FARM - Earnings call transcript Q1 2020

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Operator

Good afternoon ladies and gentlemen and welcome to the Farmer Bros.

First Quarter Fiscal 2020 Earnings Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder this call is being recorded. to call like host to now Goldman. Rachel would turn over the your I ahead. go Please

Rachel Goldman

call Good Officer. you. Brothers Earnings on Principal and Fiscal Farmer Thank Lyon Scott First XXXX Maserang, interim today's CEO; Participating and Call. and Thank Conference everyone. Quarter afternoon Accounting you Financial Deverl President are: for joining

an at on Relations section as of Earlier today earnings to its also Investor issued exhibit press press release is Brothers' Securities at Form the on website www.farmerbros.com. Exchange Company's the Company which The release www.sec.gov. is and Commission's website X-K available Company's the the Farmer and on included available the website

the this the also be audio two audio-only of website. be will available hours on replay the conclusion available call. after this Company's approximately to replay A of will webcast link A

Before during Federal please we of made may of and harbor for purposes information presented the that various provisions call the unaudited expectations regulations. safe forward-looking Laws the statements and this by future about financial all remarks begin and Company's plans that under call is Securities management constitute note the prospects the

as upon These representing today and relied as forward-looking the Company's of differ represent not date. be Company's those statements only should Results subsequent forward-looking statements. the views of views could from any as materially

and those on that filings. from available events statements forward-looking could press public materially factors information differ is release Additional the cause other actual and to results in Company's

in measures press management most Company's and Reconciliation the comparable performance. call to today's use Company's non-GAAP assessing adjusted financial also release. measures EBITDA is directly these On also in adjusted their non-GAAP included GAAP of certain margin the measures financial will EBITDA including operating

over please the turn now go ahead. to Deverl call I'll Deverl.

Deverl Maserang

Brothers. today thanks my Farmer Rachel. for you and joining you earnings privilege a us. everyone to CEO first call be of with President and It's as on afternoon Thank Good

like his and as Before like for Interim his we during Mottern would to accomplished to of by recent the I'd Chris great acknowledge team. leadership time work get started, all CEO thank the

team established to the company profitability. for I'm the left to I've a deep the business. During weeks and growth this off foundation up strong Chris company's framework period, pick first my and to where turnaround important into CEO, the team transition as In dive laid worked the the return honored this and Farmer and to join juncture. initiate Brothers at a entire

here my areas After Before of why Scott I background it CEO, initial of some provide get into then of and my to Farmer at as to team and quarter to hand I'll from sense my speak our in financials. I my focus and cover the main detail weeks to a where that more headed. observations get around over we're I'll Brothers. chose the first lead I'll

with So that In I ahead start service that we company structures the company years challenges me. Brothers global units. XX me shared various to of face and with integrating neither leading chain career saying been and Majority off at the has my Farmer I've led focused transformation, are on along multiple of opportunities experience, transportation see by supply or groups turnarounds. let unfamiliar unknown plus distribution creating of my business the nor

chain acquired at at Brothers. here global food Importantly, experience a in PepsiCo by supply and while store I direct Starbucks the were deep delivery, my have leading well and serviced industry. experience in beverage knowledge My coffee Farmer

witnessed thus metrics. challenges to very execution Farm able that ones, and to and to was record Farmer the turnaround organic the the I operational The recently, the return to largest similar faced Farm Earthbound sell at business to achieve and the were being divest Brothers. humbled able to space. strategic player were led profitability Most at I I've a to successful lead Earthbound The unique in far company at organic team

I I rich the came potential history and coffee deal a industry. Once within has opportunity person and succeed. the in company want it of and if to itself. to to a has great because believe return, The to an the your Farmer has coffee, deep blood gets presents company Brothers you work desire a enthusiastically in see it opportunity

or dedicated group and to reality see coffee team is other not the a members of valuable importantly, we that's asset thrive. strong the a have headwind. and platform. The trends have and industry talented a believe I And motivated company tailwind we

with the starts Throughout people the foundation and that company believe I success for I've culture. always turnaround, experienced

understand our Brothers in initial meeting Farmer talking do. As customers, key work to that I a business, with our our have and to ability across long-term. to I've grow days at the to confident we leaders team my learning members But listening the organization. I'm team spent

