Farmer Bros Co (FARM) 2020 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Farmer Brothers Fourth Quarter and Fiscal Year 2020 Earnings Conference Call.

(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 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.farmerbros.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 2 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, in 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'll 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 continued to make good progress in executing our turnaround strategy here in 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 collecting 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 address 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 3 priorities: first, protecting the health and safety of our employees and our customers; second, taking actions to preserve liquidity and support for 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 this time, we are continuing to allow team members, who are able to work from home, to do so if they choose.

Since the headcount reduction in furlough program, we have implemented at the height of the stay-at-home orders across the U.S., I'm pleased to report that we have welcomed back approximately 125 team members or 20% of those that were originally furloughed.

We expect to continue to identify others to bring back as customer demand ramps up.

In terms of actions we have taken to preserve liquidity and support the long-term sustainability of our business, I'm incredibly pleased with our recently announced credit facility amendment.

The amendment is another important step in our ongoing efforts to support the business, both near and long term, providing us with increased financial flexibility to support continued execution of key strategic initiatives through what remains an uncertain business environment, while maintaining compliance with our financial covenants.

We appreciate the support of our lenders and believe the execution of this credit facility reflects their confidence in Farmer Brothers and our transformation strategy.

With this added financial flexibility and our ongoing cost management efforts, we believe Farmer Brothers is well positioned to continue weathering these challenging times.

Throughout the quarter, while we continued to experience these effects of pandemic and stay-at-home orders, we continue to take strategic actions to pivot our business and accelerate certain operating initiatives, guided by the 5 Es of our turnaround strategy.

As you may recall, these are: 1, empowering our talent; 2, enriching our customer relationships; 3, enhancing our systems and processes; 4, executing our supply chain optimization; and 5, elevating our product portfolio through innovation.

As we communicated our business update announcement at the end of July, sales from our DSD customers had declined between 65% and 70% at the height of the pandemic in April 2020 compared to pre-COVID-19 weekly average sales.

However, due to execution of our key strategic initiatives, certain government stay-at-home orders being lifted and the reopening of some of our customers' businesses, our DSD revenues improved to approximately a 45% decline from pre-COVID-19 levels by the end of the fourth quarter.

DSD sales did experience some regression during July's outbreak of COVID-19 cases in many parts of the country, but have recently recovered to some of the best results since April, with many days reporting DSD revenue declines in the 37% to 39% range.

The largest DSD sales declines continued to be from restaurants, hotels and casino channels, while demand from health care and convenience stores channels have been less impacted.

Although our direct ship sales channel has also been impacted by the effects of COVID-19 on our customers and the broader economy, the impact was mitigated in part due to the types of customers we serve through this channel as well as increases in our retail business, products sold to key grocery stores under their private labels and third-party e-commerce platforms.

Throughout the fourth quarter, we continued to focus on the select group of initiatives that we believe are the most critical in driving improved financial results and position the company for long-term success.

First and foremost, supply chain optimization.

We continue to make good progress in derisking Houston, building out our state-of-the-art Dallas/Ft.

Worth facility and moving forward with the reopening of our West Coast distribution facility.

At our DFW facility, we fully operationalized the new retail packaging line during the fourth quarter and will soon have another 3 lines up and running, providing an additional 13 million pounds of packaging capability.

We have also begun the installation of an additional roaster to further enhance our DFW roasting capability.

While the pandemics has undoubtedly created challenges in our business, we've also actively taken advantage of opportunities during this time to strengthen our manufacturing capacity.

And these actions will, in turn, strengthen Farmer Brothers' competitive position for the long term.

As we have communicated previously, 40% of our customers are located in the Western U.S., and we believe a West Coast distribution facility will provide significant benefits.

Through this new facility, we have the ability to achieve substantial transportation and distribution savings, while at the same time, we will better be able to serve our West Coast branches and customers.

We're in the final stages of identifying a location and expect to provide further updates on this project on our next earnings call.

Turning to enhancing our systems and processes.

I'm excited to announce some significant upgrades we made to our technology during the quarter.

First, we launched the rollout of HighJump, our new handheld technology.

The new technology represents one of the biggest opportunities to support our DSD team with tools to capture more sales, save time and improve accuracy.

We also began introducing a technology that enhances retail order fulfillment, warehouse management and shipping.

We are excited about the incredible visibility this technology will give us when fully implemented across all of our distribution centers, branches and routes and believe leveraging it will be critical to Farmer Brothers thriving in e-commerce.

In addition, we have now adopted a software platform that supports our new online websites and better enables retail shopping and subscription services.

