Good afternoon, ladies and gentlemen and welcome to the Farmer Brothers Second Quarter Fiscal 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a brief question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this call is being recorded. I would now like to turn the call over to your host, Tom Mattei. Go ahead, sir.

Good afternoon, everyone. Thank you for joining Farmer Brothers' second quarter fiscal year 2016 earnings conference call. I'm the company's General Counsel. With me today are Mike Keown, President & Chief Executive Officer; and Isaac Johnston, Treasurer & Chief Financial Officer. Earlier today we issued a press release which is available on the Investor Relations section of our Web site at www.farmerbros.com. The press release is also included as an exhibit to our Form 8-K available on our Web site and on the Securities and Exchange Commission's Web site at www.sec.gov. Please note that all of the financial information presented on this conference call today is unaudited. A replay of this audio-only webcast will be available approximately two hours after the conclusion of this call. The link to the audio replay is also available on our Web site. Before we begin the call, please note various remarks that we make during this call about our 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 our views only as of today and should not be relied upon as representing our views as of any subsequent date. Results could differ materially from those forward-looking statements. Additional information on factors that could cause actual results and other events to differ materially from those forward-looking statements is available on the company's press release and in our public filings which are available on the Investor Relations section of our Web site. On today's call, we use certain non-GAAP financial measures including non-GAAP net income, non-GAAP net income per common share diluted, adjusted EBITDA and adjusted EBITDA margin in assessing our operating performance. Reconciliation of these non-GAAP financial measures to their most directly comparable GAAP measures is included in our earnings press release which is available on the Investor Relations section of our Web site. I will now turn the call over to Mike Keown, our President and Chief Executive Officer. Mike?

Thank you, Tom. Hello everyone, and thank you for joining us this afternoon for our first call of 2016. Before we begin I want to thank those of you who sent feedback on the timing of this call on a Friday afternoon and in the future we'll do everything possible to best meet the needs of our shareholders. I'd like to start by providing a roadmap for the call. First I will highlight certain key areas of our financial results and provide perspective on how we manage supply in our largest volume period. Then I'd like to review two key strategic initiatives that are underway which includes changes we are making in our direct store delivery organization and our corporate relocation plan. I'll also bring you up to speed on the disposition of our spice assets and will then turn the call over to Isaac Johnston, our Treasurer and CFO who will discuss our financial results in greater detail. In terms of the second quarter let me start by saying we feel good about the second quarter results. Net income results were strong, our volume trends improved, we had great execution on the operation side and we made continue progress on our corporate relocation plan. In addition we have started an initiative to improve our DSD business. As you look at the second quarter I will draw your attention to roast and ground coffee volume and net income is important to understanding our performance. As you know after several years of growth in 2015, we were not satisfied with our volume trends. However we saw signs of encouragement during the second quarter. We were pleased to see a return to volume growth with our roast and ground coffee products even if very modest compared to our second quarter last year.…

Thanks Mike and hello. I'll spend the next few minutes discussing our financial performance for the second quarter fiscal of 2016. As Mike mentioned, we continue to make significant progress towards our objectives of driving improved operational and financial performance. Now, let me get into some of those details. On the income statement, net sales in our second quarter of fiscal 2016 was 142.3 million, representing a 1.7% decrease compared to net sales reported in the second quarter of fiscal 2015. This was primarily due to decreases in net sales of our coffee and tea products. RMG coffee pound volume was up slight 3.10% for the quarter an improvement from Q1 where RMG coffee pound volume was down 5.3% compared to the same quarter of the prior year. The decrease in net sales of 2.5 million included 300,000 reduction in revenues driven by customers in cost plus pricing arrangements. Most of our direct ship customers utilized commodity-based pricing arrangements where the changes in the green coffee commodity costs are passed on to the customer. From a gross margin standpoint for the second quarter of fiscal 2016, we were 37.2% or 50 basis points higher than the 36.7% recorded in the second-quarter of fiscal 2015. The improvement in gross margin was primarily driven by improvements in conversion and leverage as we moved production from Torrance California manufacturing site. Within the gross margin, we saw a benefit of LIFO layer reduction in the second quarter of fiscal 2016 of 300,000 and that was compared to a benefit of 2.2 million in Q2 of 2015, a 1.3% comparative margin impact. If you wash out the impact of LIFO and the 50 basis point improvement that was about 180 basis point improvement from a apples-to-apples basis standpoint. Operating expenses in the first quarter were…