I'm strategy reflected our we inflection I've which and current I on past are in aware and industry the complexities the we also of critical assist of point business at a operate. decisions. recognize,

the Chris said taken team to Chris initiatives and am moving on to of call, months. on it company and five will and priorities operating team near-term outlined to that these to forward I reposition Board against strategic ahead. in we get organization, setting important focus the last to I've rest I with Like continue in the steps quarter's have priorities ready worked work the Chris refining our and execute already the how progress. recent management On the

and execution, through our talent competitive are; initiatives chain optimization, evolving executing product supply with elevating on engaging brewing and our upon culture. building our advantage our capability, our program, enhancing strategic and coffee equipment refocusing our portfolio service innovation, These our

in we initiatives these more but important to cash of operations, on course adding continue initiatives help retention, the objectives. each will to focus at same not improvements only us, but dive I'd detail. new customer these in take time also customer. a management strategic into reduction our to these debt financial will And be like and moment All prudent of

to First chain executing our is optimization essential supply the turnaround.

to And leaseback of taken the manufacturing, of our improve network as both ship our last volume Houston currently distribution facilities upon close we plant. DSD we across are direct we've sale taking the steps are build look optimize More to are the We other and continuing the customers. operations specifically, EBITDA. a roasting quarter and to rebalancing plant with roasting already Houston from to process the in at discussed

been been us and below sales equipment due execution to levels. marketing continue optimize and We we changes margin have to and new to we route right techs our the discussions re-route also fact acceptable will metrics. these around to have around time meet service have in our and Making full service innovation To-date needs. improve sales gives have forced on to representatives discussions product the improve customer to and

on of possible touched the as last inventory we and quarter. to go part which will consistently reach upon our management in continue effort, optimization XXX% As focus reducing Chris near rate on as time scrap supply chain full and

we Second, are making great the results systems seeing is from improving elevating our business and positive basis ultimately objective. which are overall tool will our execution intelligence progress our processes we setting which in already ourselves in our result for providing

technology representatives. and term primary objectives of one handheld the upgrading piloting our our sales for addition, near route is In

on and expect positive excited new about impact the is our upgraded DSD and this are have systems network. pilot We underway technology significant

stages had national with we're to immediate now positive of mentioned the beginning share are Chris XX/X assistance. that and customers this piloted call that we provides quarter feedback. in I'm the in of a tool already last which pleased Further hearing rollout customer center

and process to center Additionally our this had out to be not proven already employ employees success. waited to Prior solve weeks supply seek call field a assistance problem thus product customer creating churn. with have a and a that being competitive to provides can has customer several the issues for chosen established

within cases number within a a problem the solved, call and many day. Now have they XXX, XX/X

restored The compelling and cost driving goal Turning program. own a team digitally capital also working capability this to enhancing story are contributes competitive. and of competitive allows coffee build reduces coffee program us The be members equipment refurbishment our brewing need proud equipment overall our an project our with focused customers third our driving ultimately sustainability further and our be our brewing priority on of. to equipment of profitability. This initiative service cost provides program advantage to our is on to optimizing for and overall utilization upon we

as need on the new to and establish portfolio by a evolving encouraging our effective organization product to to margins, by capabilities gain product customers. our area, underway allow In Fourth, brand that versus and competitive differentiate customer and the are return continuing optimizing well I'm this our portfolio advantage product our to a will improve as capabilities reinvigorate management. rationalization management SKU innovation. increase assortment. determined on retention In product to work order traditional us We product already we innovation building focus

company that foundation importantly, the every especially most a our are that on midst culture in and turnaround. finally, And company and I and recognize talent case the engaging is of the refocusing of the of

our of of this I'm near-term This new Brothers. legacy main win has winning team incredible and re-install proud and objective is to be XXX plus a minds culture at of dedicated Farmer to hearts have and year we company the here member team. One talented a an and

the which dedication of has employees, already teamwork average field testament established and here. is to is approximately years, XX tenure culture the our been strong For that a

Officer, manufacturing, this person in innovation specifically, leading is goal and to As I'm Inofuentes talent, turnaround be Ruben our this and engaging our Brothers Supply Farmer riding is is of confident A Chain procurement, responsible the this of effort. of the he our component to November right effective XX. he critical will operations family lead chain excited quality, I'm More for part Chief role that teams. of engineering announce supply logistics, the joining

enhance I'm operations for deep leadership with recently Chief operations we held goods and leader industry. he of as brings JRXXX, Ruben with closely our to and to global looking JRXXX, Ruben was Most and Oracle Part a technical International, experience Operations optimize our others. chain. work leadership various sporting to team. in supply forward among roles and Officer our UPS working AdvoCare Ruben

of we like of our five ship business on our forward, I'd moving and on share direct strategic initial initiatives As network. views these to detail DSD more also focus some my

