Farmer Brothers Company · NASDAQ:FARM
Farmer Brothers — Investor Presentation (September 2018)
38 slides from Farmer Brothers's investor presentation, Sep 27, 2018
Slide 1: Understanding, Leading, Building & Winning in the Business of Coffee
UNDERSTANDING, LEADING, BUILDING & WINNING IN THE BUSINESS OF COFFEE FARMER BROTHERS 1
Slide 2: We are a coffee company designed to deliver the coffee people want
WE ARE A COFFEE COMPANY DESIGNED TO DELIVER THE COFFEE PEOPLE WANT, THE WAY THEY WANT IT. 2
Slide 3: Transformed from a 100-year-old coffee company to an industry leader
We have transformed from a 100-year-old coffee company to a growing and profitable forward-thinking industry leader, championing coffee culture. 3
Slide 4: Fiscal 2015 to 2018 key metrics and CAGR
20151 20181,2 CAGR3 COFFEE VOLUME 87,685,000 107,429,000 7.0% (In Pounds) NET SALES $545.9 $606.5 3.6% (In Millions) 4,5 ADJUSTED EBITDA $30.9 $47.6 15.5% (In Millions) STOCK PRICE 6 $23.50 $30.55 9.1% NOTES 1. Fiscal year ending June 30. 2. Includes Boyd’s, newly acquired in fiscal 2018. 3. Represe
Slide 5: Investment Highlights
INVESTMENT HIGHLIGHTS MARKET INDUSTRY COMPREHENSIVE CAPACITY OPPORTUNITY LEADERSHIP CAPABILITIES TO GROW A significant opportunity Purposeful leadership in A business model Recent SQF certification, to expand market share in sustainability, ethical sourcing designed to effectively and and focus on l
Slide 6: Understanding the Business of Coffee
UNDERSTANDING THE BUSINESS OF COFFEE 6
Slide 7: Understanding: coffee consumption has changed
UNDERSTANDING The days of a The days of a single-origin cup of joe in pour-over the morning anytime, are over. everywhere are here. 7
Slide 8: Coffee is a dynamic category driven by innovation
UNDERSTANDING COFFEE IS A DYNAMIC CATEGORY DRIVEN BY INNOVATION AND CHANGING CONSUMER DEMANDS. VOLUME QUALITY INNOVATION Specialty coffee currently Product, technology and A $76B industry with an accounts for 25% of the experience innovation are driving annual growth rate of 3-5%. market. It is grow
Slide 9: Trends important to us right now and to our future
UNDERSTANDING TRENDS IMPORTANT TRENDS IMPORTANT TO US RIGHT NOW TO OUR FUTURE Sourcing Sourcing Sustainability and origin stories are 100% sustainably sourced coffee will be expected. influencing purchasing decisions. Drinking Drinking Understanding of the health benefits of coffee Coffee is now con
Slide 10: Market Share Overview
UNDERSTANDING MARKET SHARE OVERVIEW By revenue, Farmer Brothers accounts for less than 1% of the U.S. coffee market MARKET CONSOLIDATION IS UNDERWAY "Significant consolidation lies ahead in the coffee industry." - James Watson, Rabobank NOTE Please see appendix for sources. 10
Slide 11: Coffee Roasters We Compete Against
UNDERSTANDING COFFEE ROASTERS WE COMPETE AGAINST NOTE Company logos not owned by Farmer Brothers. 11
Slide 12: Leading in the Business of Coffee
LEADING IN THE BUSINESS OF COFFEE 12
Slide 13: Leading: experts in all facets of coffee
LEADING We are …in all facets experts in of coffee coffee... 13
Slide 14: Industry-Leading Expertise
LEADING INDUSTRY-LEADING EXPERTISE Sourcing Hedging Roasting Direct Ship Turnkey Service Sourcing in 28 Industry-leading Experienced team Trusted Deep expertise as countries, hedging of 10 highly- partnerships with total-solution including six program, and skilled, certified recognized global provid
Slide 15: Purposeful Leadership
LEADING PURPOSEFUL LEADERSHIP Industry Ethical Sourcing Sustainability Eliminating Waste Founding member of Longstanding direct trade Award-winning sustainability Driving towards zero- World Coffee Research relationships and innovative program with science-based waste status in roasting partnerships
Slide 16: Building in the Business of Coffee
BUILDING IN THE BUSINESS OF COFFEE 16
Slide 17: Building: built for change and prepared for growth
BUILDING We are built …and prepared for growth... for change. 17
Slide 18: Transformation and modernization journey
BUILDING Farmer Brothers' transformation and modernization journey Capacity & Roasting Portfolio Customers Commerce Logistics Organization 18
Slide 19: Capacity & Roasting: Then, Now, Next
BUILDING CAPACITY & ROASTING THEN NOW NEXT Three facilities with limited ability to Three facilities, including our new Ramp up production at flagship meet the changing needs of coffee flagship Safe Quality Food plant beginning FY2019 consumers Certified, Zero-Waste facility, with total potential ca
Slide 20: Portfolio: Then, Now, Next
BUILDING PORTFOLIO THEN NOW NEXT Primarily traditional coffee products Full and focused portfolio with Greater traction for premium and with limited premium products growth in premium and specialty specialty brands and high-growth categories along with a presence innovative segments in select adjace
