Earnings call transcript Q2 2023

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Operator

Good afternoon, and welcome to the Farmer Bros. Fiscal Second Quarter 2023 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded.

Joining me today are Deverl Maserang, President and Chief Executive Officer; and Scott Drake, Chief Financial Officer.

Earlier today, the company issued its inaugural quarterly shareholder letter, which is available on the Investor Relations section of Farmer Bros.' website at www.farmerbros.com. Exchange also and an company's is on Securities is company's to website letter www.sec.gov. the X-K at Form available and shareholder included exhibit as the and The website Commission's on the A replay be two after hours call. webcast conclusion this available of approximately the this of audio-only will will to replay available the also link The audio company's on be the website.

about the federal that provisions that Before we views subsequent any during the unaudited financial Results and various information of and constitute the made represent the future and as prospects the could this regulation. begin Safe views date. from those the purposes differ forward-looking securities under representing These company's today call all call, forward-looking plans expectations, relied statements statements forward-looking company's laws presented of please of management remarks and note Harbor by be statements. should of as may is only not the materially company's as upon for

on factors those forward-looking Additional from results shareholder the available in events is letter materially that company's other actual information public differ statements filings. to could cause and and

letter. margin today's performance. assessing directly will call, certain EBITDA reference financial the including measures is to GAAP On comparable the adjusted non-GAAP adjusted shareholder and company's in also measures, operating financial these company's Reconciliation EBITDA most of non-GAAP measures management in their included also

the now turn call over ahead. to will please I Deverl, Deverl. go

Deverl Maserang

you us. for thank Good joining and afternoon,

and us letter context provide have with we progress. This our today, saw our strategy enables reporting our a you moved to performance, around format. As quarterly to approach better now shareholder investors

on view a our it, If IR it can chance had be to you found website. haven't

will Scott more I call the will and quarter, from some then field the financials, a detail bit some on questions. we into the go provide that, with will highlights on today, So and

paired of in Looking at sales we margin. our gross the slight XX%, results fiscal for increase quarter, a with growth second reported our sequential

increases to and and contracted beginning our the overall customer benefit businesses. see across price national account of demand DSD are We finally

seen more additional work have already in but early have progress We calendar to XXXX. do here,

adjusted we in EBITDA costs operating despite improved pressures. held Additionally, inflationary as we check

will We the for prove to fiscal our also believe input coffee watermark cost. that high QX be

with improve our to here faced progress, recognize to that that we're place achieve from see the alleviate. we encouraged are recently groundwork our short-term think we to in has turnaround have to laid need the results early pricing headwinds the are performance, right While for. We expected improvement. The factors the more work

our growth has the Our turnaround and strategic operating in progressing initiatives, nicely. very structure early while stage, improved cost are our underlying

gives We environment. margins pronounced our and This second us the profitable a in and remain we much long-term recovery term more as growth remains vigilant favorable fiscal confidence half helped manage near in through more of of path year, the a our sales for a vision by in cost steadfast.

turn Scott? Scott. now to will it I

Scott Drake

Thanks, Deverl.

loss was in. accounts right and to our year-over-year. pricing ship direct large with fiscal dive second This sales. in major of volume, offset Net $XXX.X in sales traction Growth quarter higher Let's sales reflects new in in both up XX% XXXX of customers pound primarily million, per were due our by channel. ship direct partially and national lower of our was DSD the primarily sales at one which customer a the

coffee previously sales direct the agreements reflect a were which ship basis. peak quarter-over-quarter costs, Gross on with combined noted what margin lag accompanies that the contractual cost an improvement believe QX, in in was channel. XX.X% we in incremental plus quarter Margins our was pricing the

over to margins improve expect We next two three to the quarters. further

adjusted of EBITDA quarter basis the improved $X.X from points. The Adjusted a EBITDA improvement loss over was million. XXX quarter-over-quarter last $X.X million an also quarter, margin loss by in the

increase The and the from our of $X.X branch balance net facilities. decrease increased assets calendar cash was sale capital, in borrowings the credit to unrestricted due million end proceeds cash to $XX.X as unrestricted million net of under of by in year. Our a the working

Turning direct ship basis lag began realization on to we year-over-year double-digit as that fiscal direct ship period XXXX quarter business and our pricing growth percentage the in saw to see a a DSD, of first after we low a depressed performance. sales

front, our period. pound volume customer, the volume a On prior year to the large X led national in a experienced accounts of our compared to which the major of loss decrease