We are pleased to report that we have successfully launched the Boyds website and are already seeing it gain solid traction with consumers.

We're also taking steps to activate and grow retail subscriptions in the coming quarter.

We plan to launch another series of new sites for other brands and companies, including Public Domain, China Mist and Farmer Brothers in the coming months.

We also continue to see opportunity to leverage the platform with B2B such as Grocery Direct.

As we have previously discussed, we will also be upgrading our legacy JDE enterprise system.

The significant improvement of this foundational tool allows us to manage our business more effectively and efficiently.

We expect the design and planning for these technological enhancements to be completed by the end of this calendar year with full upgrade complete by the end of calendar year 2021.

In addition to our supply chain optimization and system initiatives, I'm proud of the way we have adapted to the COVID-19 environment and taken this time to enrich our customer relationships.

We continue to improve our service capability and have remained focused on stepping up the capabilities in our branches and service centers.

We are currently testing nonbranded trucks and technicians in order to service equipment for all businesses regardless of whether they purchase our coffee and allied products.

Our service pilot program currently has 14 routes operating today, and we are in various conversations with small and large-scale companies as a part of the proof-of-concept for this pilot.

Another area we have continued to focus on is augmenting the presell and tele-sell approach in our DSD business, enhancing our business development strategy to build new customers through presell and calling ahead to establish order needs.

We have a dedicated selling team, hourly delivery drivers and related warehouse support in place that we continue to see as a better structure that will help drive better customer service and higher sales while being less costly than our historical structure.

We have also remained focused on elevating innovation.

Our recent innovation efforts have primarily revolved around e-commerce and how we are marketing and serving customers.

As I just discussed, in addition, we have collaborated with our suppliers to deploy new equipment that allow for hands-free dispensing of beverages.

This hands-free equipment is safer in having an individual pull a lever and therefore more attractive to our customers in the current environment.

We are currently implementing this equipment across the field to help our customers drive consumption with self-service coffee and tea beverages.

While we have prioritized certain initiatives that we believe will have the most benefit through the COVID-19 operating environment, looking forward, we also continue to believe that great opportunities for innovation exist within our product portfolio to capitalize on the recent trends and shifts in consumer demand.

And finally, I'd like to touch briefly on empowering our talent.

In the face of the global health crisis and calls for sociopolitical change, we have recently initiated an employee-led diversity, quality and inclusion program, reinforcing our commitment to our team members to promote diversity and inclusion in our workforce as well as doing more to continue improving and evolving as an organization.

We're making good progress on our efforts while recognizing that this is a journey and there is more work to be done.

As we look forward, while there continues to be some uncertainty in our broader operating environment, the fundamental strengths of Farmer Brothers' business remain in place, and we are aggressively taking steps to position our business for the long term.

We are confident that the efforts we have taken to pivot and adapt our business to the COVID-19 environment will make us a stronger organization as we emerge from this global crisis.

We are keeping a close eye on how states are reopening and how restaurants, hotels, casinos and other businesses are returning to serving customers in order to manage what is a fluid situation from market to market, particularly for our DSD business.

While we cannot predict whether another wave of COVID-19 will impact our business again, we believe our sales will continue to improve as the country recovers and opens.

At the same time, we remain committed to executing our key initiatives, with a continued focus on additional progress in supply chain optimization and technology upgrades that will enhance our abilities in e-commerce as well as serving our DSD customers.

These initiatives support our turnaround strategy and serve as the foundation to strengthen our financial performance and create ongoing value for shareholders.

I'm incredibly proud of how our business has survived through this unprecedented state of crisis and how we are becoming a stronger company as a result.

We've addressed every challenge head on and pivot our business to position ourselves to continue serving our customers well into the future.

I look forward to being able to provide updates on our performance and continued progress on our initiatives on future earning calls.

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

Scott?

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 a $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 produced the fund that allowed us to also reduce our accounts payable by almost $36 million with little use of preexisting 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 27.5% of the total volume through our DSD network, while direct ship customers represented approximately 14.3 million pounds of green coffee processed and sold or 72.5% of total volume.

As this volume ratio is usually closer to 1/3 through our DSD network and 2/3 through direct ship customers, you can see one of the primary impacts to our business from the COVID-19 environment.

Turning to the income statement.

Net sales for the quarter were $81.1 million, which is a decrease of $61 million or 42.9% from $142.1 million reported in the same period a year ago.

The decline in net sales was driven primarily by lower sales of coffee, beverage and allied products sold through our DSD network due to COVID-19 as well as the sale of our office coffee business in July of 2019 and some net customer attrition.