Thanks, Isaac. As always, I would like to thank those on the call for their continued interest in Farmer Brothers. We are excited about the continuing turnaround and confident that while we'll hit bumps in the road, given the size and complexity of our plan. We are making good progress and we'll continue to focus on creating value for our stockholders. And with that, I'd like to open up the call up to a few questions.

Thank you. [Operator Instructions] Our first question comes from the line of Tony Brenner with ROTH Capital Partners. Your line is now open.

Thank you. Good afternoon. I have a couple of questions, first is as you ramp up into third party logistical efforts, I wonder if you could expand a little on what you said, that we'll have going forward on selling expenses?

We have estimated a net impact of right at 2 million, 2.1 million to between the range of 2 million to 2.2 million net impact on an annualized basis.

Which would begin fully at the end of the year presumably?

The timing associated with the move and transition. We said we'll be completed by for sure by the end of the fourth quarter. So that by latest June 30th of this year with the targeted timeframe could be four or five weeks earlier than that timeframe but think of June 30 as the timeframe.

And then Tony that would ramp in over that period as we move to phase it in.

Sure. And with a good part of the transition and the shifting of your workforce from Torrance to Dallas, what about G&A going forward should that now begin to subside a little bit or remain at these levels?

Let’s see we have staffed the majority of the individuals on this in -- but we still have a few roles that we have not completed filling at this juncture. I would not anticipate a significant change in direction of the G&A side of the business at this point.

Last question, Mike you've talked about changes you're making in your DSD business with respect to a focus on increasing the bottom line, but I wonder if you could expand a little on some of the strategies that you're pursuing in order to grow the top line of that business, what sort of changes in terms of specifically being able to add new accounts more successfully and up-sell in existing accounts, what will change to enable you to do that?

Sure, and Tony, if I misspoke the real intent here is to drive the top line and I think there's a couple of areas that we will be looking at. If you study the Farmer Brothers' model from a legacy standpoint often the DSD salesperson was also the delivery person. And in some markets particularly whether there's more density, it might make sense to have a dedicated or dedicated salespeople calling on the customers to improve the sales effectiveness, but also to free up time and allow the delivery network to be more efficient. That would be one area that we're exploring and another area would be an increased use of technology which I think we've talked about, but we will continue to focus on. And then a third area would be our sales process. In other companies there is very defined process of engaging with the customer, I have some experiences in my background, Isaac had some experience certainly people like Scott Bixby with his background both in Food Service but also at Procter & Gamble have that and so we will be more robustly defining what the Farmer Brothers way is if you will. So those would be some of the change areas, other areas we don't plan on changing would be our commitment to service our equipment, the dedication and passion that many-many of our DSD organization have to earn and maintain the customer's trust and reputation are bedrocks of this, but there are some areas we're going to be more aggressively exploring than what we have. That being said, I think we're very confident that the products on the truck are of a level of breadth width and to get the job done. We need to spend more time on the customer interaction.

[Operator Instructions] And our next question comes from the line of Kara Anderson from B. Riley & Company. Your line is now open.

I am just wondering, if you can comment on the growth in coffee volume for the DSD versus those under the commodity plus price arrangements in the quarter?

Look we haven't broken it out exactly, I think from what I've seen from a trend standpoint national accounts are the larger accounts I should say where the more robust piece of it, what we're pleased with coming out of this incredibly busy season from an operational standpoint is that we were able to get back to some growth and we were able to meet all the customer’s demands at a very high level, customer service was incredibly strong, and we think we're well-positioned now to grow at a higher level than we were in a quarter where we moved the volume from Torrance as you know to Houston and Portland.

And on previous call you've talked about some of these new national accounts that you plan to ramp up I thought at the beginning of the calendar 2016 year, have we seen those accounts come on board or did they come on sooner than expected?

