Farmer Brothers Company · NASDAQ:FARM
Farmer Brothers — Investor Presentation (March 2019)
45 slides from Farmer Brothers's investor presentation, Mar 18, 2019
Slide 1: Farmer Brothers Investor Presentation March 18, 2019
FARMER BROTHERS INVESTOR PRESENTATION MARCH 18, 2019 1
Slide 2: Understanding, Leading, Building & Winning in the Business of Coffee
UNDERSTANDING, LEADING, BUILDING & WINNING IN THE BUSINESS OF COFFEE FARMER BROTHERS 2
Slide 3: 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. 3
Slide 4: Transformed from a 100-year-old coffee company to a forward-thinking industry leader
We have transformed from a 100-year-old coffee company to a growing and successful forward-thinking industry leader, championing coffee culture. 4
Slide 5: Coffee volume, net sales and Adjusted EBITDA growth
3 Year (Unaudited) FY 2015 FY 20181 CAGR2 COFFEE VOLUME 87,685,000 107,429,000 7.0% (In Pounds) NET SALES $545.9 $606.5 3.6% (In Millions) 3,4 ADJUSTED EBITDA $30.9 $47.6 15.5% (In Millions) NOTE 1. Includes Boyd Coffee business, acquired in October 2017. 2. Represents the compound annual growth rat
Slide 6: Investment Highlights
INVESTMENT HIGHLIGHTS MARKET INDUSTRY COMPREHENSIVE CAPACITY OPPORTUNITY LEADERSHIP CAPABILITIES TO GROW A significant opportunity Purposeful leadership in A business model Continued focus on to expand market share in sustainability, ethical sourcing designed to effectively and leveraging investment
Slide 7: Understanding the Business of Coffee
UNDERSTANDING THE BUSINESS OF COFFEE 7
Slide 8: Understanding: Changing coffee consumption
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. 8
Slide 9: 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 10: 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 11: 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. 11
Slide 12: Coffee Roasters We Compete Against
UNDERSTANDING COFFEE ROASTERS WE COMPETE AGAINST NOTE Company logos not owned by Farmer Brothers. 12
Slide 13: Leading in the Business of Coffee
LEADING IN THE BUSINESS OF COFFEE 13
Slide 14: Leading: Experts in all facets of coffee
LEADING We are …in all facets experts in of coffee coffee... 14
Slide 15: 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 more than 10 partnerships with total-solution including six program, and highly-skilled, recognized global provide
Slide 16: 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 17: Building in the Business of Coffee
BUILDING IN THE BUSINESS OF COFFEE 17
Slide 18: Building: Built for change and prepared for growth
BUILDING We are built …and prepared for growth... for change. 18
Slide 19: Transformation and Modernization Journey
BUILDING Farmer Brothers' transformation and modernization journey Capacity & Roasting Portfolio Customers Commerce Logistics Organization 19
Slide 20: Capacity & Roasting: Then, Now, Next
BUILDING CAPACITY & ROASTING THEN NOW NEXT Three facilities with limited ability to Following successful integration, Continuing to ramp up production meet the changing needs of coffee produce 100% of Boyd’s SKUs in our at flagship plant throughout FY consumers three Farmer Brothers facilities, whic
Slide 21: 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 22: 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 restaurants demanding traditional medium to large customer quality coffee accounts and oppo
Slide 23: Commerce: Then, Now, Next
BUILDING COMMERCE THEN NOW NEXT Legacy local sales network with Optimizing DSD sales Drive sales growth through geographical focus and limited capabilities by realigning sales roastery direct ship1 and third- expertise in designing sales solutions network to utilize channel party distributors by typ
Slide 24: 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 24
Slide 25: 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 roastery direct capabilities Infused culture with vibran
Slide 26: Winning in the Business of Coffee
WINNING IN THE BUSINESS OF COFFEE 26
Slide 27: We Are Positioned to Win and Grow
WINNING We are positioned to WIN AND GROW 27
Slide 28: 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 roastery direct Produce highest quality coffee (e.g., Cold Brew, Shelf- and third-party at new flag
Slide 29: Winning: Investment Highlights
