Farmer Brothers Company

11/06/2025 | Press release | Distributed by Public on 11/06/2025 15:59

Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This Quarterly Report on Form 10-Q and other documents we file with the SEC contain "forward-looking statements" withing the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act, that are based on current expectations, estimates, forecasts and projections about us, our future performance, our financial condition, our products, our business strategy, our beliefs and our management's assumptions. In addition, we, or others on our behalf, may make forward-looking statements in press releases or written statements, or in our communications and discussions with investors and analysts in the normal course of business through meetings, webcasts, phone calls and conference calls. These forward-looking statements can be identified by the use of words like "anticipates," "estimates," "projects," "expects," "plans," "believes," "intends," "will," "could," "may," "assumes" and other words of similar meaning. These statements are based on management's beliefs, assumptions, estimates and observations of future events based on information available to our management at the time the statements are made and include any statements that do not relate to any historical or current fact. These statements are not guarantees of future performance and they involve certain risks, uncertainties and assumptions that are difficult to predict. Actual outcomes and results may differ materially from what is expressed, implied or forecast by our forward-looking statements due in part to the risks, uncertainties and assumptions set forth in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended June 30, 2025 filed with the SEC on September 11, 2025, as amended by the Form 10-K/A filed on October 24, 2025 (as amended, the "2025 Form 10-K"), as well as those discussed elsewhere in this Quarterly Report on Form 10-Q and other factors described from time to time in our filings with the SEC.
Factors that could cause actual results to differ materially from those in forward-looking statements include, but are not limited to, severe weather; levels of consumer confidence in national and local economic business conditions; developments related to pricing cycles and volumes; the impact of labor market conditions; the increase of costs due to inflation; changes in taxes, tariffs, duties governmental laws and regulations; an economic downturn caused by any pandemic, epidemic or other disease outbreak; the success of our turnaround strategy; the impact of capital improvement projects; the adequacy and availability of capital resources to fund our existing and planned business operations and our capital expenditure requirements; our ability to meet financial covenant requirements in our Credit Facility, which could impact, among other things, our liquidity; the relative effectiveness of compensation-based employee incentives in causing improvements in our performance; the capacity to meet the demands of our large national account customers; the extent of execution of plans for the growth of our business and achievement of financial metrics related to those plans, our success in retaining and/or attracting qualified employees; our success in adapting to technology and new commerce channels; the effect of the capital markets as well as other external factors on stockholder value; fluctuations in availability and cost of green coffee; competition; organizational changes; the effectiveness of our hedging strategies in reducing price; changes in consumer preferences; our ability to provide sustainability in ways that do not materially impair profitability; changes in the strength of the economy, including any effects from inflation; business conditions in the coffee industry and food industry in general; our continued success in attracting new customers; variances from budgeted sales mix and growth rates; weather and special or unusual events, as well as other risks described in this Quarterly Report on Form 10-Q and other factors described from time to time in our filings with the SEC.
Given these risks and uncertainties, you should not rely on forward-looking statements as a prediction of actual results. Any or all of the forward-looking statements contained in this Quarterly Report on Form 10-Q and any other public statement made by us, including by our management, may turn out to be incorrect. We are including this cautionary note to make applicable and take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 for forward-looking statements. We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events, changes in assumptions or otherwise, except as required under federal securities laws and the rules and regulations of the SEC.