During XXXX. time it impacted company seeing are similar customer quarter, decline gradual these and to the in what were fiscal and attrition. by challenges the first take of fill turn was to rate will improvement. sales These we metrics continued around, in channel DSD the while And effort experienced because lower inventory volume

mix grew the on quarter, for ship I'm coffee customer taking direct closer at coffee impact and favorable decline prices. a although of look our business, sales As business. in commodity ship shift year-over-year and the volume our direct lower

we’re and capital and of with investment customers significant But for our drive As quarter, national smaller revenue improved on continue noted margins. and better to incremental achieve to balancing to customers, the efforts overall. which with we growth company also additional product people. last expertise to in us Chris be allowing us EBITDA opportunities focused services our margin see development, for customers don't equipment line will These and require mid-size pursue come our

since quarter progress right we earnings we provide that progress made steps continued performance. to progress Finally, I calls. showed to they in acknowledge on I'd to financial like are focused from the and team I able future already key The last on additional still has operational continued while order on taking results improve need entire our our to the our strategic look is to be, updates are our to quarter. initiatives The believe forward financial not and being our where improve fourth results. team

wish over call best with service of to On in Scott. our for his the years I company. entire David David thank future. CFO turn want I I'd of company, Before him departing Farmer transition the at the behalf Robson to to and the mention Brothers the like

permanent a we As in fortunate Scott Accounting CFO, search have Principal for Financial our on Officer. interim are to conduct a step we

and and as of Controller years over both XXXX than finance within leader transitional global October management Scott to joining Since of our the strong role public XX finance served the himself in five and in XXXX. organization period. a Farmer Scott accounting during to Controller July in Scott experience years experience brings I'm of Corporate contribution joined Brothers be continue proven make a confident public since team, will he our an company value more Assistant companies. to has including this

review more I'll results. of over that, to turn for Scott call financial a detailed now With the

Scott Lyon

team Principal Thanks Deverl. interim Officer I'm rest of Board work Financial company's to role progress. the the management to and with the Accounting and excited on the closely on our take of and build

Now, first results. me through let walk our quarter

customers period. a Green X% Beginning was sold volumes The with to in million prior mix of pounds coffee distributors. quarter while XX% the processed XX% approximately by processed was coffee million volumes. volume. sold XX.X or of X% increase direct through represented of network, pounds, or our X.X and the coffee XXX,XXX DSD of XX and year volume the total over total pounds increased pounds the the green and ship approximately total sold million volume quarter processed of pounds during or coffee XXX,XXX through

coffee retailer other and XXXX volumes from we business our in office new ramping customers. and our store in new incremental coffee ship direct increased convenient this reflect volume earlier the DSD large of volume declining by fiscal global The volume of our year. on July began shipping Offset network within the sale of

in a DSD by products same of quarter sales Boyd’s we and non-recurring sales prices our associated million impacts products mix Net industrial the acquisition, within channel, direct primarily which sales or sales the last for customers. $X.X cost-plus sold ago. coffee unfavorable net million The allied selling sales through is suit in period $XXX.X our lower decline for the million, coffee of with network, year of to customer and the statement. stopped lower based income our driven $XXX.X from a Turning were X% year decrease was which reported the

our Sales last rates we fill and downtime impacted office similar is attrition our DSD with through inventory what experienced associated at by business, which the to customer of higher network our were sales the year. plant, Houston lower coffee

lower and coffee While commodity sales our ship impact unfavorable of in channel sales shift the mix pounds on of terms grew year-over-year the in prices. quarter, customer direct declined coffee

profit in was was driven was year profit $X.X Gross first year-over-year increase million gross unfavorable and coffee infrastructure sales Gross coffee labor production from customer and $XX.X This production an by of the lower from XX.X%. lower brewing partially and scrap by to decreased period. of quarter XXXX decrease mix, lower fiscal expense. million, higher offset certain in primarily costs prior higher the margin with XX.X% prices. aging equipment net green The associated

remained discuss of few product. like detail. as I'd resulting higher Excess to challenge the to inventory items excess more and scrap in a through we inventory markdowns work expense, moving a continue in now these first quarter in slow

plant. see costs continue inefficiencies elevated We to also Houston from at our

have inventories in line historical and However, are with levels. declined

The continued profit. the costs negatively we higher the impacting gross reported manufacturing quarter fourth into in first quarter

across facility to sale reduce us announced of we should our which last downtime. and our in quarter, the facilities, roasting we As future manufacturing turn leaseback enable expect Houston will rebalance volume

