Farmer Brothers Company

Good afternoon, and welcome to the Farmer Brothers Fiscal Fourth Quarter and Full Year 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. As a reminder, this call is being recorded. Earlier today, the company filed its Form 10-K and issued its Fourth Quarter and Full Year Earnings Results press release, which is available on the Investor Relations section of Farmer Brothers' website at farmerbros.com. The release is also included as an exhibit on the company's Form 10-K and is available on its website and the Securities and Exchange Commission's website at sec.gov. A replay of this audio-only webcast will also be available on the company's website approximately two hours after the conclusion of this call. 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 the purposes of the safe harbor provisions under the federal securities laws and regulations. These forward-looking statements represent the company's views 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 release 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 release and SEC filings. I will now turn the call over to Farmer Brothers President and Chief Executive Officer John Moore. Mr. Moore, please go ahead.

Good afternoon, everyone, and thank you for joining us. Before we jump into our operational and financial discussion, I would like to take a moment to officially welcome our new Chief Financial Officer, Vance Fisher, who is joining our call for the first time. Vance, whom you will hear from in just a bit, joined Farmer Brothers in June and has quickly been getting up to speed on our operations and DSD transformation efforts. He brings more than 25 years of financial leadership experience and a proven track record of helping organizations grow revenue and profitability. We're incredibly excited to have him on our leadership team. This past year has been a truly transformative one for Farmer Brothers. As you know, we completed the sale of our direct ship business to Treehouse Foods just prior to the start of fiscal 2024 as we made the decision to focus on our more profitable DSD business. Over the last 12 months, we have been focused on optimizing our value chain, driving operational efficiency, and enhancing our technology capabilities to drive better overall customer service. During this time, we completed our co-manufacturing agreement with Treehouse, centralized our roasting and production efforts to our Portland, Oregon facility, and optimized our overall physical footprint to drive both cost savings and improvements to our customer service capabilities. This included the move of our headquarters and exit of Dallas Fort Worth Distribution Center during the fourth quarter, which allowed us to optimize our distribution network without eliminating routes. We expect these strategic adjustments to deliver meaningful savings in fiscal 2025. From an operational standpoint, we have built a stronger foundation for growth over the past year. We implemented a new structure within our sales organization, took important steps to address our out-of-stock capabilities, and began a transformative SKU rationalization and brand pyramid initiative to ensure we have the right products in the right place at the right time and at the right value proposition to meet our customers' needs, no matter how unique or vast they may be. Overall, our focus on DSD has given us a stronger and more flexible foundation for future growth, and has better positioned us to protect margins through market fluctuations, including the record recent highs we have seen in coffee pricing. Furthermore, the value proposition offered within each of the traditional, premium, and specialty coffee tiers within our brand pyramid will allow us to give customers options to participate at the price structure that works best for them on a nationwide scale. While we are proud of the significant progress we have made, change of this magnitude takes time. Over the last year, we have gained greater visibility into what is working and identified additional areas where we can make further adjustments as highlighted in our fourth quarter results. This includes further enhancing our operational capability, continuing to right-size our overall cost structure, and aggressively focusing on customer growth and retention efforts as we look to drive greater performance across the organization. With that, I'll turn it over to Vance to discuss our financials in more detail. Vance?

Thanks, John. And hello, everyone. It's a pleasure to be here, and I appreciate the opportunity to speak with you all today. This is an exciting time to have joined the company. I have a real passion for helping companies grow and grow in a profitable and sustainable way, and I saw that opportunity here at Farmer Brothers. Since joining the company in June, I've been immersing myself in getting up to speed with the business operations and gaining a better understanding of the challenges and opportunities that lie ahead. I've also been assessing how I can best support the organization and help drive significant value creation for our shareholders. I'm encouraged by what I've seen in my first 90 days, and I'm excited about partnering with John and the rest of the leadership team and team members on this journey to put Farmer Brothers on a winning path. With that, I'll turn to our fourth quarter and full year fiscal 24 financial results. A quick reminder, these results in the prior year are reported on a continuing operations basis. reflecting our performance of our DSD business in the respective periods. Please refer to our Form 10-K, which was filed with the SEC today, for further information regarding the respective performance of our discontinued and continuing operations. Our results for both the fourth quarter and fiscal year reflect the progress which has been made in optimizing our operations and capturing efficiencies, as John mentioned. However, they also reflect areas we will continue to focus on as we work to drive renewed, sustainable growth and profitability going forward. Net sales for the fourth quarter of fiscal 24 decreased slightly by 1% compared to the prior year to 84.4 million. The decrease was driven by a decline in sales volume. For our full fiscal year 24, we achieved net sales of 341.1 million. which was a 1.1 million increase compared to 340 million in fiscal 23. This increase was primarily due to stronger pricing, partially offset by decline in sales volume. During the fourth quarter, gross margins increased to 38.8%, a 630 basis point improvement compared to the prior year period of 32.5%. Gross profit for the quarter was 32.8 million, which was a $5 million improvement compared to 27.8 million in the fourth quarter of fiscal 23. Gross margins for the full fiscal year increased 560 basis points to 39.3% compared to 33.7% in fiscal 23. Gross profit during the year increased 19.3 million or 17% to 133.9 million compared to 114.6 million in fiscal 23. This increase in gross margin was primarily due to our pricing optimization efforts during the year. Operating expenses decreased by $1 million in the fourth quarter compared to the prior year period due to a $3.6 million increase in gains related to the sale of branch properties and other assets, and a $700,000 decrease in general and administrative expenses, but was mostly offset by a $3.3 million increase in selling expenses. The increase in selling expenses during the quarter was primarily driven by additional costs related to facility rent and healthcare benefits. The decrease in G&A was primarily a result of a decrease in personnel costs. For the full fiscal year, operating expenses increased by 600,000 compared to fiscal 23. This was a result of an 8.2 million increase in selling expenses and a 4.1 million increase in G&A expenses which was mostly offset by $11.7 million increase in gains related to the sale of branch properties and other assets. The increase in selling expenses during the year was primarily driven by additional costs related to facility rent and healthcare benefits. The increase in G&A was primarily a result of an increase in severance costs and other personnel-related costs in facilities rent. Our net loss from continuing operations moved to a loss of 4.6 million for the fourth quarter compared to a loss of 16.9 million last year. For the full fiscal year, net loss improved to 3.9 million compared to a loss of 34 million during the prior year period, an improvement of more than 30.1 million on a year-over-year basis. In addition, our adjusted EBITDA loss for the quarter improved by 5.6 million to a loss of 1.6 million. For the full fiscal year, adjusted EBITDA was positive at 558,000, compared to a 14.2 million loss in fiscal 23, and almost 15 million improvement. Looking at the balance sheet, as of June 30, 2024, we had 5.8 million of unrestricted cash and cash equivalents, and 23.3 million in outstanding borrowings under our revolving credit facility. with $27.8 million of additional borrowing capacity. We believe we are adequately capitalized to finance our operations in fiscal 25 as we progress towards our target of positive free cash flow. The significant gross margin and adjusted EBIT improvements we have achieved over the past year underscore our confidence that we are building a strong foundation to support long-term value creation. With that, I'll turn it back to John. John?