Farmer Brothers Company

Good afternoon and welcome to the Farmer Brothers fiscal fourth quarter and year-end 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-K and issued its fourth quarter and year-end results press release, which are available in the investor relations sections of the 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 that all 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 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 Chief Executive Officer John Moore. Mr. Moore, please go ahead.

Good afternoon, everyone, and thank you for joining us. Fiscal 2025 was a strong year for Farmer Brothers. We realized significant operational and financial improvements despite market headwinds. We ended the year with gross margins above 43%, a more than $14 million year-over-year improvement in adjusted EBITDA, continued decreases in SG&A expenses, and significantly paid down debt. We also captured a number of internal efficiency gains from both an organizational and cost structure perspective as a result of our manufacturing, sales, and network optimization initiatives. With the successful launch of our Someone specialty brand this past March, we fully realized the completion of our SKU rationalization and brand pyramid good, better, best positioning initiatives. Early response to Someone has been encouraging with several promising opportunities in the pipeline. In fact, we are currently working with a few of our larger customers to launch Someone Branded Cafe experiences across their locations and look forward to sharing more with you in the coming months. In distilling a multitude of brands and coffee types into our core Farmer Brothers, Boyd's, and Someone brands, we leveraged a significant and differentiating capability of Farmer Brothers, our coffee sourcing, quality control, roasting, and manufacturing teams. In addition to flexing this core competence for SKU rationalization, the team was also able to reconstitute our sourcing methodologies to enhance elasticity and provide more resilience. This is of particular importance given the current state of the green coffee markets. We also continue to differentiate ourselves from competitors with our ability to provide a fully comprehensive set of coffee solutions. Our sourcing and product development team enabled Farmer Brothers to engineer solutions from soil to SIPP Our small batch and nimble manufacturing capability allows us to provide coffee-finished goods ranging from more value-engineered commercial applications to the highest of quality specialty coffee types. These services can be provided in both LTO and large-scale volumes in our SQS and Lead Silver certified Portland, Oregon roasting and manufacturing facility. With the appointments of Brian Miller in sales and Travis Young in field operations to our leadership team, we formally separated those responsibilities. This heightened focus in each respective area is allowing leadership to better align team KPIs and incentive structures with customer and team member needs. In each area, we are seeing heightened focus, attention to detail, and improved execution. We also further strengthened our customer service efforts with the full reintegration of our revived services team back into our field operations organizations. Revive is home to one of the largest coffee service networks in the country and provides installation, maintenance, repair, and restoration services for coffee, tea, and other beverage equipment. Emphasizing and investing in our refurbishment capability while improving controls and ROI expectations allowed us to make significant reductions in capex related to brewing equipment expenditures. Thanks to our partnerships with leading equipment manufacturers, Revive continues to be a true market differentiator for Farmer Brothers and a key component in our customer retention efforts. Across the board, we spent much of 2025 focused on improving our technology platforms and systems. We completed an upgrade of all our hardware for route sales representatives and Revive team members, as well as several improvements designed to enhance our supply chain optimization and flexibility efforts. We also launched a new CRM tool in early fiscal 2025, which is providing the organization with better customer analytics. This data will allow us to better target products and pricing and provide further insight into supply and demand forecasting going forward. The macro and microeconomic environments, however, continue to present significant challenges for the coffee industry as a whole. As such, we saw total coffee volumes decrease by 10% on a year-over-year basis to just shy of 20 million pounds in 2025. According to recent Commerce Department data, U.S. restaurants and bars saw one of the weakest six-month periods of sales growth in the past decade during the first half of 2025. Leaders in the QSR restaurant and C-store channels have all reported further evidence of softness in consumer purchasing patterns, particularly in the breakfast day part. Overall, this year has shown weaker growth in the food services sector than that during the COVID-19 pandemic when restaurants and bars were closed due to lockdown orders. This downturn in overall foot traffic across our customer base, coupled with a 65% plus rise in green coffee prices over the past year, makes for a particularly challenging market environment. The impact of potential tariffs, especially the 50% tariff on goods imported from Brazil, which went into effect in early August, has also yet to be fully realized. While Farmer Brothers' exceptional access to global coffee markets creates flexibility for our planning and procurement teams, We do anticipate we will see a significant increase in our overall cost of goods in fiscal 2026. Our proactive pricing strategy helped us stay ahead of these challenges in fiscal 2025. We believe we have maximized this strategy and do not plan to make additional price adjustments at this time. As such, we expect pressure on our top line and gross margin in fiscal 2026. Despite these challenges, we remain committed to driving company growth and creating value for our shareholders, as highlighted in our July announcement of the formation of our Strategy Committee. The Committee is continuing to explore opportunities, and we will provide more information if and when it is appropriate. Looking to fiscal 2026, we are committed to addressing customer and coffee pound degradation and driving top-line revenue. We are focused on unlocking the full power and potential of our DSD network, With Travis Young driving DSD field operations, we are creating a culture of accountability that is focused on driving product penetration within existing accounts while also adding new ones. Farmer Brothers' white glove service value proposition will continue to be a key driver in customer retention and loyalty. Focused on growth across our restaurant, coffee shop, cafe, bagel, and donut shop channels, as well as continuing to expand with GPOs nationally, We believe we can meet the needs of our customers regardless of their size with our good, better, best brand pyramid value proposition. With Brian Miller at the helm, we are cultivating a unified sales team through comprehensive organization-wide training and KPIs. We will also look to leverage our core coffee capability as we grow our white-label customer portfolio and better utilize our Portland, Oregon, roasting and manufacturing facility. Our unique C2C value chain engineering capabilities allow us to offer diverse quality and packaging possibilities making us particularly attractive to potential white label customers. While we do expect market challenges to continue throughout fiscal 2026, we believe the changes we have made over the recent years have created a strong foundation from which we can grow. With that, I'll turn it over to Vance to discuss our financial results in more detail. Vance?

