Good afternoon, ladies and gentlemen, and welcome to the Farmer Brothers Fourth Quarter and Fiscal Year 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 instruction will follow at that time. [Operator Instructions] As a reminder this call is being recorded. I would now like to turn the call over to your host today, Rachel Goldman. Please go ahead.

Thank you. Good afternoon, everyone. Thank you for joining Farmer Brothers fourth quarter and fiscal year 2020 earnings conference call. Participating on today's call are Deverl Maserang, President and Chief Executive Officer, and Scott Drake, Chief Financial Officer. Earlier today, the company issued its earnings press release which is available on the Investor Relations section of Farmer Brothers website at www.farmerbrothers.com. The press release is also included as an exhibit to the company's Form 8-K available on the company's website and on the Securities and Exchange Commission's website at www.sec.gov. A replay of this audio-only webcast will be available approximately two hours after the conclusion of this call. The link to the audio replay will also be available on the company's website. Before we begin the call, please note that all of the financial information presented is unaudited and that various remarks made by management during this call about the company's future expectations, plans and prospects may constitute forward-looking statements for purposes of the Safe Harbor provisions under the federal securities laws and regulation. These forward-looking statements represent the company's views only as of today and should not be relied upon as representing the company's views as of any subsequent date. Results could differ materially from those forward-looking statements. Additional information on factors that could cause actual results and other events to differ materially from those forward-looking statements is available on the company's press release and public filings. On today's call, management will also use certain non-GAAP financial measures, including adjusted EBITDA and adjusted EBITDA margin and assessing the company's operating performance. Reconciliation of these non-GAAP financial measures to their most directly comparable GAAP measures is also included in the company's press release. I will now turn the call over to Deverl. Deverl, please go ahead.

Thank you, Rachel. Good afternoon, everyone and thanks for joining us. We hope you and your families are continuing to stay safe and healthy. Similar to last quarter, Scott and I are together at Farmer Brothers offices today and are practicing social distancing with safety in mind. On today's call, I’ll discuss how Farmer Brothers continue to make good progress in executing our turnaround strategy during the fourth quarter, despite ongoing challenges associated with COVID-19. Then Scott will discuss our fourth quarter results in more detail. We will conclude by taking your questions. I'd like to begin today by thanking our team members for their persistent dedication to serving our customers throughout the pandemic. I'm proud of our collective efforts to continue supplying coffee and other products to those who depend on us, and I appreciate the team's hard work and commitment. Not only have we addressed and adapted to many challenges associated with COVID-19 environment, but we have also taken important steps to strengthen our business for the long-term. This has been a transformative time for our company, and I firmly believe we will emerge from this time able to more effectively and efficiently serve our customers for years to come. From the start of the pandemic and throughout the fourth quarter, we have focused on three priorities. First, protecting the health and safety of our employees and our customers. Second, taking actions to preserve liquidity and support the long-term sustainability of our business. And third, pivoting our business to accelerate operating initiatives and supporting customers through this unprecedented time. The safety and health of our Farmer Brothers team members remains our top priority. Our team members working in manufacturing, distribution and other areas that require them to report to work on site are following enhanced safety guidelines. At…

Thanks, Deverl. Before I discuss the financial components in more detail, I want to take the time to note a couple of items that I think are significant, especially in light of the operating environment we've experienced during the fourth quarter. As you have seen in our release, our sales were greatly impacted as compared to the fourth quarter of last year, and this is reflected in the $22.2 million year-over-year decline in our gross profit. However, it is important to highlight that due to our aggressive cost saving efforts and other income changes, we reported only $1 million increase in our net loss, and a $3.2 million decline in our adjusted EBITDA for the quarter. Additionally, the balance sheet results from our fourth quarter this year reflect good progress in the management of our working capital, despite the impacts from COVID-19. As compared to our fiscal year 2019 year ending balance sheet results, we lowered our inventory balances by over $20 million, and reduced our net accounts receivable balances by over $14 million. These changes produce the fund that allowed us to also reduce our accounts payable by almost $36 million, with little use of pre-existing cash on hand or debt borrowings. I will talk about some additional financial highlights that I think are meaningful in our capital spending discussion, and review the overall impact of these results on our debt and cash balances. Now, let me walk through our fourth quarter and fiscal year results in more detail. Beginning with coffee volumes, volumes in the quarter decreased by 7.7 million to 19.7 million pounds, a 28% decrease from the prior year period, primarily due to the impact of the COVID-19 pandemic. The mix of coffee volumes processed and sold during the quarter was approximately 5.4 million pounds, or…

[Operator Instructions] Our first question comes from the line of Kara Anderson from B. Riley. Your line is now open.

Hi, good afternoon. Just I guess to start just one small housekeeping question. Can you guys provide the percent of revenue that was attributable to roast and ground coffee versus, I guess other allied products?

Sure, Kara. So for the fourth quarter, the percentage of roasted ground coffee was 71% and for the full year was 64.9%.

Okay. Awesome, thank you. And then just kind of understanding that you're largely, as you said, 40% West Coast concentrated, and then you're at like maybe a daily decline rate of 40%. And that's across the network average. What does the recovery look like in states you operate in that may have reopened earlier are more fully open than, say, where I stay in California?

That's great question. Thank you, Kara. Good to talk to you. I have been looking at that heavily. So we're going to take -- let's take a broader region. So let's take the South region, which include states like Texas, Oklahoma, and that part of the country. You look at that part, they're trending well better than the West Coast. So, on a general fact, if I take that Southern region, which is a good proxy for the Midwest and say, if we could get the West Coast to that level, without returning to pre-COVID levels on the West, it'd be worth about 5% of the total. So we'd improve from that 40%, 38%, 37% we move it by 5 points. Just if we could get the West to that same level.

