Farmer Brothers Company

Good afternoon and welcome to the Farmer Brothers Fiscal First Quarter 2025 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-Q and issued its first quarter 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 10Q 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. The first quarter showed steady improvement for Farmer Brothers. We saw solid sales growth and meaningful gains in both gross margin and adjusted EBITDA on a year-over-year and quarter-over-quarter basis. These results underscore the positive progress we have made recently. They are also the result of efforts related to our brand pyramid and SKU rationalization initiatives, enhancements with our inventory management processes, proactive and favorable pricing updates, and realignments within our sales team. During the quarter, we achieved another milestone related to our brand pyramid initiative with the refresh of our premium Boyd's coffee brand. Boyd's includes a diverse range of classic, light, medium, and dark roasts in addition to single origin and flavored offerings. Boyd's is specifically geared toward our C-Store, casual dining restaurants, hospitality, healthcare, entertainment, and gaming customers. Historically, Boyd's has been predominantly a West Coast brand. However, as part of our brand pyramid initiative, it will now be our premier premium nationwide coffee offering. We will be announcing our new specialty tier brand in the next few months, and we'll have more details on our next call. We are incredibly excited about the addition of this brand as it marks the final phase of our brand pyramid initiative and a reintroduction of Farmer Brothers into the specialty coffee space. By simplifying our brands and product offerings, we have been able to remove redundancies, optimize our roasting, streamline operational facilities, and enhance the overall customer experience. We have achieved all of this while aggressively managing our working capital and costs. Once complete, our customers will have options across multiple flavor profiles and up and down the value chain, allowing them to participate at the level and price structure which works best for them. This is something we believe will help us drive customer growth and retention. Additionally, we have been working to optimize and add density to our existing DSD routes as part of our commitment to having the right products in the right place at the right time and at the right value proposition for our customers. This mantra is one of the most important aspects of our business and plays a crucial role in customer service growth and retention. We believe customer retention has continued to stabilize thanks to these efforts and improved execution by our restructured sales force. We are also proactively working to navigate the volatility the industry is seeing in coffee markets and changes in consumer behaviors. To mitigate these impacts, we are being nimble in commodity purchasing and inventory management. We are also utilizing our customer data as a way to gain a deeper understanding and further insight into the impact macroeconomic trends have on our customer base and their ordering habits. To that end, we piloted a short-term customer-focused sales incentive with positive results during the recent quarter. We will continue these efforts and explore additional opportunities to offset potential headwinds while also continuing to focus on selling in addition products to existing customers. Overall, we are confident the initiatives we put in place and the operational improvements we made throughout fiscal 2024 are helping us navigate the challenges posed by macroeconomic headwinds and a volatile commodity pricing environment. From strategic pricing initiatives to enhanced operational efficiency to a focus on the value proposition we can provide our customers as a true specialty goods provider, we feel Farmer Brothers is fundamentally better positioned to meet ongoing market demands than it has been in many years. With that, I'll turn it over to Vance to discuss our financials in more detail. Vance?

Thanks, John, and good afternoon, everyone. Our first quarter results represent a solid start to our fiscal year and reflect meaningful progress in positioning Farmer Brothers on a more solid foundation for future growth. Our adjusted EBITDA for the quarter was positive at 1.4 million, an improvement of 1.9 million on a year-over-year basis when compared to a 500,000 loss in the first quarter of last year. This was also a quarter-over-quarter improvement of almost 3 million when compared to a 1.6 million loss in the fourth quarter of fiscal 24. Our improved adjusted EBITDA was largely driven by gross margin expansion. For the first quarter, our gross margin increased 630 basis points year-over-year to 43.9%, compared to 37.6% in the first quarter of last year. and increased 510 basis points sequentially compared to 38.8% last quarter. Our growth margin results primarily reflect our continued price optimization efforts as well as actions taken to address elevating coffee commodity markets. For the first quarter, net sales increased 85.1 million, a 3.2 million or nearly 4% increase compared to the first quarter of last year. This sales growth, along with margin expansion, resulted in a gross profit increase of $6.5 million to $37.3 million for the quarter, compared to $30.8 million in the same period last year. Operating expenses were $40.1 million, or 47.2% of net sales in the first quarter, compared to $32.9 million, or 40.1% of net sales in the first quarter of last year. This year-over-year increase was driven by an $8.5 million difference in net gains on asset sales, as there were no branch sales during the first quarter of this fiscal year. When adjusted for asset sales, operating expenses declined by $1.2 million, or 3.2% of net sales year-over-year, reflecting the operational efficiencies which have been accomplished and our continued progress in optimizing our cost structure. Our net loss for the quarter was 5 million compared to a net loss of 1.6 million in the first quarter of last year. You should note the last year included 6.8 million of net gains related to asset disposals, while this quarter included a 1.7 million net loss related to asset disposals. Looking at the balance sheet, as of September 30, 2024, we had 3.3 million of unrestricted cash and cash equivalents, 1.9 million in restricted cash, and 23.3 million in outstanding borrowings under our credit facility, with 27.1 million of additional borrowing capacity. We're making solid progress towards our goal of positive free cash flow, as demonstrated in our improved cash flow from operating activities, which improved to positive 2.5 million in the first quarter of this year. This represents a 9.6 million improvement compared to negative 7.1 million in the first quarter of last year. and a 3.5 million improvement compared to negative 1 million last quarter. This marks five consecutive quarters of improved cash from operating activities. We are encouraged by the solid quarter and the significant improvements we have achieved in gross margin, adjusted EBITDA, and cash flow. We are, however, mindful of the current volatility in coffee commodity markets and the macroeconomic environment. While we are proactively working to address these conditions, we do not expect our financial results to be linear quarter to quarter. We remain confident we are on the right path in building the right foundation to generate sustainable value creation. With that, I'll turn it back to John. John? Thanks, Vance.