As Deverl mentioned, our average sales trends steadily improved throughout the fourth quarter to a decline of approximately 45% by June 30, 2020.

As Deverl mentioned, the largest DSD sales declines were from restaurants, hotels and casino channels, while demand from health care and convenience store channels were less impacted.

Our direct ship sales declined compared to the prior year period due to lower coffee volume related to COVID-19 in certain direct ship channels and the impact of coffee prices for our cost plus customers, which was partially offset by improved volume from our retail business, products sold to key grocery stores under their private labels and third-party e-commerce platforms.

Gross profit in the fourth quarter of fiscal 2020 was $15.5 million, a decrease of $22.2 million or 58.8% from the prior year period.

And gross margin decreased to 19.2% from 26.6%.

The decrease in gross profit was primarily driven by lower net sales of $61 million, which was partially offset by lower cost of goods sold.

The decrease in gross margin was impacted by COVID-19 and the unfavorable impact it had on our customer mix, partially offset by lower reserves for slower moving inventories, lower freight costs, lower coffee brewing equipment costs and improved production variances resulting from the various cost savings initiatives implemented.

Turning to our operating expenses.

Operating expenses in the fourth quarter of fiscal 2020 were $29.1 million or 35.9% of sales compared to $44.7 million or 31.5% of net sales in the prior year period.

The decrease in operating expense dollars was primarily due to a $7.2 million decrease in general and administrative expenses and a $7.1 million decrease in selling expenses.

The decrease in general and administrative expenses was associated with lower headcount and reductions in third party costs, partially offset by COVID-19-related severance costs.

The decrease in selling expenses was primarily driven by lower headcount, lower DSD fleet costs, less sales commissions, lower travel expenses and other savings realized from our initiatives.

As we discussed on last quarter's call, we had targeted expense savings of approximately $6.5 million per month through the fourth quarter, and we exceeded this goal, which mitigated the COVID-19 impact on both gross profit and reduced operating expenses.

We continue to actively manage costs as areas of the business partially returned to pre-COVID-19 sales levels.

Interest expense in the fourth quarter of fiscal 2020 decreased $200,000 to $2.6 million compared to $2.8 million in the prior year period, largely due to lower pension-related interest expense, which was partially offset by higher interest expense on our higher outstanding borrowings on our revolving credit facility, since we had our revolver fully drawn for the majority of the fourth quarter this year as a precaution against the potential impact of COVID-19 on the business.

In April 2020, we borrowed an additional $42 million from the revolving credit facility as a precautionary measure to increase our cash position and to preserve our financial flexibility.

We repaid a total of $50 million of the borrowings in July 2020 in connection with the amendment previously discussed.

Other net in the fourth quarter of fiscal 2020 increased by $5.4 million to $7.5 million in the quarter compared to $2.1 million in the prior year period, primarily due to higher amortized gains on our post-retirement medical benefit plan, partially offset by mark-to-market net losses on coffee-related derivative instruments not designated as accounting hedges.

Turning to income tax.

We reported an income tax expense of $1 million in both the fourth quarter of fiscal 2020 and the prior year period.

The tax expense in the fourth quarter of fiscal 2020 was primarily due to changes in accumulated and other comprehensive income, while the prior year period was driven by state tax income expense.

Net loss was $9.7 million in the fourth quarter of fiscal 2020 compared to net loss of $8.8 million in the prior year period.

Net loss available to common stockholders was $9.9 million or $0.57 per common share on a diluted basis in the fourth quarter of fiscal 2020 compared to a net loss available to common shareholders of $8.9 million or $0.52 per common share on a diluted basis in the prior year period.

Adjusted EBITDA was $700,000 compared to $3.9 million in the prior year period.

Our adjusted EBITDA margin decreased to 0.9% for the quarter compared to 2.8% for the fourth quarter last year, reflecting the impact of the COVID-19 pandemic.

Now turning to the balance sheet.

As of June 30, 2020, the outstanding debt on our revolver was $122 million, an increase of $30 million since June 30, 2019.

However, our cash increased by $53 million to $60 million as of June 30, 2020, compared to a $7 million cash balance as of June 30, 2019.

We continue to focus on prudent working capital management, and the liquidity improvements resulting from these actions will provide additional financial and operational flexibility during and after COVID-19.

As Deverl mentioned, in July 2020, we amended our existing senior secured revolving credit facility, providing us with increased financial flexibility and positioning us to weather these turbulent times.

As of September 1, 2020, the company's total debt was $66.8 million, and the company had cash on hand of $8.2 million and $31.8 million of availability on its amended credit facility.