Financial Data Highlights (in thousands, except per share data and percentages)
Three Months Ended September 30, Favorable (Unfavorable)
2025 2024 Change % Change
Income Statement Data:
Net sales $ 81,601 $ 85,066 $ (3,465) (4.1)%
Gross margin 39.7 % 43.9 % (4.2) % NM
Operating expenses as a % of sales 43.6 % 47.2 % 3.6 % NM
Loss from operations $ (3,181) $ (2,828) $ (353) (12.5)%
Net loss $ (4,025) $ (5,002) $ 977 19.5%
Operating Data:
Coffee pounds 4,695 4,863 (168) (3.5)%
EBITDA (1) $ (751) $ (1,408) $ 657 46.7%
EBITDA Margin (1) (0.9) % (1.7) % 0.8 % NM
Adjusted EBITDA (1) $ 1,364 $ 1,417 $ (53) (3.7)%
Adjusted EBITDA Margin (1) 1.7 % 1.7 % - % NM
Percentage of Total Net Sales By Product Category
Coffee (Roasted) 51.1 % 46.1 % 5.0% 10.8%
Tea & Other Beverages (2) 24.5 % 27.9 % (3.4)% (12.2)%
Culinary 16.9 % 18.3 % (1.4)% (7.7)%
Spices 6.1 % 6.2 % (0.1)% (1.6)%
Delivery Surcharge 1.4 % 1.5 % (0.1)% (6.7)%
Net sales 100.0 % 100.0 % -% NM
Other data:
Total capital expenditures $ 1,932 $ 3,330 $ 1,398 42.0%
Depreciation and amortization expense 2,614 2,897 283 9.8%
________________
NM - Not Meaningful
(1) EBITDA, EBITDA Margin, Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP financial measures. See "Non-GAAP Financial Measures" below for a reconciliation of these non-GAAP measures to their corresponding GAAP measures.
(2) Includes all beverages other than roasted coffee, frozen liquid coffee, and iced and hot tea, including cappuccino, cocoa, granitas, and concentrated and ready-to-drink cold brew and iced coffee.
Results of Operations
The following table sets forth information regarding our consolidated results of operations for the three months ended September 30, 2025 and 2024 (in thousands, except percentages):
Three Months Ended September 30, Favorable (Unfavorable)
2025 2024 Change % Change
Net sales $ 81,601 $ 85,066 $(3,465) (4.1)%
Cost of goods sold 49,165 47,748 (1,417) (3.0)%
Gross profit 32,436 37,318 (4,882) (13.1)%
Selling expenses 25,803 27,228 1,425 5.2%
General and administrative expenses 8,797 11,252 2,455 21.8%
Net losses on disposal of assets 1,017 1,666 649 39.0%
Operating expenses 35,617 40,146 4,529 11.3%
Loss from operations (3,181) (2,828) (353) (12.5)%
Other (expense) income:
Interest expense (1,324) (1,791) 467 26.1%
Other, net 480 (250) 730 NM
Total other expense (844) (2,041) 1,197 NM
Loss before taxes (4,025) (4,869) 844 17.3%
Income tax expense - 133 133 NM
Net loss $ (4,025) $ (5,002) $977 19.5%
___________
NM - Not Meaningful
Three Months Ended September 30, 2025 Compared to Three Months Ended September 30, 2024
Net Sales
Net sales in the three months ended September 30, 2025 decreased $3.5 million, or 4.1%, to $81.6 million from $85.1 million in the three months ended September 30, 2024. The decrease in net sales for the three months ended September 30, 2025 was primarily due to declining volumes compared to the prior period.
The following table presents the effect of changes in unit sales, and unit pricing and product mix in the three months ended September 30, 2025 compared to the same period in the prior fiscal year (in millions):
Three Months Ended September 30, 2025 vs. 2024
Effect of change in unit sales $ (9.8)
Effect of pricing and product mix changes 6.3
Total (decrease) increase in net sales
$ (3.5)
Unit sales decreased 10.9%, and average unit price increased by 7.7% in the three months ended September 30, 2025 as compared to the same period in the prior fiscal year, resulting in a decrease in our net sales of 4.1%. Average unit price increased during the three months ended September 30, 2025 primarily due to price increases to customers. There were no new product category introductions which had a material impact on our net sales in the three months ended September 30, 2025 or 2024.
Gross Profit
Gross profit decreased to $32.4 million for the three months ended September 30, 2025, compared to $37.3 million for the three months ended September 30, 2024. Gross margin decreased to 39.7% for the three months ended September 30, 2025 from 43.9% for the three months ended September 30, 2024. The decrease in gross profit was primarily due to increased costs of goods sold related to the rise in green coffee commodity costs compared to the same period in the prior fiscal year.