Looking direct expect continues we ahead, the business ship improve. that to

was DSD pricing in by our driven low in our the momentum percentage positive business revenue range, double-digit up saw We increases. as

pricing in progress Although we was on strong volume over actions quarters. momentum the compared carried to that there decreased in January, in the to pricing last December unit and continued year, quarter and coming expect

to remains our initiatives, distribution focus footprint. executing our customers driving quarters sustainable our coming bring and that on growth in turnaround, ahead, levels in products the more SHOT Revive national of elements of leverage will including the process result and completing on exciting services and improvements final higher that our and performance Looking

placing will year the and wages levels weeks, as June. seeing well pressure transportation This on leave DSD operations. towards recent ship of ongoing started our In with in exiting benefit falling prior customers. our other our recover XXXX we At take pricing year same time, these margins that the paired us as direct across economic efforts have headwinds our development, and as optimistic talent current effect prices, gross fiscal and are coffee acquisition

contain to manage has structure believe We positioned macro cost continue it conditions better these and abate. than fundamentally better our performance years and to in is move as we been drive pressures aggressively to

within growth for improve our macroeconomic Our near-term position to challenges sustainable and bring are to our to objectives back our Farmer industry. challenges manage Bros. long-term ability and enhance profitability, competitive

Operator? now for will it open We questions. up

Operator

Thank you.

question Please from begin question-and-answer [Operator Our Sweeney ROTH comes session. now the will Instructions] first We ahead. MKM. Gerry with go

Gerry Sweeney

call. afternoon Scott. Good for my and taking Deverl Thanks

Deverl Maserang

Gerry. Hi,

Scott Drake

Hi, Gerry.

Gerry Sweeney

in I the the increases was but things bit just One, street sure past fully see talk to through there that it it's the place put side of prices discussed the some in instituting little were and wanted especially wanted I – prepared your I being a that two in facilitate price we or you we how believe that to know on on could an to making I But they at talked two, one think I not appropriately really And remarks. were about pushed think And the is level maintained also questions. help was, pricing. about going? the level. front. initiatives if I update of IT that street get at DSD

Scott Drake

It's you obviously have agreement all bet, of we pricing out direct Yes, of but we'll with think customers. Gerry. more you ask, that those way. is didn't that the we the Yes. and ship straightforward get one When pricing, the

a kind of it's So cost-plus pass-through.

little that there's business on and this talked about. ship that direct Specific in lag So you're that side we DSD, it's the a to maybe haven't impacted a that us more bit right. little fully. of we've But

costs we pass have to through. in continue the inflationary see to business that We

even But our well. so. a lot doing under of DSD we're pricing national So agreement in business, as our larger are DSD a customers

have that And the have of changes of so windows to for execution contract, these we several including pricing.

we've some January, they've larger example, been customers, those those February there's in those still changes December, happening contractual as for in of for And been well. changes some November, that doing

costs cost But good as plateau see to pricing. think the momentum are coffee So we'll seen other that starting we the as is one or for news regards continue on as peak we've well. front the well that's to peak to in that pricing

we going that we on the some both of for So side relief side two momentum expect combine we're see the think quarters. start on and will cost to margins and stronger to in pricing get coming those the the the see goods of to

variables what through for getting pricing a currently some over DSD. here right. think out, Regarding is And with at of new be And IT underway this that but you're we're we rolling less engine testing some the take honestly, going you're quarters. over about. of the next out for control those little long-term work we've taking complexity, we and a talked IT a that have which quite as solution, – with longer DSD we're it, out basically solution two function to the our the I Taking pricing of solve, reengineering may the exactly

we'll all insights, and So the year, have of improved fiscal for by controls, we better think things. DSD substantially end those better the pricing

reason think coming on bullishness for So quarters. that's for our the margins and sales another we

Gerry Sweeney

to to be Got like or you qualify you you or or you quantify you. where guess? be able would I are would should in however versus where aggregate, Would be that pricing on your phrase

Scott Drake

Right. Right. Yes, I think you're right.

game, think middle aggregate, middle would call stages the still moving I the but of the in innings, towards I it unfortunately. latter innings, in

these of swiftly, want is we really move able the to to so. new we want do be to engines our things One address more can logic we new wherever with and

some we're things the of these one really that's improvements. of with targeting So

Gerry Sweeney

impacted I of hedging think it for upon list then Got – was direct both did on I ship questions, the structure second. it. touch it my some but of down And delays. you a and This guess, contractual DSD,

I QX, in last that is se? talked improvement, sort quarter, How on substantial just and think had the table you improvement some out? QX Or we more that which per does still but work about QX. of

Scott Drake

Yes, And But prices get costs. we when when prices still our those a could on can so certainty lower shortened have, that we our longer then much as those really, last hedge look coverage, have years, quite to we rising that get working us some exactly. the we like more coverage had are went prices of were you we so were of are through of that's up The inventories. the you they and falling, going more possible. costs. the contractual – our the when when around be saw that I those we've we obviously theoretically, when couple And quick think in thesis at we to program as coverage much bit

brought way way has distributed, P&L. be in, get sold, to to et to cetera, all It the the manufactured, the

both some both to few that see thing but to news but along to through starting we're the lags – that now, more fronts of a on continue pricing that talked time, the we've with But are that months going more lag, accelerating. is they're seeing progress, So good that them. we're some another need here work about, just we're is to

QX progress. we QX, really QX, think see even these to and tailwinds through nice continue So we'll and have

Gerry Sweeney

a that well now average. of below does sort to take $X for pound, How take to is well it's front, benefit? pricing on as of down obviously, it over see sort long above through? how it So long that inventory On does roll

