equipment | 36,733 | 143 | |||||
Net cash provided (used) in investing activities | $ | 23,619 | $ | (30,250 | ) | ||
Cash flows from financing activities: | |||||||
Proceeds from revolving credit facility | $ | 48,000 | $ | 50,642 | |||
Repayments on revolving credit facility | (60,000 | ) | (17,417 | ) | |||
Payments of finance lease obligations | (40 | ) | (185 | ) | |||
Payment of financing costs | (367 | ) | (1,041 | ) | |||
Proceeds from stock option exercises | 129 | 507 | |||||
Net cash (used) provided by financing activities | $ | (12,278 | ) | $ | 32,506 | ||
Net increase in cash and cash equivalents | $ | 19,406 | $ | 9,756 | |||
Cash and cash equivalents at beginning of period | 6,983 | 2,438 | |||||
Cash and cash equivalents at end of period | $ | 26,389 | $ | 12,194 |
FARMER BROS. CO. | |||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (continued) | |||||||
(In thousands) | |||||||
Nine Months Ended |
|||||||
2020 | 2019 | ||||||
Supplemental disclosure of non-cash investing and financing activities: | |||||||
Non-cash additions to property, plant and equipment | $ | 1,130 | $ | 739 | |||
Non-cash portion of earnout receivable recognized—spice assets sale | $ | — | $ | 592 | |||
Non-cash portion of earnout payable recognized—West Coast Coffee acquisition | $ | — | $ | 1,000 | |||
Non-cash issuance of 401-K common stock | $ | 163 | $ | — | |||
Cumulative preferred dividends, undeclared and unpaid | $ | 414 | $ | 400 |
Non-GAAP Financial Measures
In addition to net (loss) income determined in accordance with
“EBITDA” is defined as net (loss) income excluding the impact of:
- income taxes;
- interest expense; and
- depreciation and amortization expense.
“EBITDA Margin” is defined as EBITDA expressed as a percentage of net sales.
“Adjusted EBITDA” is defined as net (loss) income excluding the impact of:
- income taxes;
- interest expense;
- (loss) income from short-term investments;
- depreciation and amortization expense;
- ESOP and share-based compensation expense;
- non-cash impairment losses;
- non-cash pension withdrawal expense;
- restructuring and other transition expenses;
- severance costs;
- proxy related expenses;
- non-recurring costs associated with the COVID-19 pandemic;
- net gains and losses from sales of assets;
- non-cash pension and postretirement benefits; and
- acquisition and integration costs.
“Adjusted EBITDA Margin” is defined as Adjusted EBITDA expressed as a percentage of net sales.
Restructuring and other transition expenses are expenses that are directly attributable to (i) employee retention and separation benefits, pension withdrawal expense, facility-related costs and other related costs such as travel, legal, consulting and other professional services; and (ii) severance, prorated bonuses for bonus eligible employees, contractual termination payments and outplacement services, and other related costs, including legal, recruiting, consulting, other professional services, and travel.
For purposes of calculating EBITDA and EBITDA Margin and Adjusted EBITDA and Adjusted EBITDA Margin, we have excluded the impact of interest expense resulting from the adoption of ASU 2017-07, non-cash pretax pension and postretirement benefits resulting from the amendment and termination of the
We believe these non-GAAP financial measures provide a useful measure of the Company’s operating results, a meaningful comparison with historical results and with the results of other companies, and insight into the Company’s ongoing operating performance. Further, management utilizes these measures, in addition to GAAP measures, when evaluating and comparing the Company’s operating performance against internal financial forecasts and budgets.
We believe that EBITDA facilitates operating performance comparisons from period to period by isolating the effects of certain items that vary from period to period without any correlation to core operating performance or that vary widely among similar companies. These potential differences may be caused by variations in capital structures (affecting interest expense), tax positions (such as the impact on periods or companies of changes in effective tax rates or net operating losses) and the age and book depreciation of facilities and equipment (affecting relative depreciation expense). We also present EBITDA and EBITDA Margin because (i) we believe that these measures are frequently used by securities analysts, investors and other interested parties to evaluate companies in our industry, (ii) we believe that investors will find these measures useful in assessing our ability to service or incur indebtedness, and (iii) we use these measures internally as benchmarks to compare our performance to that of our competitors.
EBITDA, EBITDA Margin, Adjusted EBITDA and Adjusted EBITDA Margin, as defined by us, may not be comparable to similarly titled measures reported by other companies. We do not intend for non-GAAP financial measures to be considered in isolation or as a substitute for other measures prepared in accordance with GAAP.
Set forth below is a reconciliation of reported net loss to EBITDA (unaudited):
Three Months Ended |
Nine Months Ended |
|||||||||||||||
(In thousands) | 2020 | 2019 | 2020 | 2019 | ||||||||||||
Net loss, as reported | $ | (39,777 | ) | $ | (51,749 | ) | $ | (27,369 | ) | $ | (64,835 | ) | ||||
Income tax (benefit) expense | (1,034 | ) | 43,161 | (1,222 | ) | 39,149 | ||||||||||
Interest expense (1) | 1,206 | 1,627 | 4,067 | 4,565 | ||||||||||||
Depreciation and amortization expense | 7,333 | 7,600 | 22,544 | 23,230 | ||||||||||||
EBITDA | $ | (32,272 | ) | $ | 639 | $ | (1,980 | ) | $ | 2,109 | ||||||
EBITDA Margin | (25.0 | )% | 0.4 | % | (0.5 | )% | 0.5 | % |
____________
(1) Excludes interest expense related to pension plans and postretirement benefits.
Set forth below is a reconciliation of reported net loss to Adjusted EBITDA (unaudited):
Three Months Ended |
Nine Months Ended |
|||||||||||||||
(In thousands) | 2020 | 2019 | 2020 | 2019 | ||||||||||||
Net loss, as reported | $ | (39,777 | ) | $ | (51,749 | ) | $ | (27,369 | ) | $ | (64,835 | ) | ||||
Income tax (benefit) expense | (1,034 | ) | 43,161 | (1,222 | ) | 39,149 | ||||||||||
Interest expense(1) | 1,206 | 1,627 | 4,067 | 4,565 | ||||||||||||
Depreciation and amortization expense | 7,333 | 7,600 | 22,544 | 23,230 | ||||||||||||
ESOP and share-based compensation expense | 1,418 | 1,238 | 3,197 | 3,095 | ||||||||||||
Restructuring and other transition expenses(2) | — | 26 | — | 4,700 | ||||||||||||
Net losses (gains) from sales of other assets | 287 | 248 | (23,375 | ) | 971 | |||||||||||
Impairment of goodwill and intangible assets | 42,030 | — | 42,030 | — | ||||||||||||
Non-recurring costs associated with the COVID-19 pandemic | 129 | — | 129 | — | ||||||||||||
Proxy contest-related expenses | 204 | — | 463 | — | ||||||||||||
Acquisition and integration costs | — | 2,384 | — | 6,122 | ||||||||||||
Postretirement benefits curtailment and pension settlement charge | (5,760 | ) | — | (5,760 | ) | 10,948 | ||||||||||
Severance | 527 | — | 3,324 | — | ||||||||||||
Adjusted EBITDA | $ | 6,563 | $ | 4,535 | $ | 18,028 | $ | 27,945 | ||||||||
Adjusted EBITDA Margin | 5.1 | % | 3.1 | % | 4.3 | % | 6.2 | % |
____________
(1) Excludes interest expense related to pension plans and postretirement benefits.
(2) The nine months ended
Contact:
Leigh Parrish
212-355-4449
Source: Farmer Bros. Co.