Thanks, John, and good afternoon, everyone. As John mentioned, Farmer Brothers delivered very strong results in fiscal 25, despite a challenging market environment. We achieved significant year-over-year improvements in adjusted EBITDA, gross margins, and SG&A, and significantly improved our cash flow generation, which allowed us to strengthen our balance sheet. Overall, our adjusted EBITDA for the fourth quarter was $5.8 million and $14.8 million for the full fiscal year, a year-over-year improvement of more than $7 million for the quarter and more than $14 million for the full fiscal year. Our adjusted EBITDA results were supported by healthy gross margins. Gross margin in the fourth quarter was 44.9%, a year-over-year increase of 610 basis points. For the full fiscal year, gross margins were 43.5%, a 420 basis point increase compared to the prior year. Our proactive approach to pricing continued to positively impact gross margins throughout the year as we strategically stayed ahead of the rising green coffee market However, as John mentioned earlier, we believe we have maximized the benefits of this strategy, and at this time, we do not have plans to take additional price in the near term. As a result, we expect pressure on gross margins throughout fiscal 26 as we realize the impact of the rising green coffee cogs in our results, and expect gross margins to drop into the high 30s range over the coming quarters. From a top-line perspective, Net sales during the fourth quarter were $85.1 million compared to $84.4 million during the prior year period. For the full fiscal year, net sales were up slightly to $342.3 million compared to $341.1 million in the prior year. Operating expenses increased $14.3 million to $150.4 million for the year. This increase was almost exclusively a result of a 20.2 million year-over-year decrease in net gains related to the sale of branch properties and other assets, as we had far fewer branch sales in fiscal 25 compared to fiscal 24. Excluding asset sales, operating expenses decreased by 6 million, or 190 basis points as a percentage of net sales. This reflects the progress we've made in driving efficiencies in our SG&A cost structure and better positions us to manage a challenging operating environment. For the fourth quarter, Farmer Brothers recorded a net loss of $4.7 million compared to a $4.6 million net loss in the fourth quarter of fiscal 24. For the full fiscal year, we recorded a net loss of $14.5 million compared to a loss of $3.9 million in the prior year. The current fiscal year included non-cash losses of $7.7 million related to pension settlements and a $20.2 million decrease in net gains on asset sales due primarily to fewer branch sales in the current year compared to the prior year, as I mentioned earlier. We made meaningful progress strengthening the balance sheet during the year. As of June 30, 2025, we had $6.8 million of unrestricted cash and cash equivalents and $14.3 million in outstanding borrowings under our credit facility. This represents a roughly 10 million decrease in our net debt position over the course of the year, and we ended the year with 32.6 million of additional borrowing capacity under our credit facility. Free cash flow generation was much improved in fiscal 25. For the fourth quarter, free cash flow was 7.5 million and 6.5 million for the full fiscal year, representing a year-over-year increase of 12.1 million for the quarter and 34.5 million for the full fiscal year. This significant improvement in free cash flow is a testament to our progress in driving better operating performance, improved working capital management and capex efficiency, and puts us in a much stronger overall financial position. Looking ahead, we expect market conditions to continue to be challenging throughout fiscal 26 as the green coffee market has continued to stay elevated and uncertainty remains regarding tariff impacts. These elements will put pressure on our gross margins and overall financial results throughout fiscal 26. With that said, we are pleased with our fiscal 25 performance, as it reflects the significant progress Farmer Brothers has made to improve our operating results and financial position, and believe it demonstrates our potential to generate significant long-term value for our shareholders under more favorable market conditions. With that, I'll turn it back over to John. John?