Farmer Bros. (NasdaqGS:FARM) Q4 2025 Earnings Call September 11, 2025 05:00 PM ET Company ParticipantsVance Fisher - CFOJohn Moore - President & CEOConference Call ParticipantsGerard Sweeney - Senior Research AnalystEric Des Lauriers - Senior Research AnalystOperatorGood afternoon and welcome to the Farmer Bros. Co. 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 i ...

Financial Data and Key Metrics Changes - Fiscal 2025 showed significant operational and financial improvements, with gross margins above 43% and a more than $14 million year-over-year improvement in adjusted EBITDA [4][13] - Adjusted EBITDA for Q4 was $5.8 million, and for the full fiscal year, it was $14.8 million, marking a year-over-year improvement of over $7 million for the quarter and over $14 million for the year [13] - Gross margin in Q4 was 44.9%, a year-over-year increase of 610 basis points, while for the full fiscal year, gross margins were 43.5%, a 420 basis point increase compared to the prior year [13][14] - Net sales during Q4 were $85.1 million, slightly up from $84.4 million in the prior year, and for the full fiscal year, net sales increased to $342.3 million from $341.1 million [14] - Operating expenses increased by $14.3 million to $150.4 million for the year, primarily due to a decrease in net gains from asset sales [15] - Free cash flow for Q4 was $7.5 million, and for the full fiscal year, it was $6.5 million, representing a year-over-year increase of $12.1 million for the quarter and $34.5 million for the year [17] Business Line Data and Key Metrics Changes - The company launched the SOME1 specialty brand, which has received encouraging early responses and is expected to create new opportunities [4][5] - Total coffee volumes decreased by 10% year-over-year to just shy of 20 million pounds in 2025, reflecting challenges in the coffee industry [8] Market Data and Key Metrics Changes - The U.S. food services sector showed weaker growth than during the COVID-19 pandemic, with restaurants and bars experiencing one of the weakest sales growth periods in a decade [8][9] - Green coffee prices rose over 65% in the past year, contributing to a challenging market environment [9] Company Strategy and Development Direction - The company is focused on driving growth through customer retention, expanding its DSD network, and enhancing its white glove service value proposition [10][11] - A strategy committee has been formed to explore growth opportunities, with a commitment to addressing customer and coffee pound degradation [10][12] - The company aims to leverage its core coffee capabilities and expand its white label customer portfolio [11] Management's Comments on Operating Environment and Future Outlook - Management acknowledged significant challenges in the macro and microeconomic environments, particularly in the coffee industry, and anticipates pressure on gross margins and overall financial results in fiscal 2026 [9][17] - Despite these challenges, management expressed confidence in the company's ability to generate long-term value for shareholders under more favorable market conditions [18] Other Important Information - The company made meaningful progress in strengthening its balance sheet, with a $10 million decrease in net debt and $32.6 million of additional borrowing capacity under its credit facility [16] Q&A Session Summary Question: Operational efficiency and margin improvements focus areas - Management indicated a pivot from pricing optimization to performance and execution, emphasizing customer-focused service and fulfillment [25][26] Question: Customer churn levels and order fulfillment progress - Management reported significant improvements in order fulfillment and noted that customer churn is influenced by macroeconomic headwinds [30][31] Question: Opportunities for growth and customer acquisition - Management acknowledged the difficult macro environment but emphasized the potential for better penetration and customer acquisition through their DSD network [38][39] Question: Engagement with larger restaurant groups - Management confirmed existing work with larger restaurant groups and highlighted the opportunity for growth in this area [41] Question: Potential for adding allied products - Management stated that they already offer allied goods and are continuously looking for opportunities to leverage their distribution channels [47]

