Farmer Bros. Co. Q3 FY2025 earnings call

• The third quarter was a solid one with positive adjusted EBITDA of $1.7 million, gross margins above 42%, and continued cost structure improvement despite challenging market headwinds.
• Farmer Brothers has been proactively addressing challenges by streamlining operations, increasing internal efficiencies, and reducing overhead. Recently, additional rightsizing of the organization was done, including the departure of the Chief Operations Officer.
• The DSD team is now led by Travis Young, who has extensive experience with the company. The official launch of Sum>One Coffee Roasters completed the brand pyramid and coffee SKU rationalization initiatives, optimizing market strategy and customer experience.
• Despite declines in overall coffee volumes and customer count, improved gross margins and adjusted EBITDA were achieved through cost management and proactive pricing.

In the third quarter, Farmer Brothers realized positive adjusted EBITDA of $1.7 million. Gross margin was 42.1%, a year-over-year increase of 200 basis points. Net sales in the third quarter of fiscal 2025 were $82.1 million, down from $85.4 million in the prior year period. Operating expenses were $38.1 million, with a $3.4 million increase primarily due to a $5.3 million decrease in net gains related to asset disposals. Cash flow from operating activities was $1.3 million, an increase of $3.6 billion compared to the same period last year, marking the third consecutive quarter of positive operating cash flow. Adjusted EBITDA contributed 1.7 million dollars, with gross margin contributing significantly to the overall financial performance, and net sales showing a year-over-year decline.

• Management expects market conditions to continue to be challenging but remains focused on execution and proactively managing dynamic market conditions.
• Pleased with recent quarters' results, believing they demonstrate progress in generating long-term value under more normal market conditions.
• Anticipates continuing to face challenges but is confident in being well-positioned to manage them.

• Consumer confidence dropped again in April to the lowest reading in many years, with nervous consumers spending less and less often.
• Arabica and Robusta coffee markets remain historically high, putting pressure on the industry.
• Uncertainty regarding the potential impact of tariffs continues to put pressure on the industry as a whole.

Q: Clarify on gross margin headwinds and if 40% plus can be maintained in quarters ahead A: Vance Fisher states that the actions taken to date and to continue will put the company in a position to stay above the 40% target range over the coming quarters Q: How much room is there to continue reducing operational costs or cost of goods A: John Moore mentions a lot of work has been done over the last year and a half to optimize operations, and the focus is shifting from optimization to growing the customer base and selling deeper into existing customers Q: Ability to add additional products to allied products revenue line A: John Moore sees this as a tremendous opportunity, with initiatives launched and positive returns already seen, and the team is executing on it Q: How is the splitting of operations going and its play into growth opportunities A: Brian Miller is making strides in the business development team with a cultural shift to centers of excellence. Travis Young taking on field operations is expected to unlock value by having the route sales representatives do more business acquisition activity Q: Biggest challenge to expanding growth A: Vance Fisher cites the macroeconomic backdrop, competitive landscape, and refining the value proposition and go to market strategy Q: How do corporate actions filter into quarters A: Vance Fisher states that the actions taken in early Q4 will flow through in Q4 and position the company better going into fiscal 2026