We also us proceeds future will expect sale the from give the increased liquidity flexibility. and

we in fourth taking reductions initiatives expenses quarter late brewing favorable is are controls realized in coffee reduction We fiscal during increased place the XXXX. in result quarter put of This we year as cost late the a hold. last began in of

controls further improvements changes see fiscal to expect and take hold. process fully as throughout remainder the the We of XXXX,

Turning expenses. to operating

expenses to operating from Our decreased the million for $XX.X million. $XX.X quarter $XX.X million

expenses, year operating gains ago. expenses was sales, reductions net a sale absence transition was the realized beginning other coffee integration by quarter. partially costs which increased reduction at force, of the route Boyd's of optimization. and quarter other due in sales net percentage first operating restructuring the of decrease from headcount expenses assets, severance the The to of of This and during efficiencies of a occurred associated primarily October compared XX.X% As net from to the current XX.X% in the with declined DSD in conclusion XXXX, offset

the to to decreased the sale expense assets sales Seattle lower the in million, principally Net of primarily prior $X.X respectively. branch our property of assets in gains and from expense. year million, million $XXX,XXX $X.X due office interest associated pension the coffee of from are $X.X quarter period with office Interest

$XXX,XXX in period. prior by hedges. $XXX,XXX the in $XXX,XXX on to losses to derivative year was net employee quarter quarter compared lower in the the offset to reduced Other coffee as by accounting non-designated partially instruments due gains This primarily related post benefit first mark-to-market decreased retirement

tax as quarter benefit the Turning fiscal prior reduction during period. of quarter XXXX previously income prior allowance estimated tax million to the to the first and to year as compared benefit liability tax we taxes, in compared deferred income of year of tax first recorded The is income reported benefit our to of period. lower primarily in XXXX of the the XXX,XXX $X.X due valuation an fiscal

million compared stockholders period. $X.X XXXX available income $X.X the As common million compared or net loss the net $X.XX diluted $X.X in factors, common prior of a quarter net million available to of first in fiscal to quarter of $X.X the in result period. to as share prior was was common per stockholders diluted these or million $X.XX loss year first of year share a common in the per to Net income

Adjusted the as period. in XXXX fiscal of quarter million to EBITDA $XX first the was compared $X.X million in year prior

X.X% the last year. declined quarter Our EBITDA same to for X.X% adjusted for margin to period the compared

continued debt the our sheet. to flow. to have efforts working financial efficiently. turning improved flexibility levels led strengthen Now Overall, managing our free to cash balance reducing we've by capital These and more

the and revolving $X.X net $XX.X At $XX debt million at cash. cash debt we our $XX compares of facility XXXX. end XX, to in quarter, borrowed June had had This we on favorably of million net or of cash of million in the million credit

facility XXXX $XX June XXXX. XX, in under September XX, $XX compared of was availability of as our to million million As credit availability

$XX.X and was accounts During receivable prior at million end $XX.X million from fourth million year our balance $X.X the the $X.X the to quarter, million the end to period. of the down increased million $XX.X of at compared quarter

are during from million the $XX.X end at prepare fourth the year to by prior compared busiest of of the $XX.X we $XXX.X during season. our million also million at million $X.X to down Inventories million of the and Our the $XX.X quarter $XX.X end were the million. to $X.X million $XX.X inventory million for $XX.X as payable to quarter quarter levels increased the million to prior fourth Accounts from quarter for down year decreased the period. compared

was CapEx million the Turning to million the for to prior was quarter first amortization quarter with first period expense same $X.X related versus and in expenditures, year. Depreciation of capital million the $X.X $X.X million $X.X the maintenance. in

XXXX We cost to coffee lease fiscal an in in a expect spending has maintenance from $XX The our new from on million to equipment the is capital of which to a between refurbished unit. year million. capital million, capital due decrease fiscal planned of XXXX lower reduction per maintenance range lower and $XX prior $XX brewing brewing equipment, coffee increase maintenance

amortization depreciation of million our the approximately remainder quarter and existing will million expense commitments anticipate $X.X We on $X.X XXXX intangible asset per be assets. our fixed to in of based our utilize and fiscal

in We expense expect tax XXXX. minimal and cash fiscal accrued

We the $XX to to fiscal end $XX throughout million to at from net XXXX our of expect to million XXXX. $XX cash December decline approximately million by debt continue XXXX fiscal of XX,

committed is We are that entire Deverl outlined Farmer Brothers the focused on strategic organization returning growth to to the and and profitability. initiatives

the to up I'd And with that like Operator. questions. call for open

Operator

question Thank you. [Operator Instructions] Riley. line B Anderson of with And our from comes the Kara first

Your now open. line is

Kara Anderson

afternoon. Good Hi.