Scott Drake

interesting. It's Yes.

top our example look our you if and a at pretty regular. – But an quite you other look DSD use spices like from any business, and our at SKUs, those teas. I'll turned If It's bit.

ordering or twice once growing orders for place items. products, of season they of your and you kind have a Some those those a season of really year only and some

those to for it, longer So turn. think people of got little you kind to you've usually inventory takes and can look it just average. a when it's but three at couple we're inventory months, average, But two of longer quick I – at say, months would on the I a on turns, do

again, your customer notification. collection, But got to you've of DSD then and you've turn your AR end tack that that you that you've with kind the would got of on have sale DSD, that. there then the with And and period got

if feel is days going change it because talk longer these to or there's period. to XX it And just even so of prices about things, we So you're so or than XX-day really that much. usually XX move to tends notification the and a longer some make

Gerry Sweeney

that balance and up reduces, mean; sheet, But And go cost of – it. coffee was scrub Got sheet as cash imagine just inventories the or the balance were didn't actually the looking I just you I in down. that it. And through is unrestricted would I at I a then inventory like place, we better or capital, management, inventory well. seeing XQ cetera? initiatives fair an are put what decline some Is of just should et working as just with drove assumption?

Scott Drake

Yes.

then where restructuring capital. turn mentioned we had actions benefit our exactly was with then inventory working we And in that some natural saw the the forward. the the benefit about our of into focused should on move we did successfully. was result get we debt, were as that. our right QX, fall summer going really to talked months we've of and You're focus which of were lower XXXX But the more we QX And getting of through what cost to some of really how you really efficient

supply it's time lot with us At for also of progress. got right The getting returning cost of on been better reliance is you components those because honestly, continue some we into normal. quite and the getting result the with and done we're was were our lower efficiencies that with the other little our timing, vendors yet. able safety not it have so, we're and us. chain have And see inventory processes, inventory, more the stops, more of the We'll and and of in so where products all with helpful a can to this that a do really efficient the the to time go different efficiency of do certain. more benefit coffee But and

Gerry Sweeney

I'm I'm on to issues going anyone front. – not et years labor obviously, around reinstating like? historically, you or challenges rolling there? business, had to curious trouble of that what's But Revive to some it's in one And led ask cetera. challenging couple also routes, the in to Any Or looking out that if labor, additional and routes but more. sure been queue. there's the last get

Deverl Maserang

and is speak Revive able in use, her more per year new ago. new I'll able pulled pulled to a the fingerprints what's contributing have and we've what Revive various over different programs on that techs get So on working CHR our to turnover Gerry, techs HR. in has resources in in being and of on with just labor to technical been against some resulted, We've adds recruiting, on She's street. invested schools is recruit organization, we the new – We've a training program, net which week, put to and first. head

routes those but or on a as on being in routes RSRs solid the specific routes. RSR very as still were we to And or when specifically less we've on folks of coverage optimization to structures up additional with RSRs little be may headcount where and PTO had we focused able much I'd for those a for them underserved? too the our and to turnover that need add to productive route, able Revive, fully performance back. add can we their And trained on then tech much starts Would it be volume and on route, additional maintaining success back on justifies and routes get now route to point on add we it be adding for volume route so has get customers the side, to volume to continue We're change pick the we're people Revive. those say, a DSD from working just where getting

that's ongoing optimization. an So

quarter, – get we've I'd to to lead that We our the rates and that's – been with able have successful. on continues from low. to perspective team, And than a unemployment to street. We've react tide. the and group very DSD that more that a been been the the the say seen over to labor have macroeconomic and HR to able quite while hired continued rates turn side applicants able we've be through still past

and our team negative more through that deteriorate we've not can So HR team able place the hold in our sensing own DSD we've I'm we the on our and to lose putting now been right side add. and been new given through than programs frontline

been positive. that's So very

Scott Drake

X happen million external – Yes. where in because to Unfortunately, last And be. workers States I just there the week. from would saw noted don't they they about was view on Gerry, recall an to where, United estimate article still industry seen like restaurant have just that I is but the quickly short I it

as with So we're we for and still our improvement see that hopeful customers, well. there

Gerry Sweeney

I Thanks my for it. Got taking questions. it. appreciate

Deverl Maserang

thank you, Well, Gerry.

Scott Drake

Thank you.

Operator

to turn the would I question-and-answer our back any session. remarks. over Deverl for like conference closing concludes This to

Deverl Maserang

difficult. market you. dynamics been have in had foundation place, while we've Thank Overall, the

completed we're coming expected this are that period. the this in the today. through And and execution We in we into sharpening the support are optimistic you the environment progress will that as move focused by spoke attending XXXX pricing and prepared our remarks quarter the results. year. we determined the favorable manage very and encouraged hard through in and on of Scott quarters of for improvement in place, we next is fiscal team show meaningful work strategy our has The Thank are the to benefits fiscal as

Operator

The has Thank attending you now for conference today's presentation. concluded.

all disconnect. may You now

Farmer Bros. (FARM) 8 Feb 232023 Q2 Earnings call transcript