Good afternoon, ladies and gentlemen, and welcome to the Farmer Bros. Fiscal Fourth Quarter 2021 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 call is being recorded. I'll now turn the call over to your host, [Jennifer Milan]. Please go ahead.

Thank you and good afternoon, everyone. Thank you for joining Farmer Bros. fourth quarter and fiscal 2021 yearend earnings conference call. Joining me today are Deverl Maserang, President and Chief Executive Officer; and Scott Drake, Chief Financial Officer. Earlier today, the company issued its earnings press release which is available on the Investor Relations section of Farmer Bros. website at www.farmerbros.com. The press release is also included as an exhibit to the company's Form 8-K and is available on the company's website and on Securities and Exchange Commission's website at www.sec.gov. A replay of this audio-only webcast will be available approximately 2 hours after the conclusion of this call. The link to the audio replay will also be available on the company's website. Before we begin the call, please note that all of the financial information presented is unaudited and that 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 only 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 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 public filings. On today's call, management will also use 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 their most directly comparable GAAP measures is also included in the company's press release. I will now turn the call over to Deverl. Deverl, please go ahead.

Thank you, Jen. And good afternoon, everyone. Thanks for joining us today. Our business showed continued improvements throughout our fiscal 2021 year. At a high level in the fiscal fourth quarter, we grew our net sales by nearly 30%, expanded our gross margin by more than 800 basis points, more than halved our net loss and significantly expanded our adjusted EBITDA, all on a year-over-year basis. Our DSD sales improved on a sequential basis in each of the four quarters throughout our fiscal year. And we ended the quarter with DSD sales down 27% relative to pre-COVID levels, compared to down 57% one year ago 2020 and down 36% in the previous quarter. This sequential improvement is driving better gross margin, which also expanded in all four quarters of our fiscal year. Reflecting the efficiencies we built into the business throughout the year we posted a gross margin of 27.6% in our fiscal fourth quarter, which is the best we've seen since the onset of the pandemic. It's worth noting that since completing the Boyd’s Coffee acquisition in fiscal Q2 of 2018, our gross margin has historically hovered around 30% on a pre-pandemic basis. Keep in mind that we're still operating under considerably reduced volumes relative to pre-pandemic levels. So, given the improvements we've already seen, we feel very comfortable in our ability to achieve better gross margins and improved profitability relative to pre-pandemic levels as volumes recover. Looking beyond the end of the fiscal year, we posted our best two weeks of DSD performance since the start of the pandemic in early August. However, these games backtracked marginally later in the month as we saw some week-to-week variances owing to the Delta variant. While I don't want to discount Delta, I can say that it's currently most significantly impacted…

Thanks Deverl. While we are not providing a formal forward-looking guidance, I wanted to call out some key metrics and data points that we follow closely, which should give some color on how we're tracking some key metrics internally. Our focus on implementing efficiencies and optimizing our new cost structure remains a top priority for us. As Deverl outlined, we've executed against many of the objectives we laid out at the beginning of the fiscal year. Given the incremental expansion in our gross margin, which we experienced in each of the past four quarters, it's safe to say that these efficiencies are beginning to materialize, despite the reduced volumes associated with the pandemic. At the onset of the pandemic, we set a $6.5 million per month cost savings target, which was relative to our pre-pandemic normalized expense run rate. We exceeded that goal in the fiscal fourth quarter of 2020. Today, we're recording approximately $5 million of cost savings per month relative to our normalized run rate despite the increased SG&A expenses associated with bringing back employees, which speaks to the efficiencies we've built into our cost structure. We expect a portion of these cost structure improvements to continue to materialize in our cost of goods sold and ultimately provide gross margin expansion over the long-term. Given these factors, we're excited to see what the business will look like once volumes fully recover, and feel comfortable with the expectation of higher gross margins, a lower cost to sales ratio, and therefore, a higher EBITDA margin over time. Turning now for fiscal 2021 fourth quarter results. Compared to pre-COVID levels, we achieved notable sequential improvements in DSD sales in each of the four quarters throughout our fiscal 2021 year. As we noted in the past, the most significant DSD sales declines…

[Operator Instructions] Our first question comes from Gerry Sweeney of ROTH Capital.

I was wondering, obviously, Delta is an issue, right? And I was wondering if you could maybe give a little bit more detail of what you saw in the Southeast versus maybe the West Coast where I think a higher percentage of your coffee. And there are different reasons, different vaccination rates, maybe different personalities for lack of a better word, but just curious if you saw any material or what's the difference between the regions for instance?

Yes, as you know Gerry, we don't break out regional performance by regions. However, when you look at the country, as we mentioned in the Southeast, we felt more impact there from an overall industry perspective. But we don't have as much penetration in the Southeast. That being said, when you look at the overall performance, we've seen a lot of pushes and pulls, as you know, we've put additional sales ambassadors. We put additional business development managers and we're aggressively in our strongest markets attacking new sales opportunity and are winning in many cases. I think when you look at the cost savings, you look at the revenue opportunities that we are driving that a lot of work that we're doing, once we get back to that new normal and a full recovery, we'll see much better lift. That being said, the differences in the way you described, the Southeast and your question there is, I think we all know from the data, as we're watching the CDC and other governmental officials, how it's been really difficult in certain regions of the country. And in that perspective, we can see those numbers move, as we've seen other parts of the country, open at a very steady clip. I'll turn it back to Scott and let him give you a little bit more color from his perspective.