I would say that first everybody all the customers came on as planned which is always our first goal in many cases it takes a little while to ramp up often there maybe displacing another coffee company and of course running down that volume and then starting up. So at this point, I think the key message is we're up, we're running and then the natural ramp up which varies by customer will continue to take place probably over the next quarter or so.

And then at some point do we see the benefit of having two plants operating reverse when you open the new facility or can we look at the benefits we're seeing in the supply chain right now on an emergence as part of more of a permanent effect?

First, we're very pleased with what we're seeing in the move from Torrance primarily to our Houston facility today. So we are realizing a very large portion of the savings that they're flowing through the P&L. Today, I think if you look at the gross margin where we were washing out the difference in LIFO layers we were probably 180 basis points improvement kind of core improvement within the business. I would think we now have basically two quarters in that range, so I would think we're going to continue in that and that's one of the big assumptions in efficiencies that we would get as we went through the transition. So, I would anticipate that we would continue seeing those moving forward because we're getting good results so far.

And then can you give some color on the spice business and over the piece that was sold and what it contributed to the bottom line last year?

Yes, I can give some updates on the spice business and kind of explaining the transaction we sold the manufacturing processing and distribution of our spice business. We sold it for 6 million in cash and we have up to 5 million earn out and then they assumed some of the liabilities. The gain on the sale to asset to Harris was 5.1 million which we recorded in the quarter. In addition we've signed a transitional service agreement, where Harris will continue to produce the product for us at our Torrance facility for up to 6 months. And we'll have deferred recognized for the sale of those assets during that transitional timeframe in the 600,000 to 700,000 range. So, we'll have that much more coming over the next -- in the couple of quarters. This was not a sale of a business but a sale of assets. So in fiscal year '15 we had 32.3 million in spice sales which was roughly 6% of our total business. Less than a third of that business is to the direct customers which Harris will now sell to. So, less than 2% [Technical Difficulty] is associated with the direct business which Harris will now sell. The remainder of the spice sells approximately 4% of the total 6% will remain on our DSD system and we will continue selling that business. You asked about the profitability I would think of the -- a fully allocated cost it's just think of it is a kind of a normal range of margin is what I would think up for the business that is the 2% that's is going with Harris is the way I would think about it.

And our next question comes from the line of Carter Dunlap from Dunlap Equity Management. Your line is now open.

In thinking about the outlook for national account business opportunity, having just made it through this -- your peak seasonal quarter with all these other things going on, is there anything that you can do either in VMI or 3PL make the December '16 calendar quarter have more capacity because I guess my sense is that until you're fully over to the new facility, you're still going to have a tight December calendar year this year, is that not fair?

I think we'll be better than, than you might be guessing from or thinking about it from your question Carter.

Okay.

So, this was the peak of what we would expect. If you think of Q2 next year, our second quarter the quarter ending December, we should be ramping up in the new facility. We continue to work to debug the plants if you will with skew consolidation and those types of things to free up capacity. And we do if you recall have an agreement with a co-packer to provide some additional capacity. So, maybe in a perfect case, we'll bring on an up new business that we would be tied again but it would be a much better scenario than it was in the last three months.

Okay. And just separately thinking about VMI if you sort of frame the benefits, I assume there's a asset churn benefit is there anything else that it brings to your say go-to-market DSD strategies or anything that isn't obvious to us to analysts?

We had in the range of $1 million of supply chain cost-efficiencies on an annualized basis as a result of the move to VMI as they have greater scale and leverage in purchasing of items that are second and third tier items. So, it's on our raw materials side versus the linkage to our finished customers that we're deploying the vendor managed inventory. So, it's going to be a more of a productivity or efficiency play for us within what we've done today. It's in $1 million range.

[Operator Instructions] And I'm currently showing no further question, I would now like to turn the call back to Mr. Keown for any further remarks.

Okay, well thanks once again everybody. We look forward to speaking with you all again soon. And we should have an update for you on the corporate relocation plan by the end of February, so stay tuned and thank you very much. Bye-bye.