Operating Expenses
In the three months ended September 30, 2025, operating expenses decreased $4.5 million to $35.6 million, or 43.6% of net sales, from $40.1 million, or 47.2% of net sales in the prior year period. There was a $1.4 million decrease in selling expenses and a $2.5 million decrease in general and administrative expenses. The decrease in selling expenses during the three months ended September 30, 2025 was primarily due to compensation related cost. The decrease in general and
administrative expenses during the three months ended September 30, 2025 was primarily due to a decrease in compensation and benefits related costs. There was a $1.0 million loss on disposal of assets during the three months ended September 30, 2025 compared to a $1.7 million loss for three months ended September 30, 2024.
Total Other Expense
Interest expense in the three months ended September 30, 2025 decreased $0.5 million to $1.3 million from $1.8 million in the prior year period. The decrease is primarily related to a decrease in pension related interest costs.
Other, net was a gain of $0.5 million in the three months ended September 30, 2025 compared to $0.3 million loss in the prior year period. The $0.7 million change was primarily related to net losses on coffee-related derivative instruments not designated as accounting hedges in the prior year period.
Income Taxes
In the three months ended September 30, 2025 and September 30, 2024, we recorded income tax expense of $0 thousand and $133 thousand, respectively. See Note 14, Income Taxes, of the Notes to Unaudited Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Non-GAAP Financial Measures
In addition to net (loss) income determined in accordance with U.S. generally accepted accounting principles ("GAAP"), we use the following non-GAAP financial measures in assessing our operating performance:
"EBITDA" is defined as net loss excluding the impact of:
•income tax expense;
•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 excluding the impact of:
•income tax expense;
•interest expense;
•depreciation and amortization expense;
•401(k) and share-based compensation expense;
•net losses on disposal of assets;
•strategic initiative costs; and
•severance costs.
"Adjusted EBITDA Margin"is defined as Adjusted EBITDA expressed as a percentage of net sales.
For purposes of calculating EBITDA and EBITDA Margin, Adjusted EBITDA and Adjusted EBITDA Margin, we have excluded the impact of interest expense resulting from non-cash pretax pension and postretirement benefits. For purposes of calculating Adjusted EBITDA and Adjusted EBITDA Margin, we are also excluding the impact severance and strategic initiative costs, as these items is not reflective of our ongoing operating results.
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 September 30,
(In thousands) 2025 2024
Net loss $ (4,025) $ (5,002)
Income tax expense - 133
Interest expense (1) 660 564
Depreciation and amortization expense 2,614 2,897
EBITDA $ (751) $ (1,408)
EBITDA Margin (0.9) % (1.7) %
____________
(1) Excludes interest expense related to pension plans and postretirement benefit plans.
Set forth below is a reconciliation of reported net loss to Adjusted EBITDA (unaudited):
Three Months Ended September 30,
(In thousands) 2025 2024
Net loss $ (4,025) $ (5,002)
Income tax expense - 133
Interest expense (1) 660 564
Depreciation and amortization expense 2,614 2,897
401(k) and share-based compensation expense 482 495
Net losses on disposal of assets 1,017 1,666
Strategic initiative costs (2) 587 -
Severance costs 29 664
Adjusted EBITDA $ 1,364 $ 1,417
Adjusted EBITDA Margin 1.7 % 1.7 %
__________
(1) Excludes interest expense related to pension plans and postretirement benefit plans.
(2) Cost related to evaluation of strategic alternatives.
Our Business
We are a leading coffee roaster, wholesaler, equipment servicer and distributor of coffee, tea and other allied products manufactured under our owned brands, as well as under private labels on behalf of certain customers. We were founded in 1912, incorporated in California in 1923, and reincorporated in Delaware in 2004. We operate in one business segment.
