Farmer Bros. Co. Q2 FY2025 earnings call

• Second quarter was strong despite challenging market environment; sales up slightly year-over-year and 6% sequentially to $90 million. - Maintained gross margins above 43%, selling and G&A expenses continued to decline; realized second straight quarter of positive adjusted EBITDA at $5.9 million and positive free cash flow. - Partnership with Urest to develop a new premium coffee program; added Brian Miller to senior leadership team as Vice President of Sales; Tom Bauer transitioned to Vice President and Chief Field Operations Officer. - Comprehensive SKU rationalization and brand pyramid projects to be completed by end of fiscal third quarter; final phase of specialty tier coffee brand rolled out to select customers with positive early feedback. - Experiencing pressure related to customer counts and overall coffee volumes; customer attrition and 8% year-over-year decline in coffee volumes due to customer count degradation, lower consumer spending, and decreased foot traffic.

Net sales for the second quarter were $90 million, up slightly year-over-year and 6% sequentially from the first quarter. Adjusted EBITDA was $5.9 million, a year-over-year increase of $3.6 million and a sequential increase of $4.5 million from the first quarter. Gross margin was 43.1% for the second quarter, a year-over-year increase of 270 basis points. Allied products, which include teas, other beverages, spices, mixes, and various culinary items, make up approximately half of total sales. Net sales were relatively flat year-over-year at $89.5 million but up 6% sequentially from the first quarter.

• Believe will continue to deliver margins above 40% target over coming quarters despite current market conditions. - Proactive pricing actions and inventory management position us well to navigate challenges. - Focus remains on executing to drive growth in top line, cost pounds, and customer counts despite macroeconomic challenges.

• High prices and volatility in commodity markets. - Heightened risk of trade actions initiated with key export markets for coffee and some allied products, introducing volatility into commodity markets. - Higher cost inventory working through cost of goods sold putting pressure on margins as we sell through higher cost inventory due to rising coffee prices.

Q: Could you shed light on the thought process behind bringing Brian on board and its impact?

A: Brian Miller joins with decades of experience in DSD and coffee space, charged with breathing new life into business development efforts; Tom Bauer now focuses on field operations to optimize existing customer base fulfillment.

Q: Expand on early customer feedback for specialty tier brands and its impact?

A: Early feedback positive; specialty aligns with consumer trends towards exotic/specialty beverages; initially optimization piece but longer term potential driver.

Q: How material is the Urest partnership?

A: Capability to offer but core focus remains on core business; Urest partnership highlights quality roasting/manufacturing/sourcing capability.

Q: Plans for direct-to-consumer e-commerce platform?

A: Refreshed e-commerce sites aligned with brand pyramid; B2B web-based ordering platform to go live in Q4, enabling customers to place orders conveniently while enjoying white glove service.

Q: Thoughts on increasing ticket from existing customer base and product offerings?

A: Focus on making customers aware of offerings; brand pyramid strategy aligns products nationally; always looking for innovative products but core focus on existing portfolio.

Q: Price increases and commodity market risk?

A: Commodity markets volatile; proactive pricing and sourcing protocols, along with brand pyramid rollout, position well to navigate; will continue to monitor and adjust as needed.