Farmer Brothers Company

Hello, good afternoon, and welcome to the Farmer Brothers Fiscal Fourth Quarter and Full Year 2023 Earnings Conference Call. If at any time you need assistance, please press star 1 to signal a conference specialist. At this time, all participants are in a listen-only mode. As a reminder, this call is being recorded. earlier today the company issued its quarterly shareholder letter available on the investor relations section of farmer brothers website at farmerbrothers.com the shareholder letter is also included as an exhibit on the company's form 8k and is available on the company's website and the securities and exchange commission's website at sec.gov a replay is available on the company's website and the Securities and Exchange Commission website at 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 all of the financial information presented is unaudited And 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 regulations. 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 which could cause actual results and other events to differ materially from those forward-looking statements is available in the company's shareholder letter and public filings. On today's call, management will also reference 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 shareholder letter. I will now turn the call over to Farmer Brothers Chief Executive Officer, Deverell Massarang. Mr. Massarang, please go ahead.

Thank you operator and thank you everyone for joining us this afternoon.

Hopefully you've had a chance to look at the charter letter we filed earlier today. We've had several significant news announcements these last few weeks, and we want to take some time here to walk you through those and make introductions to our new interim CEO, John Moore and interim CFO, Brad Boehner. Most importantly, We want our investors to come out of today's call with a good sense of the company's positioning over the next several quarters and for the long term. Scott, the board, and I fully believe Farmer Brothers has a bright future in front of it. The sale of our direct ship business was a transformative moment in Farmer Brothers' history and creates a significant inflection point for our shareholders. It trains our full focus on what we do best as a company. It strengthens our balance sheet and best positions us to unlock the company's full margin expansion and growth potential. We already hit the ground running, showing rapidly improving margins in our DSD business. In May, we began rolling out our AI-based pricing model, which uses more than 200 data points from more than 40,000 customers to facilitate dynamic pricing adjustments. In the last weeks of the quarter alone, we saw several hundred base point improvements in gross margins. We really are excited about this capability. As we noted in our letter, DSD standalone gross margins historically have run above 40%, even without sophisticated pricing capabilities. Since the closing of our direct ship transaction, several important steps have been taken to position the company for what we believe will be an accelerated return to positive free cash flow. First, we used $100 million in transaction proceeds to pay down outstanding debt and increase our balance sheet flexibility. This allows the team to focus on execution, improving margins, and driving strategic growth in our continuing DSD operations. Second, We underwent a significant reorganization within DSD, which allows us to apply 100% focus to this important business. We introduced a new field organization structure, which will drive a more sales and profit-centric approach to account management. And we've improved accountability and reporting throughout this organization to better align with our goals and priorities. We have also taken steps to lower product costs, locking in COGS gains, which will benefit performance throughout the year. and we are optimizing operations across the board, including inventory management, procurement, and manufacturing. We continue to elevate opportunities and implement changes to adjust our cost structure to align with our now smaller and leaner organization. Finally, we are ramping up new growth initiatives. Our revived business is performing well, growing revenue by 50% on a year-over-year basis in fiscal 2013. Our launch of shop-branded syrup concentrates has also gone well, especially on the West Coast, and we're excited about our ambient liquid coffee program offered under our Boyd's brand. This is in test markets ahead of the broader launch expected in the fall. We are confident its innovative proprietary design will allow us to capture significant market share in a critical segment for our customers. Now, to discuss what the company will be focused on in the fiscal 2024, let me introduce you to our interim CEO, John Moore. John joined us earlier this year as vice president and head of coffee. He's a proven industry leader with more than 30 years of experience and one of the most knowledgeable people I know in the coffee industry. He will do an outstanding job leading Farmer Brothers through this management transition.