We serve a wide variety of customers, from small independent restaurants and foodservice operators to large institutional buyers like restaurants, department and convenience store retailers, hotels, casinos, healthcare facilities, and gourmet coffee houses, as well as grocery chains with private brand and consumer-branded coffee and tea products, and foodservice distributors. Through our sustainability, stewardship, environmental efforts, and leadership we are not only committed to serving the finest products available, considering the cost needs of the customer, but also focus on their sustainable cultivation, manufacture and distribution whenever possible.
Our product categories consist of a robust line of roast and ground coffee, including organic, Direct Trade, Project D.I.R.E.C.T.®, Fair Trade Certified™® and other sustainably-produced offerings; frozen liquid coffee; flavored and unflavored iced and hot teas; including organic and Rainforest Alliance Certified™; culinary products including premium spices, pancake and biscuit mixes, gravy and sauce mixes, soup bases, dressings, syrups and sauces, and coffee-related products such as coffee filters, cups, sugar and creamers; and other beverages including cappuccino, cocoa, granitas, and other blender-based beverages and concentrated and ready-to-drink cold brew and iced coffee. We offer a comprehensive approach to our customers by providing not only a breadth of high-quality products, but also value added services such as market insight, beverage planning, and equipment placement and service.
We operate a production and distribution facility in Portland, Oregon. We distribute our products from our Portland, Oregon production facility, as well as separate distribution centers in Northlake, Illinois; Moonachie, New Jersey; and Rialto, California. Our products reach our customers primarily through our nationwide DSD network of over 200 delivery routes and over 90 storage locations as of September 30, 2025. DSD sales are primarily made "off-truck" to our customers at their places of business. We operate a large fleet of trucks and other vehicles to distribute and deliver our products through our DSD network, and we rely on 3PL service providers for our long-haul distribution.
We continue to monitor macroeconomic trends and uncertainties such as product cost inflation, the effects of recently implemented tariffs, and the potential impact of modified or additional tariffs, which may have adverse effects on net sales
and profitability. As a result of the tariffs announced by the U.S. and potential tariff modifications or the imposition of tariffs or export controls by other countries, we anticipate increased commodity cost volatility, and consumer and economic uncertainty due to rapid changes in global trade policies. Economic pressures on customers and suppliers, including the challenges of high inflation and the effects of increased tariffs, may negatively affect our net sales and profitability in the future.
Liquidity, Capital Resources and Financial Condition
The following table summarizes our debt obligations:
September 30, 2025 June 30, 2025
(In thousands) Debt Origination Date Maturity Principal Borrowing Amount Carrying Value
Weighted Average Interest Rate (1)
Carrying Value
Weighted Average Interest Rate (1)
Revolver Various 4/26/2027 N/A $ 18,300 6.15 % $ 14,300 6.48 %
The revolver under the Credit Facility has a commitment of up to $75.0 million and a maturity date of April 26, 2027. Availability under the revolver is calculated as the lesser of (a) $75.0 million or (b) the amount equal to the sum of (i) 85% of eligible accounts receivable (less a dilution reserve), plus (ii) the lesser of: (a) 80% of eligible raw material inventory, eligible in-transit inventory and eligible finished goods inventory (collectively, "Eligible Inventory"), and (b) 85% of the net orderly liquidation value of Eligible Inventory, minus (c) applicable reserve. The Term Loan under the Term Credit Facility was fully paid down on June 30, 2023.
The Credit Facility contains customary affirmative and negative covenants and restrictions typical for a financing of this type. Non-compliance with one or more of the covenants and restrictions could result in the full or partial principal balance of the Credit Facility becoming immediately due and payable and termination of the commitments. As of and through September 30, 2025, we were in compliance with all of the covenants under the Credit Facility.
The Credit Facility provides us with increased flexibility to proactively manage our liquidity and working capital, while maintaining compliance with our debt financial covenants, and preserving financial liquidity to mitigate the impact of the uncertain business environment and continue to execute on key strategic initiatives.
At September 30, 2025, the Company had outstanding borrowings on the Revolver Credit Facility of $18.3 million and had utilized $4.7 million of the letters of credit sublimit.
