Q1 2024 Farmer Bros Co Earnings Call

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Good afternoon, and welcome to the Farmer brothers fiscal first quarter 'twenty 'twenty four 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 issued its quarterly shareholder letter available on the Investor Relations section of Farmer Brothers' website at farmer Bros. Dot com.

The shareholder letter is also included as an exhibit on the company's Form 10-Q, and its something 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 Companys website approximately two hours after the conclusion of this call.

Before we begin the call. Please note all the financial information presented is.

Ordered it 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.

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This forward looking statements represent the company's views as.

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 included including adjusted EBITDA and adjusted EBITDA margin.

In assessing the company's operating performance.

Reconciliation of those non-GAAP financial measures to their most directly comparable GAAP measures is also included in the company's shareholder letter.

And I will now turn the call over to farmer Brothers' interim Chief Executive Officer, John Moore.

Mr. Moore. Please go ahead.

Good afternoon, everyone and thank you for joining us today.

Immediately after I joined Farmer brothers in June we executed on the sale of our direct ship business and refocused our model, we have always done best direct store delivery.

Since then we've been strengthening our foundation by appropriately sizing the business and instilling a more efficient operational organization, reducing our cost structure at formalizing, an attractive, but achievable strategic long term sustainable growth plan.

Simply put farmer brothers, just getting back to basics and executing on the fundamentals, which has made us industry leader for so many years.

Our first quarter results are a promising preliminary look at these efforts.

Overall, our revenue increased year over year, our margins the margins expanded and our adjusted EBITDA is approaching breakeven.

Costs associated with the direct ship business transition along with sluggish coffee volumes offset some of the gross margin improvement we realized during the quarter, but big picture, we are beginning to trend in the right direction.

Progress likely won't be linear across all the metrics, we track and we anticipate transitional impacts will abate as we move throughout the year.

We are confident that we will continue to see improvement in our revenue gross margins and operating costs, especially as we focus on driving customer growth customer retention and increasing product penetration in the market.

This is all happening at an opportune time as coffee costs trended lower in the quarter and are expected to continue to do so throughout the fiscal year.

We're still selling through our higher priced coffee inventory and bringing in new supply at a meaningfully lower cost in fact, our cost per pound of coffee during the quarter was down 12% on a year over year basis, and one 6% from the prior quarter.

Meanwhile, we are making progress on centralizing, our roasting and production activities to our Portland, Oregon facility.

Once completed we believe this facility will operate with a significantly reduced conversion costs and.

In addition, we're working to evaluate and reduced brand and SKU redundancies across our coffee lines to simplify our customer facing lineup and further streamlined production and sales operations.

We believe these efforts will continue to drive down our cost of goods sold over the coming quarters.

In addition, our AI driven pricing engine is helping us optimize our pricing strategy.

This system is informing necessary and timely changes in prices such as those we implemented in May and October which are already helping to drive gross margin improvement.

We are also making headway with several of our growth initiatives, our new on trend product additions, including our shop natural flavored syrups and boyds ambient liquid coffee are performing well in their early stages, our revive equipment and service business also continues to be a differentiator for our DSD business.

With that I'll turn it over to Brad discuss our financials in more detail Brian.

Thanks, John and Hello, everyone before jumping into the numbers just a quick reminder, our results for fiscal 'twenty for first quarter are reported on a continuing operations basis, reflecting the performance of our DSD business only in their respective periods.

From a headline perspective, we're encouraged by the results driven from a transition to DST focused business with three of our primary financial metrics net sales gross margin and adjusted EBITDA.

Our net sales for the first quarter were $81 9 million, which increased slightly on a year over year basis compared to $79 8 million in the first quarter of fiscal 'twenty, three driven by higher pricing and offset by lower volumes.

Our gross profit margin increased to 37, 6% for the first quarter of fiscal 'twenty four from 33, 8% for the first quarter of fiscal 'twenty three the increase in gross profit represents a 380 basis point increase compared to the prior year period.

Improvement in margin resulted from pricing actions as well as a decrease in our underlying product costs.

Operating expenses were $32 9 million for the first quarter of fiscal 24 up from $27 8 million in the prior year period. This increase was due primarily to a $3 6 million dollar increase in G&A expenses, which were related to severance costs for executive management transitions.

A decrease in net gains from the sale of a branch properties and other assets and an increase in selling expenses, which was driven by additional spend on vehicles fleet and freight.

Adjusted EBITDA approached breakeven for the first quarter at a loss of $452000 compared to a loss of $3 9 million in the same period a year ago.

Turning to the balance sheet. The end of the first quarter, we had $4 million of unrestricted cash and cash equivalents, we had outstanding borrowings under our credit facility of $23 3 million utilized $4 6 million of the letters of credit sub limit and had $25 4 million of availability.

Looking ahead, we're adequately capitalized to execute on our DSD plants, you can expect us to be laser focused on improving efficiency of operations continuing to reduce our costs and streamlining how we go to market in terms of brands and products Skus.

All of which along with anticipated favorable coffee pricing trends position us well to deliver high gross margins and improved results.

With that I'll turn it back to John John.

Thanks, Brad.

In closing we're off to a good start and setting the foundation and positioning the company for long term growth.

With our local branch network, covering 49 states and equipment servicing capabilities across the country, we remain an industry leader in size service and product offerings.

We are already seeing early stage improvement in our gross and operating margin profile and we will continue to focus on the following.

Leveraging our nationwide DSD customer network.

Preet lease sizing our cost structure.

Continuing to optimize pricing.

Driving customer growth and retention increasing market penetration for on trend products.

And completing the transitional services associated with our direct ship sale.

We believe we're in a position to be able to generate positive free cash flow in early fiscal 2025, and ultimately deliver long term value to shareholders.

Thank you again to everyone for joining this call and for your continued support of Farmer brothers, we look forward to speaking with you soon.

And this concludes this conference. Thank you very much for attending today's presentation.

May now disconnect.

Okay.