Yes. Thanks, Deverl. I think the only other thing we've learned really from being in this kind of pandemic environment now for going on 18 months is that -- and we noted in the script as well is, on one hand, we've got a national footprint, so we have lots of data. And as we see, maybe, virus outbreaks in particular regions or areas, we can watch that really closely and see what's happening on a localized basis. And I think as we called out in the script, we're just not seeing the same behaviors in the last few months with the Delta variant as we did last year. And obviously a lot of governments and businesses, they're not putting the same restrictions and closures and other things on the business. So I think that we're just seeing people react differently and kind of learning to live with the virus a little better, even though where there is an outbreak on a local basis we see an impact, but nothing to the degree that it was in the past.

Got it. And Deverl, you touched on it a little bit on the growth side, sales ambassadors to aggressively going after business. Are you starting to take share getting new customers? Obviously, there is the COVID headwind, but then there it sounds like you're also gaining new customers. Is this being driven by new products, reinstating routes? What's happening on that front?

Well, there is a plethora of strategies as we noted in the script that, we're taking in terms of broad restructuring our sales groups and having these sales ambassadors and business development managers. But let me be a little bit more specific. There is current channels that we are really strong in, casinos being one that we've had a historical presence and we are fighting every inch down the street to win that business. We have had a recent few wins. When I talk to my sales team, their pipeline is full of those examples. And in some cases, we've had a double up in some of our casino business, not just by our traditional products that they bought like coffee, let’s say, but we’re going there with our tea program, our spice program and a plethora of other premiumization on the espresso side and in room. And in one case, we had a double up. We've got a lot of others that we are winning. And then you look across the up and down the street business to your question on share, as you know, this industry being the only publicly traded company and the information that we provide, I will just tell you that, share is something we broadly define. We look at it, we don't report it publicly. But I can tell you we’re as aggressive right now we've ever been. And when we get opportunities, and we get that call, our folks are out there. And I think our biggest opportunity to see how much leverage that we've created through our network over the last 12 months, is when we get that full recovery, and we get back to the new normal of volume, you'll see better drop through than what you've seen in the reported…

Got it. And as you know, I'm a huge fan of the DSD business and I don't want to shift away from everything you just said there. Just one quick question. And -- on the direct ship side. Obviously some of the volumes came down. Some of it was timing, but some of it was maybe around less than ideal contracts that had been on the books for a while. How much of that business still remains and how much more of that you have to work through on maybe under price contracts?

Well, I would say right now, we're clear of those contracts. As I've said in my first quarterly call, when I joined two years ago, we weren't going to not grow for the sake of growing, we were going to look at what business that we could go back and work with those customers and either take price or change the operational cost basis to make those customers profitable. And we've done that, and we've cleared those and now you're seeing the net result. We have during that period of time grown new customers and grown inside the existing ones that we define as strategic direct ship national accounts. And that's, I think you'll see us continue to position and grow that business as we can't invest and not build it and they will come. We will not be taking that strategy on. We will be working the volume, building out the capabilities. We have room and facilities to do that. And as we bring on good profitable volume, we will add it in. And I can guarantee you that direct ship is still in the ratio that we had, and we reported on a pound basis is still roughly two-thirds of our pound volume and one-third. So, let me kick it to Scott if he has got some additional information, and I think he can give some more color on that.

Yes. Gerry, just as we think about both quickly, but direct ship, I think that losing and gaining customers on the direct ship side of the business is intuitive enough because we've literally described exiting unprofitable customers. And obviously, as we're adding customers, we're being pretty diligent about ensuring their profitability. So, you can almost make the same analogy back on the DSD business, if you think about there for a moment. If we look at the customers that we declare as lost customers that haven't bought in over 90 days, they definitely over-index to what we call Tier 5 customers, which are our lowest sales and our lowest profitability customers. Whereas when we look at the new customers that we've been adding in the DSD channels, they are a much more profitable, they're higher sales and higher profitability. So again, that's part of that productivity and structural improvements within the business that we talked about, it's definitely on both sides as far as lost and gained customers.

Thank you. At this time, I'd like to turn the call back over to CEO, Deverl Maserang for closing remarks. Sir?

Thank you. I look back at my last two years and this last year specifically, and really the last six quarters, I would say that our team absolutely has had some of the most challenging times in each of their careers, and yet some of the most rewarding. The results that we've posted today speak to how our strategy and all the changes we've made to our business over the past year, it's working. And since the end of the fiscal year, our performance has continued to show signs of strength and that should further improve as our volumes recover. We're excited about what the future holds and look forward to communicate more updates with you in the coming periods. Thanks again for joining us today, and we look forward to talking to each of you soon.

This concludes today's conference call. Thank you for participating. You may now disconnect.