Good afternoon, and welcome to the Farmer Brothers Fiscal Second Quarter 2024 Earnings Conference Call. [Operator Instructions]. 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 farmerbrothers.com.

The shareholder letter is also included as an exhibit on the company's Form 10-Q and is available on its website and the Securities Exchange Commission's website at SEC.gov. A replay of this audio-only webcast will be available on the company's website approximately two hours after the conclusion of this call.

Before we begin the call, please note all the financial information presented is unaudited 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 regulations.

These forward-looking statements represent the company's views 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 on the company's shareholder letter and public filings.

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

I will now turn the call over to Farmer Brothers' President and Chief Executive Officer, John Moore. Mr. Moore, please go ahead..

improvement in our customer retention and growth. Whether through better execution in every step of our supply chain or focus on brewing equipment and service, we know giving our customers what they need most is the fastest path to success for Farmer Brothers.

Through what we have internally dubbed Project Symphony, we are also working to improve our customer experience with better processes and technology. We are enhancing our point-of-sale management tools and have recently launched a new customer relationship management system, reinforcing the theme of customer retention. These advances are critical.

As we know, simply cutting costs and being more efficient won't be enough to achieve sustainable profitability and free cash flow. Part of our sales growth equation includes adding innovative, on-trend products, and continued product penetration within our existing customer base.

In summary, we are pleased with the positive momentum we saw during the second quarter and believe our path to positive free cash flow by early fiscal 2025 is firmly in view. With that, I'll turn it over to Brad to discuss our financials in more detail.

Brad?.

while we recognize progress may not be linear on a quarter over quarter basis, we are feeling increasingly confident about the path we are on as we strive to generate sustainable top-line growth and profitability. With that, I'll turn it back to John.

John?.

Thanks, Brad. Six months into our pivoting of the business to focus solely on DSD, we are proud of the foundational work we have done to position the company for long-term growth.

While Farmer Brothers has always remained an industry leader in terms of size, service, and product offerings, we needed a fresh look across the board from product lineup to operational structure to production systems. We've been able to make meaningful strides in all of these fronts in a short period of time.

But we know there's still work to be done.

During the second half of fiscal 2024, we will continue to focus on further improvements as we improve our cost structure and drive incremental margin improvement, drive customer growth and retention, increased market penetration for new on-trend products, and complete the transitional services associated with our direct ship sales.

I want to take a moment to thank our entire Farmer Brothers team for their continued dedication and commitment to the company as we move through this transition. Our improvements to date would not have been possible without their hard work. Thank you also to all of you for joining this call and for your continued support of Farmer Brothers.

We look forward to keeping you posted on our progress. We will now open it up for questions..

[Operator Instructions]. Our first question comes from Gerry Sweeney with Roth..

Good afternoon. Thanks for taking my questions. You discussed a little bit -- like as you mentioned, obviously, revenue was up modestly, but you also talked about volumes down slightly.

I'm just curious how customer retention is going and maybe -- if you can discuss maybe utilization of DSD assets and how that's going to move forward?.

Sure, Gerry. I can start that off and I'm sure Brad can add a little bit more color to that one. We've been very deliberate in how we approach this issue. We spent a lot of time in the field first and foremost, learning from the boots on the ground, so to speak, where they see the issues.

And then we coupled that with the utilization of our AI technology -- the same one that we've utilized successfully to help us through the pricing issues that we've been working through over the last year. And it's interesting in that the resounding messages came out exactly the same.

So we came out of that process with a crystal-clear idea of where the opportunities are in the DSD service side. And since then, we've actually acted very quickly to address what those challenges might be. And it ultimately boils down to the idea that the value proposition is simple, but it's not very easy.

You show up at the right place at the right time with the right products at the right price consistently, and you have a winning value proposition. And what we're doing right now is shoring up all of the systems on the back end to better equip the field to serve the customers going forward. We do see that we're leveling off on our customer rates.

We're seeing a positive trend line there. And going forward, that should have an amplifying effect as some of the other initiatives like the gross margin increase, the improvement in OpEx get realized then at greater scale..

having the right product at the right place at the right time..

Got it. And -- sorry, John, when you talked about leveling off with customers, do you mean leveling off as in -- some of the customer churn was leveling off and you're maybe accelerating the opposite direction? I just wanted to get some clarity on that..

That's exactly right, Jerry. So what we've been seeing is we had some churn in the past that rate is slowing down and slowing down substantively. We see it leveling off. And we also see that coupled with the fact our sales team is beginning to get their feet under them.

Let's keep in mind that new sales infrastructure has been in place now for about six months or so. We are seeing some positive signs there in that the business being added is actually exceeding expectations on a contribution standpoint. So we're seeing some positive signs of that leveling off and then turning around..

Okay.

is it fair to say of sales process is in place, infrastructure in place, that's driving this leveling off in the re-acceleration of customer volume growth?.

I'd say that's fair to say..

Got it. Talked about, I think, SKU rationalization -- my understanding from the last call was, that was probably later this year after the TreeHouse service agreement runs off.

Is that still a fair thought process or will you be able to do that sooner?.

Actually, we're seeing some positive signs there as well. We've defined exactly which SKUs we are rolling forward with. As we have mentioned in a previous session, this will be the first time in the company's history that all of these brands are represented throughout the estate nationwide.

We've never really had that before as we grew through acquisition in the past. So that streamlining should give us quite a bit of efficiency going forward. And we actually just executed training sessions with the entire state of our branch network over the last two weeks rolling out in two of the three tiers, what that mix will look like.

And we've started production of the new SKU sets. So that represents a reduction of about 60% of the overall SKU count and what we're referring to as the traditional and premium tiers..

Got it. One more question for me. Because I know we do have a follow-up -- just the inventories, I think running at $55.5 million. Just curious as to maybe where that could go past -- once you get past the SKU rationalization, TreeHouse service agreement runs off.

Is there an opportunity to maybe to unlock a little bit more cash from working capital on the inventory side?.

Yeah, I'll take that one. So TBD on amount, Gerry, just because at this point, we're still unwinding some of the TreeHouse interactions. So inventory is a bit clouded through that lens, but -- it's easy to understand that as we minimize SKUs, we don't need to carry as much amount..

Yeah. Okay. That's fair. I appreciate it. Thanks, guys..

Thanks, Gerry..

[Operator Instructions]. And ladies and gentlemen, this concludes your question-and-answer session. I'd like to turn the conference back over to John Moore for closing remarks..

Well, everyone, we certainly appreciate you joining us today. We'll have a lot more to report over the months ahead and look forward to speaking with you again next quarter..

Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day..