Deverl Maserang

afternoon. Good

Kara Anderson

if I'm it, missed changes given in the leadership. sorry, I but

an Just actually on provide year fiscal directional XXXX? wondering for outlook update could the if you

Deverl Maserang

at sharing Kara, the you turnaround this unfold. in currently ongoing thanks We're focused days. for outlined forward the to in to it's had of the the on five we're prepared remarks. point I be as guidance question. that progress at with and strategic this we this look going this quarters and time at the What not initiatives midst And I'd the early guidance to still regards say point in

Kara Anderson

And I DSD the had business. then to try, Okay. on

change you're Just in attrition? customer wondering seeing pace the of any if

Deverl Maserang

optimizing to attrition network which we and execution. out full incredibly at the perspective. beginning our earlier, distribution would going and obviously under I DSD DSD network and be early clearly And at then on about what here perspective as from of is looking look the and a is need a in and in what From important balance innovation time and help to important and said I customer on DSD it's get operation, forecasting on of us we're focused as say is focusing is days we

experiencing. we're -- sales markets seeing you meeting, So new in we I winning markets with our national in country. churn would business work across select And tell and improvement in the

and in the they they to encouraged attrition we're Mike we're business. to hard across continue the Walsh was most work when improve feel those seeing and not win those continue I his the field our that I've going continue on make branches. are branches. like by really they be and you built going And that And best fact the own focus been what and incredibly leadership in around fact and really the will those it own the that and to to we're out that those can delivering in working tell to and that's branches, I several was back results they country. to to on continue visits churn

Kara Anderson

optimization point Kind part guess your you elaborate reps of talked remarks, the little I prepared for on re-routing Can a me? about you of the sales as priority. chain more same that in bit supply on

Deverl Maserang

just sure prepared? question earlier make the I to state Could understood. remarks part that my in To regards you first of

Kara Anderson

In about your you reps. re-routing prepared remarks, sales talked

what think of the guess terms in kind optimization is I a chain said within efforts. supply I priority of you

about you comment? Just wondering as you that like I in on and that. could talking you're mean just curious only elaborate by branches what the if guess

Deverl Maserang

optimization route in terms talking DCs to the optimization about of across I really in optimizing those and referring to relative branches footprint. you're overall remarks network were prepared distribution Yes, our network and think the

we of business. gone do We've of particular basis a on We done exercise that the through re-routing an a day-to-day that have in That's the business part ongoing that. area

an basis, route active see reduce opportunities But we do ongoing as that to need route. continue we in change a branch route optimize done a to At initiative. then can So add that we to point, routes. work. we've or actually an this And as persist, the within have we'll -- don't structure, as we've we but continue

Kara Anderson

that couple And for happening just and Thank on more second with unfavorable be is quarters? expected whether drag for And then wondering the you. it that That me. does if a what's some ship. you a direct to mix to clarify elaborate can

Deverl Maserang

currently And customers growth segment. EBITDA. and And with the mid doing shift toward specifically we're to in to an large improving eye and national into see deep in balancing accounts. direct and talked as I've with in dive we'll on said, a we pursue continue Yeah. focused that quarter We as opportunities regards margin prior business revenue small those size

Kara Anderson

guess And for and I question Okay. headcount then reductions about last million was quarter Last me. talked it in savings. $X some

think of that I related Thanks. if quarter contributed you at to to you much directly how that just that point if and this recognizing that? the could comment on

Scott Lyon

Yeah. some Hey, this this Yeah. Scott. Kara is savings did quarter. We realized

at seen really you If on you look run quarter current OpEx that we're I the to current we've of our rates expenses develop quarters couple experiencing now. our right our think and should this that focus last and expenses

Kara Anderson

Great you. thank

Operator

at time. no Thank call back Maserang now for over I Instructions] you. closing questions I'm turn further to this [Operator And CEO, Deverl showing will the remarks.

Deverl Maserang

Thanks, Andrew.

become And together. and to great Farmer thank in you support of accomplish Company of still be you your what While continued on us each profitable focused vision future of Farmer in get in Brothers. forward more progress continuing I'd going leader Brothers and thinking, look needs Thank clear an the I've in for this it's seen of interest meeting those joining and planned. be forward for company to person investment early as there. And we industry and and I many have a CEO. done already of to the potential probably you. be and my members and time more quarters. which well I'm to sharing in leading today conference days community also as ongoing our review look the the have to forward

Operator

participating you you concludes and Thank this conference call. now gentlemen disconnect. and Ladies today's for may

Farmer Bros. (FARM) 10 Nov 192020 Q1 Earnings call transcript