Okay. And then kind of where you've seen some greater reopening? Just wondering, if you're getting a sense for maybe more permanent customer attrition, and just kind of how much you might be impacted by businesses closing?

That's a good question. And I wouldn't speculate so much as to what we really believe. We can all read a lot of press as relates to restaurants, hotels, casinos. But let me just give you a couple points. We have branches that are exceeding their pre-COVID levels, believe it or not. And so that gives me hope that two things are happening. One, we put some aggressive sales targets, and we're pushing individuals in the field to over deliver to gain more customers as things are coming back. So that's an example. We don't report out by branch, by state as an example. But to give you a sense, we have that. We just gave an award to an individual that exceeded their pre-COVID levels, which we were all happy to do, because it's a sign that it can be done. And that was in the Western part of the United States. Other places, you look at percentages, and we track by channel, channel being healthcare, convenience, casinos, restaurants, and the like. We look at how far each of those have gone down. Obviously, we reported at a decline for the entire network of being at the height of 70%. And then you look at other parts of the country, where we've improved the overall country. We've had days in the mid-30s. And we've been stabilized in that 37% to 40% range that we commented on. So we're seeing signs across the nation based on leadership within areas where we're seeing opportunity where we can get back, and then we're saying we're adding volume to it. And then we know that there's going to be an impact to some places that aren't going to come back. And then Scott wanted to add to this point as well.

Yes. Kara, I was just going to add that obviously, we don't always know exactly when the customers have decided to close their doors. But when the reopenings occur, we're very proactive and get back with those customers. And so we feel like we have that kind of an early warning on when that's going to happen. But I think another thing that's happened is there are customers out there that maybe aren't getting the service or can't get the supply that they need through others. And so we've been able to fulfill some of those and get some customer growth going as well. But I just wanted to point out that even though our accounts receivable are well down, we've done a really nice job collecting the dollars. Our reserves are increased a little bit from a year ago. So we feel like we're fully reserved for any of those customers that maybe don't reopen their doors.

And then some of the different selling, I guess, methodologies that you're kind of taking to market or pushing a little bit more. Have you seen, I guess legacy customers who have long relationships with their Farmer Brothers rep being more receptive to these new kind of approaches given the environment?

Answer is yes. And to be specific on that in the pilot locations that we tested, bringing in new selling methods to two different regions in the country to give a comparative. We saw an uptick in volume and that's directly attributable, that you're sending a person in there that has time to go through the whole selling story, sell the whole portfolio of products. And so that's what gives us as we talked about in prepared marks our willingness to push down the path and to put more that structure in play. But let's be very clear, in certain parts of the country, classical up and down the street DSD sales is the best way to go to market. And that is, face to face with that customer with our RSR or Route Sales Representative. And then it's really tied to the impact of the reopening and what each state is doing as it relates to capacities in those locations and how many guests can come in. And that's what we're seeing the direct correlation. So it is back to the number one metric that we are tracking every day, by branch, by region, by the country, what percent decline are we relative to pre-COVID environments and then tracking new sales and increasing our pipeline of new sales. So I just spoke to you on the DSD side, we also have our key account managers and our new business development managers, along with the direct ship, national accounts team going out and really putting their selling shoes on and getting out there and talking to customers and hunting for every new opportunity, doing more sales pledge. And we're winning in locations and then one of our biggest, and we'll report more on it in the coming quarters is how we're winning within existing accounts that know and love us and been customers for many years, and how we're doing against that relative to the reopening by state.

Got it. And last one for me kind of threw it out there the $6.5 million monthly savings. Obviously, some of that's coming back with the volume returning. I guess can you update us kind of maybe where you're at with savings or just provide a little bit of color also around maybe any level that being more permanent in the future?

Absolutely, absolutely. We've stated in the past and we kind of stick to the fact that we will come out of this. We will not have the same cost structure post-COVID that we did coming into COVID. There will definitely be permanent efficiencies, we think better effectiveness as the Deverl has pointed out, along with it. We are -- as the business comes back, as sales comes back, there are some volume metric costs in both production and routes and cars on the road and hourly workers and sales commissions, all of those things do come back to a degree, but we're very, very closely still watching and controlling the expenses that we can control. So, again, we think that those dollars will slowly come back into the business, but it's only when the sales justify those dollars coming back into the business. I think the final point I would make is you see in selling and G&A some of those sales dollars, but a lot of those dollars that we have in the savings that we have, they're getting transferred up in the cost of goods. So part of that savings is up there, in the cost of goods line you don't see that as apparently. So I would just note that about one-third of the savings we're seeing overall are in cost of goods, and then about two-thirds are down in the operating expense areas of P&L.

Got it. Thank you so much.

Thank you.

[Operator Instructions] At this time, I'm showing no further questions. I would like to turn the call back over to Deverl Maserang, for closing remarks.

Thank you. We will continue to prioritize the health and safety of our team members and customers, that’s the most important, as well as take actions to support the long-term sustainability of our business. On behalf of board and leadership team, we believe these strategic actions we are taking as the company will position us for success when the nation emerges from the state of crisis. We truly appreciate you calling in today and thank you for your continued interest in Farmer Bros.

Ladies and gentlemen, this concludes today's conference call. Thanks for participating. You may now disconnect.