Good afternoon, ladies and gentlemen, and welcome to the Farmer Bros. First Quarter Fiscal Year 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Laurie Little. Please go ahead.

Thank you. Good afternoon everyone. Thank you for joining Farmer Bros. First Quarter Fiscal Year 2018 Earnings Conference Call. Participating on today's call are Mike Keown, President and Chief Executive Officer; and David Robson, Treasurer and 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 will also be available on our Web-site. Before we begin, 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 in 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, EBITDA, EBITDA margin, 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, President and Chief Executive Officer. Mike, go ahead.

Thank you, Laurie. Hello everyone and thank you for joining us. On today's call, we will cover the operational and financial highlights of the quarter and provide an update on our key initiatives before opening the call up for questions. We are off to a solid start in 2018, highlighted by the acquisition of the business of Boyd's Coffee Company and continued progress on our growth and our growth initiatives. Although we faced certain hurdles during the quarter, such as hurricanes Harvey and Irma, followed by the fires in California, in our second quarter, I am so proud of the way our teams remained focused on getting our affected operations up and running quickly and assisting affected employees as well as the communities that were hard hit. Although these events caused some disruptions to both our customers and Farmer Bros. in the short term, we believe that our ongoing investments in our operations, employees, and communities will help to drive future growth and profitability. Although David will walk you through the financials later in the call, I'd like to briefly touch on the highlights of the quarter. As we mentioned on our last call, we expected for the first quarter that green coffee volume and revenue would be relatively flat as compared to the prior year, based on what we were seeing at that time, including the negative impact hurricanes Harvey and Irma was expected to have on our operations and financial performance. And that is how the first quarter played out. For the first quarter, we currently estimate that the disruption from hurricanes Harvey and Irma led to a decrease in net sales of approximately 1% to 2% compared to the prior year. We expect the lingering effects from the hurricanes and California fires will likely continue to dampen…

Thanks Mike. Turning now to some more detail on our results, as all of you had a chance to review the press release, I will only touch on a few key areas, beginning with coffee volumes. Volume of green coffee processed and sold declined 0.4% for the quarter. Our newly acquired West Coast Coffee division added an incremental 0.8% to this total volume. Over the past two quarters, we have experienced less than expected demand from several of our larger Direct Ship customers. In addition, we have seen some impact to coffee pounds sold through our Direct Store Delivery sales network related to the restructuring of our sales force we announced in February. As Mike previously mentioned, the new sales channel organization is focusing more of their current efforts on larger customer wins, which have a longer conversion cycle, as compared to the prior year quarter where we had a mix of sales focus on smaller customer wins, which have a shorter conversion cycle. The weather-related disasters have had some impact on coffee pound volume during the quarter. We estimate that Hurricane Harvey and Irma impacted total coffee volume by approximately 2% compared to the prior year quarter. To give you a better sense for the mix of volume across our distribution network during the quarter, coffee pounds processed and sold through our DSD network was approximately 8.3 million pounds or 36% of total volume, while Direct Ship customers represented approximately 14.9 million pounds or 64% of total volume. Now, turning to the income statement; net sales for the quarter were $131.7 million, representing an increase of $1.2 million or 0.9% as compared to the prior year quarter. This increase compared to the prior year period was driven primarily by a $1.5 million increase in net sales of roast and…

Thanks David. As always, I thank those on the call for your continued interest in Farmer Bros. The first quarter of 2018 has begun what should be another significant year for Farmer Bros. We are excited about the growth opportunities that lie ahead as we begin to realize success from the reorganization of our DSD operations, continue to broaden our relationships with our existing customer base, and integrate the Boyd's business into Farmer Bros. operations. While it is all about execution now, we believe we are on the right track to drive strong operational and financial performance in the coming years. And with that, we'll take some questions.

[Operator Instructions] Our first question comes from the line of Francesco Pellegrino with Sidoti.

So, on the fourth quarter call, you were nice enough to give us first quarter sales guidance, and since you did such a great job in forecasting that number, I was wondering if we could maybe think about where the second quarter sales or revenue is going to be, just given some of the headwinds that you're going to be facing with the wildfires that you cited.

Sure. I think what we said on the call just now was that it's going to be relatively flat next quarter.

Okay, flat year-over-year?

Yes.