Liquidity
We generally finance our operations through cash flows from operations and borrowings under our Credit Facility described above. In light of our financial position, operating performance and current economic conditions, including the state of the global capital markets, there can be no assurance as to whether or when we will be able to raise capital by issuing securities. We believe that the Credit Facility, to the extent available, in addition to our cash flows from operations, collectively, will be sufficient to fund our working capital and capital expenditure requirements for the next 12 months and beyond.
At September 30, 2025, we had $3.8 million of unrestricted cash and cash equivalents and $0.2 million in restricted cash. At September 30, 2025, we had $31.2 million available on our Revolver Credit Facility.
Cash Flows
The significant captions and amounts from our consolidated statements of cash flows are summarized below:
Three Months Ended September 30,
2025 2024
Consolidated Statements of cash flows data (in thousands)
Net cash (used in) provided by operating activities $ (5,007) $ 2,493
Net cash used in investing activities (1,919) (3,304)
Net cash provided by (used in) financing activities 3,951 (56)
Net (decrease) in cash and cash equivalents and restricted cash $ (2,975) $ (867)
Operating Activities
Net cash used in operating activities during the three months ended September 30, 2025 was $5.0 million as compared to net provided by operating activities of $2.5 million in the three months ended September 30, 2024, a decrease in cash used in operations of $7.5 million. The change was driven primarily from an increase in inventories and a decrease in accrued expenses partially offset by an increase in accounts payable.
Investing Activities
Net cash used in investing activities during the three months ended September 30, 2025 was $1.9 million as compared to $3.3 million in the three months ended September 30, 2024. The net change in investing activities was primarily due to a decrease in capital expenditures of $1.4 million in the current period compared to the prior year period.
Financing Activities
Net cash provided by financing activities during the three months ended September 30, 2025 was $4.0 million as compared to net cash used in financing activities of $0.1 million in the three months ended September 30, 2024. The increase was primarily due to net borrowing proceeds of $4.0 million under the Credit Facility in the current year period.
Capital Expenditures
For the three months ended September 30, 2025 and 2024, our capital expenditures paid were $1.9 million and $3.3 million, respectively. In fiscal 2026, we anticipate paying between $9.0 million to $11.0 million in capital expenditures. We expect to finance these expenditures through cash flows from operations and borrowings under our Credit Facility.
Depreciation and amortization expenses were $2.6 million and $2.9 million in the three months ended September 30, 2025 and 2024, respectively.
Purchase Commitments
As of September 30, 2025, the Company had committed to purchase green coffee inventory totaling $31.6 million under fixed-price contracts, and $12.2 million in inventory and other purchases under non-cancelable purchase orders.
Contractual Obligations
As of September 30, 2025, the Company had operating and finance lease payment commitments totaling $36.6 million.
Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in accordance with GAAP. In applying many of these accounting principles, we need to make assumptions, estimates or judgments that affect the reported amounts of assets, liabilities, revenues and expenses in our consolidated financial statements. We base our estimates and judgments on historical experience and other assumptions that we believe are reasonable under the circumstances. These assumptions, estimates or judgments, however, are both subjective and subject to change, and actual results may differ from our assumptions and estimates. If actual amounts are ultimately different from our estimates, the revisions are included in our results of operations for the period in which the actual amounts become known. For a summary of our significant accounting policies, see Note 2, Summary of Significant Accounting Policies,of the Notes to Consolidated Financial Statements included in Part I, Item 1 of our 2025 Form 10-K. For a summary of our critical accounting estimates, please see "Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Estimates" in our 2025 Form 10-K.
Recent Accounting Pronouncements
See Note 2, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements included in Part I, Item 1 of our 2025 Form 10-K.
Off-Balance Sheet Arrangements
As of September 30, 2025, the Company did not have any off-balance sheet arrangements.
Farmer Brothers Company published this content on November 06, 2025, and is solely responsible for the information contained herein. Distributed via Edgar on November 06, 2025 at 21:59 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]