Financial Data and Key Metrics Changes - Aterian reported net revenue for Q4 2024 at $24.6 million, a decline of 25% from $32.8 million in Q4 2023, primarily due to SKU rationalization and lower liquidation levels of high-cost inventory [42] - Adjusted EBITDA for Q4 2024 was essentially break-even, improving by 98.5% from an adjusted EBITDA loss of $5.6 million in Q4 2023 [47] - The net loss for Q4 2024 was $1.3 million, an improvement of approximately 83.1% from a loss of $7.7 million in the year-ago quarter [46] Business Line Data and Key Metrics Changes - The company streamlined its product portfolio to focus on six foundational brands, which has improved efficiency and ROI [18] - Gross margin for Q4 2024 increased to 63.4% from 51% in the year-ago quarter, driven by SKU rationalization and product mix [43] - Contribution margin for Q4 2024 was 19.4%, a significant improvement from negative 0.8% in the previous year [44] Market Data and Key Metrics Changes - Aterian's revenue is primarily derived from e-commerce marketplaces, with a focus on Amazon, Walmart, and Target Plus [12] - The company plans to expand into new channels and geographies, including further growth in Mercado Libre and brick-and-mortar retail [25][26] Company Strategy and Development Direction - The company aims for net revenue growth of 5% to 7% in 2025, with a focus on channel and geographic expansion, as well as new product launches [22][24] - Aterian is targeting a break-even adjusted EBITDA for 2025, representing a significant improvement from the adjusted EBIT loss of $2.1 million in 2024 [23][52] - The company has initiated a two-year share repurchase program of up to $3 million, reflecting confidence in its long-term prospects [35][56] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the company's ability to navigate challenges, including tariffs, and emphasized the importance of a diversified supply chain [32][34] - The company expects to see improved leverage and associated profits as growth rates outpace fixed cost investments [30] - Management noted that consumer behavior has remained stable, with no significant softness observed despite broader economic concerns [92] Other Important Information - Aterian's inventory level was reduced to $13.7 million at the end of Q4 2024, down from $20.4 million in the year-ago quarter [48] - The company is working to reduce its reliance on China for sourcing, aiming to decrease the percentage of net revenues from China by 50% by the end of 2026 [32][33] Q&A Session Summary Question: Performance of SKUs added to Target Plus during Black Friday - Management indicated that they are focusing on marquee SKUs for Target Plus and are pleased with the performance of the steam mop [61][65] Question: Guidance for first quarter performance - Management explained that new product launches and channel expansions are expected to drive stronger performance in the second half of the year [71][73] Question: Impact of tariffs on pricing and transaction volume - Management clarified that while tariffs are expected to lead to price increases, they believe they can mitigate some of the costs and still achieve growth targets [76][80] Question: Long-term growth targets and consumer behavior - Management discussed that the three-year growth targets are driven by new product launches and channel expansions, and noted that consumer behavior has not shown significant changes [85][90]

Financial Data and Key Metrics Changes - The first quarter showed solid sales growth with net sales increasing by $85.1 million, a nearly 4% increase compared to the same period last year [12] - Adjusted EBITDA for the quarter was positive at $1.4 million, an improvement of $1.9 million year over year from a loss of $0.5 million [11] - Gross margin increased by 630 basis points year over year to 43.9%, compared to 37.6% in the first quarter of last year [11] - Operating expenses were $40.1 million, or 47.2% of net sales, compared to $32.9 million, or 40.1% of net sales, in the first quarter of last year [12] - The net loss for the quarter was $5 million, compared to a net loss of $1.6 million in the first quarter of last year [13] - Cash flow from operating activities improved to positive $2.5 million, representing a $9.6 million improvement compared to negative $7.1 million in the first quarter of last year [13][14] Business Line Data and Key Metrics Changes - The Brand Pyramid initiative has led to a refresh of the premium Boyd's coffee brand, which is now positioned as the premier nationwide coffee offering [5][6] - The company is working on a new specialty tier brand to be announced soon, marking a reintroduction into the specialty coffee space [6] Market Data and Key Metrics Changes - The company is navigating volatility in coffee markets and changes in consumer behaviors, with a focus on optimizing commodity purchasing and inventory management [9] - Customer retention has stabilized due to improved execution by the restructured sales force [8] Company Strategy and Development Direction - The company is focused on customer growth, adding density across existing DSD routes, and selling additional products to existing customers to generate additional revenue [16] - The strategy includes optimizing routes and improving product penetration within the existing customer base [28] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the initiatives put in place and operational improvements made throughout fiscal 2024 to navigate macroeconomic headwinds [9][14] - The company does not expect financial results to be linear quarter to quarter but remains focused on building a solid foundation for sustainable value creation [14] Other Important Information - The company has achieved five consecutive quarters of improved cash from operating activities [14] - Management acknowledged the current volatility in coffee commodity markets and the macroeconomic environment [14] Q&A Session Summary Question: Growth and density in routes and churn - Management noted a positive trend in customer retention despite industry headwinds, with churn levels better than anticipated [21][22] Question: Addressing out of stock issues - The company has resolved out of stock issues through SKU rationalization and careful customer communication [26] Question: Growth from new routes or adjusting routes - The focus is on optimizing existing routes rather than adding new ones, with an emphasis on improving utilization [27] Question: Impact of new specialty coffee brand on financials - The new specialty brand is expected to transition existing volume and create incremental revenue opportunities [40][41] Question: Incremental opportunities with Boyd's brand - There are opportunities for Boyd's brand to perform well in new markets with a unified brand approach [42] Question: Gross margin drivers - Pricing optimization efforts in response to rising commodity markets have been key to gross margin improvement [46] Question: Potential for further asset disposals - The company is not relying on asset disposals as a business strategy but may consider offers for branches that no longer fit its needs [48]