And within that you've got significant moving pieces. We touched on some of the headwinds, and frankly, we're still sorting out, and I don't believe we're the only company as I've listened to some other earnings calls that are. We have the startup of some businesses that I referenced on the last call, and there's usually some unknowns. While we're pleased with the progress, I think that's the best number we have right now, but there are some moving pieces within there.

Only because I missed the sales, did you guys provide your full year outlook, especially your full year EBITDA guidance?

We did that a while ago and we're not changing that guidance. [Indiscernible]

Okay, so you're going to be reconfirming it?

Yes, we're not changing it.

Okay. Is the implied gross margin for the full year still in that 38.7% to 39.5%, or given the reduction in depreciation, should we see some margin lift from your previous implied guidance?

The only thing you have to take in account is the movement of commodity prices that will impact our top line as well as our margin rate, not necessarily the margin dollar. But taking that out of consideration, I think what we said before is, yes, kind of the 38% range is the right one. But if commodity prices move, you'll see that impacted in both the top line and the rate.

Okay. And just talking about commodity prices for a minute now, just given where coffee bean prices are, is your hedging strategy going to I guess continue as it was, or will you guys be a little bit more opportunistic due to the fact that we're seeing relatively low coffee bean prices?

Francesco, it's probably not appropriate to comment on that. But what you have seen is the implementation of the hedging process over the last few years that has served us well. We continue to refine it. But this isn't the format for me to speculate how we might move forward. As you could imagine, it's something we take very confidentially as a topic.

In many of these, we move on the direction of our customers. Of course we make recommendations, but they make a lot of those decisions on how far out they'd like to commit.

Okay. And just the last question for me before I jump back in the queue, I know that the SQF certification is for 3Q 2017, could we get a timeframe for I guess when the SQF certification would be for the Boyd's business that you're going to be bringing into Northlake, since those product lines probably aren't even built yet?

No, I think it's a little premature, and this is probably not the forum. Maybe offline we can take you through all the nuances of SQF certification. It's a lengthy process. If you look at what we've done over the last few years, our Portland facility and our Houston facility enjoy very high scores. We think we're on track for that here, but beyond that, that's a pretty detailed response for the rest of the group.

And Francesco, just one point, we've always said that we're not going to keep the production facilities from Boyd. So we're moving their volume at some point over to ours. That doesn't impact our existing certification.

Okay. I'll look forward to that conversation off-base, and I'll jump back in the queue. Thanks again, guys.

Our next question comes from the line of Chris Krueger with Lake Street Capital.

First, on that second quarter sales guidance for relatively flat year-over-year run rate, does that include Boyd's?

No.

No.

Okay, all right, that makes a lot more sense. And the same question I often come up with on most calls, how is kind of your internal pipeline of potential new business building? Is it improving since you've got the new facility kind of closer to being up and running?

I think what we mentioned on the last call that we've got a very strong pipeline, and we do, maybe as a secondary point, I think the pipeline is building in our DSD as the channel structure. It was a little nuanced in my comments, but we did pick up a notable customer, over 40 outlets as part of it in the dining arena in the contract manufacturing world. So, that pipeline is picking up now as that new team comes onboard.

And I would say, this is David, that certainly with our new facility, the opportunity for the improvement in the pipeline is there and exists. So, we're in a lot stronger position than we were say a year ago.

Okay. Then the last question, you indicated on your comments that you're winning a new corporate customer with several locations, is that a new win incremental from your last conference call a month ago or is that something you talked about then? I'm a little fuzzy on that.

It is and we're in the process of installing the equipment now. It takes a little while, given the size of it. But I think if you were evaluating it, what David's comments were, probably the place I would start, and then note the two customers we didn't talked about in the last call, we're in the process of ramping up now and that goes through a process of transitioning out of the old roasters inventory and so forth. But I would go back to David's comments on the second quarter. That's reflective of what we know now.

Yes, and what Mike said well earlier in the call was that our fourth quarter we're going to see some good growth because of some of these new contracts we won.

Okay, all right. Looking forward to next week's event. That's all I got.

Thanks. We look forward to seeing you.

Thank you. And that concludes our question-and-answer session for today. I'd like to turn the floor back over to the Farmer Bros. for any closing comments.

Once again, we thank everybody for your interest in Farmer Bros., and for those who are coming down to Northlake next week for our Investor Day, we look forward to seeing you, and we will be talking to you shortly with continued update on our strategic progress. Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may now disconnect. Everyone have a great day.