WINNING INVESTMENT HIGHLIGHTS MARKET INDUSTRY COMPREHENSIVE CAPACITY OPPORTUNITY LEADERSHIP CAPABILITIES TO GROW A significant opportunity Purposeful leadership in A business model Continued focus on to expand market share in sustainability, ethical sourcing designed to effectively and leveraging in
Slide 30: Retrospectively Adjusted Historical Financial Results
RETROSPECTIVELY ADJUSTED HISTORICAL FINANCIAL RESULTS 30
Slide 31: Accounting Changes and Corrections: Adjusted EBITDA
CHANGES IN ACCOUNTING PRINCIPLES AND CORRECTIONS TO PREVIOUSLY ISSUED FINANCIAL STATEMENTS: ADJUSTED EBITDA1 (Unaudited) (In thousands) FY 2015 FY 2016 FY 2017 FY 20182 Retrospectively As $30,908 $31,017 $42,985 $47,562 Adjusted Reported As Previously $41,268 $41,386 $45,973 NA Reported Difference (
Slide 32: Accounting Changes and Corrections: Gross Margin
CHANGES IN ACCOUNTING PRINCIPLES AND CORRECTIONS TO PREVIOUSLY ISSUED FINANCIAL STATEMENTS: GROSS MARGIN (Unaudited) GROSS MARGIN FY 2015 FY 2016 FY 2017 FY 2018 Retrospectively As 29.2% 31.4% 34.5% 34.1% Adjusted Reported As Previously 36.1% 38.3% 39.5% NA Reported Difference -6.9% -6.9% -5.0% NA C
Slide 33: Accounting Changes and Corrections: Operating Expenses
CHANGES IN ACCOUNTING PRINCIPLES AND CORRECTIONS TO PREVIOUSLY ISSUED FINANCIAL STATEMENTS: OPERATING EXPENSES (Unaudited) OPERATING EXPENSES FY 2015 FY 2016 FY 2017 FY 2018 (In thousands) Retrospectively $166,705 $173,358 $147,700 As Reported $205,919 Adjusted As Previously $193,752 $200,296 $171,5
Slide 34: Appendix
APPENDIX 34
Slide 35: Appendix: Historical Financial Summary
APPENDIX 1 1 1 1 (Unaudited) FY 2015 FY 2016 FY 2017 FY 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 (GREEN) 87,685 90,669 95,499 107,429 (Pounds In Thousands) C
Slide 36: Reconciliation of Adjusted EBITDA to GAAP
APPENDIXAPENDIX RECONCILIATION OF ADJUSTED EBITDA TO GAAP (Unaudited) YEAR ENDED JUNE 30 SIX MONTHS ENDED DECEMBER 31 (IN THOUSANDS) 20151 20161 20171 2018 2017 2018 NET (LOSS) INCOME, AS REPORTED $(9,708) $71,791 $22,551 $(18,280) $(16,220) $(13,086) INCOME TAX EXPENSE (BENEFIT) 402 (72,239) 14,815
Slide 37: Improving Working Capital
APPENDIX IMPROVING WORKING CAPITAL (as of Feb. 28, 2019) WORKING CAPITAL 200,000 Reduced inventory levels and accounts receivable balances, allowing us to improve working capital and 180,000 reduce debt 160,000 140,000 $115,540 $110,176 120,000 $115,572 Inventory levels declined by $5.4m from Dec. 3
Slide 38: Condensed Consolidated Balance Sheets
APPENDIX FARMER BROS. CO. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited) As of June 30, 2018 June 30, 20171 December 31, 2018 Assets Current assets: Cash and cash equivalents $ 2,438 $ 6,241 $ 13,333 Short-term investments — 368 - Accounts and notes receivable 58,498 46,446 79,450
Slide 39: Condensed Consolidated Statements of Operations (Annual)
APPENDIX FARMER BROS. CO. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share and per share data) (Unaudited) Year Ended June 30, 2018 20171 20161 Net sales $ 606,544 $ 541,500 $ 544,382 Cost of goods sold 399,502 354,622 373,214 Gross profit 207,042 186,878 171,168 Selling e
Slide 40: Condensed Consolidated Statements of Operations (Quarterly)
APPENDIX FARMER BROS. CO. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share and per share data) (Unaudited) Three Months Ended December 31, Six Months Ended December 31, 2018 20171 2018 20171 Net sales $ 159,773 $ 167,366 $ 307,213 $ 299,079 Cost of goods sold 106,529 111,0
Slide 41: Condensed Consolidated Statements of Cash Flows (Annual)
APPENDIX FARMER BROS. CO. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Year Ended June 30, 2018 20171 20161 Cash flows from operating activities: Net (loss) income $ (18,280) $ 22,551 $ 71,791 Adjustments to reconcile net (loss) income to net cash provided by operating
Slide 42: Condensed Consolidated Statements of Cash Flows (Six Months)
APPENDIX FARMER BROS. CO. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Six Months Ended December 31, 2018 20171 Cash flows from operating activities: Net loss $ (13,086) $ (16,220) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation
Slide 43: Sources
APPENDIX SOURCES Page 6, 9 & 29 Page 10 Page 11 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, Be
Slide 44: 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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