Slide 21: Customers: Then, Now, Next
BUILDING CUSTOMERS THEN NOW NEXT Customer profile heavily weighted Profitable legacy customers Deliver increased ROI and towards offices, truck stops and demanding premium coffee profitability through winning large restaurants demanding traditional customer accounts and quality coffee opportunistic
Slide 22: Commerce: Then, Now, Next
BUILDING COMMERCE THEN NOW NEXT Legacy local sales network with Realign professional, national Drive sales growth through limited focus on national relationships account sales operation E-commerce and third-party distributors Modernize DSD sales capabilities 22
Slide 23: Logistics: Then, Now, Next
BUILDING LOGISTICS THEN NOW NEXT Owned fleet of long-haul and delivery Outsourced long-haul to 3PL and Deliver efficiency through trucks moving product along the implemented fleet management technology network one step at a time for a more efficient distribution network 23
Slide 24: Organization: Then, Now, Next
BUILDING ORGANIZATION THEN NOW NEXT Legacy management steeped in Experienced senior leadership team Optimize M&A integration traditional coffee business capabilities across all functional teams In-house sustainability and M&A expertise Elevate E-commerce talent Infused culture with vibrant talent re
Slide 25: Winning in the Business of Coffee
WINNING IN THE BUSINESS OF COFFEE 25
Slide 26: We are positioned to win and grow
WINNING We are positioned to WIN AND GROW 26
Slide 27: More Coffee, Better Coffee, New Coffee
WINNING 1 2 3 MORE COFFEE BETTER COFFEE NEW COFFEE Win more large, national Leverage market shift to Expand trend-relevant accounts premium and specialty coffee portfolio to meet consumer needs Expand E-commerce and Produce highest quality coffee (e.g., Cold Brew, Shelf- third-party distribution at
Slide 28: Investment Highlights
WINNING INVESTMENT HIGHLIGHTS MARKET INDUSTRY COMPREHENSIVE CAPACITY OPPORTUNITY LEADERSHIP CAPABILITIES TO GROW A significant opportunity Purposeful leadership in A business model Recent SQF certification, to expand market share in sustainability, ethical sourcing designed to effectively and and fo
Slide 29: Retrospectively Adjusted Historical Financial Results
RETROSPECTIVELY ADJUSTED HISTORICAL FINANCIAL RESULTS 29
Slide 30: Changes in Accounting Principles: Adjusted EBITDA
CHANGES IN ACCOUNTING PRINCIPLES AND CORRECTIONS TO PREVIOUSLY ISSUED FINANCIAL STATEMENTS: ADJUSTED EBITDA1 YEAR ENDED YEAR ENDED JUNE 30 JUNE 30 (in thousands) 2015 2016 2017 20182 Retrospectively $30,908 $31,017 $42,985 As Reported $47,562 Adjusted As Previously $41,268 $41,386 $45,973 NA Reporte
Slide 31: Changes in Accounting Principles: Gross Margin
CHANGES IN ACCOUNTING PRINCIPLES AND CORRECTIONS TO PREVIOUSLY ISSUED FINANCIAL STATEMENTS: GROSS MARGIN YEAR ENDED YEAR ENDED JUNE 30 JUNE 30 GROSS MARGIN 2015 2016 2017 2018 (in thousands) Retrospectively 29.2% 31.4% 34.5% As Reported 34.1% Adjusted As Previously 36.1% 38.3% 39.5% NA Reported Diff
Slide 32: Changes in Accounting Principles: Operating Expense
CHANGES IN ACCOUNTING PRINCIPLES AND CORRECTIONS TO PREVIOUSLY ISSUED FINANCIAL STATEMENTS: OPERATING EXPENSE YEAR ENDED YEAR ENDED JUNE 30 JUNE 30 OPERATING EXPENSE 2015 2016 2017 2018 (in thousands) Retrospectively $166,705 $173,358 $147,700 As Reported $205,919 Adjusted As Previously $193,752 $20
Slide 33: Appendix
APPENDIX 33
Slide 34: Appendix: Fiscal 2015-2018 Financial Summary
APPENDIX 1 1 1 1 2015 2016 2017 2018 NET SALES $545,882 $544,382 $541,500 $606,544 (In Thousands) GROSS MARGIN2 29.2% 31.4% 34.5% 34.1% ADJUSTED EBITDA2,3 (In Thousands) $30,908 $31,017 $42,985 $47,562 COFFEE VOLUME 87,685 90,669 95,499 107,429 (Pounds In Thousands) COFFEE VOLUME GROWTH 0.8% 3.4% 5.
Slide 35: Reconciliation of Adjusted EBITDA to GAAP
APPENDIXAPENDIX RECONCILIATION OF ADJUSTED EBITDA TO GAAP (unaudited) YEAR ENDED JUNE 30 (IN THOUSANDS) 20151 20161 20171 2018 NET (LOSS) INCOME, AS REPORTED $(9,708) $71,791 $22,551 $(18,280) INCOME TAX EXPENSE (BENEFIT) 402 (72,239) 14,815 17,312 INTEREST EXPENSE 769 425 2,185 3,177 INCOME FROM SH
Slide 36: Appendix Sources
APPENDIX SOURCES Page 5 & 8 Page 9 Page 10 Industry Volume & Growth Cold & Frozen Format Growth Market Consolidation Technomic AFH Beverage Study NCA: National Coffee Drinking James Watson, Coffee Consolidation 2016 RSE, 2014-2016 CAGR Trends 2017; Technomic AFH Accelerates (2017), Rabobank, Beverag
Slide 37: Forward-Looking Statements
APPENDIX FORWARD-LOOKING STATEMENTS Certain statements contained in this presentation 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, estim
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