Farmer Brothers Company

Good afternoon and welcome to the Farmer Brothers third quarter fiscal 2025 earnings conference call. At this time, all participants are in a listen-only mode. As a reminder, this call is being recorded. Today, the company filed its Form 10-Q and issued its third quarter results press release, which are available on the Investor Relations section of the Farmer Brothers website. website at farmerbros.com. The release is also included as an exhibit on the company's Form 10-Q 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 that all 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 conference 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 third quarter was another solid quarter for Farmer Brothers. We realized our third straight quarter of positive adjusted EBITDA at $1.7 million. maintained gross margins above 42%, and continued improvement on our cost structure with decreases in both our selling and G&A expenses. I am incredibly proud of our team and their ability to continue to maintain and build on the positive momentum we have achieved over the last several quarters, despite the extremely challenging consumer and industry headwinds. As all of you are well aware, both the Arabica and Robusta coffee markets remain historically hot. Consumer confidence dropped again in April, according to the conference board, to the lowest reading in many years, and nervous consumers spend less and less often. These market dynamics, coupled with uncertainty regarding the potential impact of tariffs, continues to put pressure on the industry as a whole. Farmer Brothers has been proactively working to address these challenges by streamlining our operations, increasing internal efficiencies, and reducing our overhead to better manage our overall cost structure. As is evident by our recent results, we believe these efforts have had a meaningful and positive impact on the organization and have us well positioned to meet the challenging market environment. We must continue to protect our gross margins and the progress we have made to date in spite of the macroeconomic headwinds. As such, we recently completed some additional right-sizing of the organization, primarily among our support teams and corporate leadership. Included in those changes was the departure of our Chief Operations Officer, Tom Bauer. We thank Tom for his service and all that he has done over the last two years to help us navigate a significant amount of change and build a strong foundation upon which we now stand. Our sales team, led by Brian Miller, who joined us earlier this year, and our DSV teams will remain separate, as we mentioned on our last call. This will allow each respective team to focus solely on driving top-line revenue and increasing both customer growth and retention. Our DSV team will now be led by Vice President of Field Operations, Travis Young. who previously served as one of our DSD regional directors. Travis has been with Farmer Brothers for almost 25 years and has worked in a variety of roles across our operations, sales, and production teams. His experience in the trenches and vast knowledge of the industry, our company, and our customer base make him uniquely positioned to lead our DSD efforts. He also provides valuable insight and leadership into our ongoing route and capital optimization efforts, as well as our operational system and process enhancements. The official launch of Summon Coffee Roasters this quarter also marked the completion of our brand pyramid and coffee skew rationalization initiatives. Over the last year, these projects have allowed us to remove redundancies, optimize our roasting and operational facilities, reduce overhead costs, simplify our go-to-market strategy, and enhance the overall customer experience. With clearly defined traditional premium and specialty tiers available across our nationwide DSD network for the first time in our history, Our customers can now engage at the levels and prices which make the most sense for them. This, along with our customer service efforts, is something that will continue to set Farmer Brothers apart in the marketplace, particularly in the current economic environment. With that said, we did continue to see declines in overall coffee volumes and customer count during the quarter. Total coffee pounds were down 9.4% compared to the third quarter of 2024. We believe this is driven in part by downstream degradation across the customer base. Despite these declines, we continue to deliver improved gross margins and adjusted EBITDA results. This is primarily a result of our cost management efforts and proactive pricing approach. Overall, we are proud of the progress we have made and the results we have been able to deliver despite these unprecedented market conditions. We know there is still much to do as we proactively navigate this ever-changing market environment, focus on execution, and position Farmer Brothers for long-term growth. With that, I'll now turn it over to Vance to discuss our financials in more detail. Vance?

Thanks, John, and good afternoon, everyone. As John said, Farmer Brothers continues to deliver solid results despite the challenging operating environment, with positive adjusted EBITDA, stronger gross margin performance, and continued improvement in our cost structure. Overall, our adjusted EBITDA for the quarter was $1.7 billion, an increase of approximately 1.5 million compared to the third quarter of last year. Our adjusted EBITDA results were again supported by healthy gross margins. Gross margin in the third quarter was 42.1%, a year-over-year increase of 200 basis points compared to 40.1% in the third quarter of last year. As expected, gross margins did contract slightly compared to the second quarter, which reflects rising coffee prices working through our cost of goods sold. We expect this to continue over the coming quarters, but feel we have appropriately planned for this and will continue to actively manage inventory and pricing to deliver margins above our 40% target, despite current market conditions. Net sales during the third quarter of fiscal 25 were down on a year-over-year basis to 82.1 million compared to 85.4 million during the prior year period. Operating expenses were 38.1 million in the third quarter compared to 34.7 million in the prior year period. The 3.4 million increase was primarily driven by a 5.3 million decrease in net gains related to asset disposals, as there were no branch sales in the third quarter of this fiscal year. When adjusted for net asset sales, operating expenses declined 1.9 million on a year-over-year basis, or 50 basis points as a percentage of net sales. reflecting our ongoing progress in right-sizing our cost structure. As John mentioned, we've made some additional adjustments recently which better position us going forward to manage the challenging operating environment. For the third quarter, Farmer Brothers recorded a net loss of 5 million compared to a 700,000 net loss in the third quarter of last year. This quarter's results, however, included a 2.4 million net loss associated with the disposal of assets. while the prior year period included a $2.9 million gain associated with the disposal of assets. Looking at the balance sheet, as of March 31, 2025, we had $4.1 million of unrestricted cash and cash equivalents, $200,000 in restricted cash, and $23.3 million in outstanding borrowings under our credit facility, with $22.1 million of additional borrowing capacity. For the third quarter, cash flow from operating activities was $1.3 million, an increase of 3.6 billion compared to the same period last year, and marking our third consecutive quarter of positive operating cash flow. Free cash flow was negative at .7 million for the quarter, a 5 million improvement over the third quarter of last year, a testament to our progress in driving better operating performance and improved working capital and CapEx efficiency. Looking ahead, we expect market conditions to continue to be challenging. We remain focused on execution and proactively managing the dynamic market conditions we are in and believe we are well positioned to do so. We are pleased with the results of our recent quarters and believe they demonstrate the significant progress we've made in our ability to generate long-term value under more normal market conditions. With that, I'll turn it back over to John. John?