I want to pause to make an important point regarding our net debt balances or total debt less our cash on hand, which is a key measure of our recent performance.

This net debt measure was reduced by $23 million from $85 million to $62 million over the course of the full fiscal year 2020 that ended on June 30, 2020.

Additionally, if you look at the company's net debt as of September 1, which is available in the press release we issued today, it further declined since June 30, 2020, to $58.6 million.

This is an indication of our ability to stabilize the business until we experience better sales results.

During the quarter, our accounts receivable balance decreased $10 million to $40.9 million compared to $50.9 million at the end of the third quarter and was down $14.2 million from $55.1 million at the end of the prior year period.

Our inventory levels decreased during the quarter by $18.5 million to $67.4 million compared to $85.9 million at the end of the third quarter and are down $20.5 million from $87.9 million for the prior year period.

Accounts payable decreased during the quarter to $37 million compared to $59.6 million at the end of the third quarter and is down $35.8 million from the prior year balance of $72.8 million.

Turning to capital expenditures.

Capital expenditures for the fourth quarter was $4.5 million, of which $1.2 million related to maintenance spending.

Our maintenance CapEx has declined $2.9 million from $4.1 million a year ago.

Our capital expenditures for the fiscal year were $17.6 million, representing lower maintenance capital spend of $11.8 million, a 49.5% reduction compared to the prior year period.

This is the final significant measure that I'd like to highlight as support for how the business has been managed in order to preserve the financial flexibility we discussed regarding the balance sheet and our debt and cash balances.

These capital cost savings were driven by several key initiatives put in place, including a focus on our refurbished coffee brewing equipment program.

We have successfully leveraged opportunities to lower our repair, service and maintenance costs as well as reduce our capital spend on equipment.

Compared to prior year, our coffee brewing equipment CapEx declined $2 million during the fourth quarter and $8 million for the full fiscal year.

These savings were due to several key strategies implemented this year, including a shift towards refurbished equipment, which has a lower cost per unit.

The successful implementation of our 24/7 call center has also improved our service capabilities.

We look forward to sharing the results of our service pilot noted earlier as we expand the reach of these enhanced services to new customers.

Depreciation and amortization expense was $7.4 million in the fourth quarter versus $7.8 million in the same period of the prior year.

We continue to believe the steps we are taking will enable us to emerge from these challenging times as a stronger organization.

And with that, I'd like to turn the call over to the operator for any questions.

(Operator Instructions) Our first question comes from the line of Kara Anderson from B. Riley.

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, it was 64.9%.

Okay.

Awesome.

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 or are more fully open than, say, where I stay in California?

Yes.

That's a great question.

Thank you, Kara, and good to talk to you.

We've been looking at that heavily.

So we're going to take -- let's take up broader regions.

Let's take the south region, which is -- includes 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 -- in 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 can give a sense for maybe more permanent customer attrition and just kind of how much you might be impacted by businesses closing?

That's good question, and I wouldn't speculate so much as to what we really believe.

We can all read a lot of press as it relates to restaurant, hotels, casinos.

But let me just give you a couple of points.

We have branches that are exceeding their pre-COVID levels, believe it or not.

And so that gives me hope that 2 things are happening.

One, we've 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 United States.

Other places, you look at percentages and we track by channel, channel being health care, 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 hike 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 stabilizing 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 seeing -- 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 to get back with those customers.

And so we feel like we have 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?

The answer is yes.

And to be specific on that, in the pilot locations, as we tested bringing in new selling methods to 2 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 remarks, our willingness to push down the path to put more of 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 where we're seeing the direct correlation.

So it is that.

So the #1 metric that we are tracking every day by branch, by region, by the country, what percent decline ROE relative to pre-COVID environment and then tracking new sales and increasing our pipeline of new sales.

And 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 have been customers for many years and how we're doing against that relative to the reopening by state.

Got it.

And last one from me, kind of threw it out there, the $6.5 million monthly savings.

Obviously, some of that is 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 that 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 Deverl has pointed out, along with it.

We are -- as the business comes back, as sales comes back, there are some volumetric 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 is 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 and the savings that we have, they're getting transferred up into 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 1/3 of the savings we're seeing overall are in cost of goods, and then about 2/3 are down in the operating expense area of the P&L.

(Operator Instructions) At this time, I am 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 the Board and leadership team, we believe the strategic actions we are taking as a company will position us for success when the nation emerges from the state of crisis.

I truly appreciate you calling in today, and thank you for your continued interest in Farmer Brothers.

Ladies and gentlemen, this concludes today's conference call.

Thank you for participating.

You may now disconnect.