Good afternoon, ladies and gentlemen, and welcome to the Farmer Brothers First 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 conference 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' first quarter fiscal year 2016 earnings conference call. I'm the company's General Counsel. With me today are Mike Keown, President and Chief Executive Officer; and Isaac Johnston, Treasurer and Chief Financial Officer. Earlier today we issued a press release which is available on the Investor Relations section of our website at www.farmerbros.com. The press release is also included as an exhibit to our Form 8-K available on our website and on the Securities and Exchange Commission's website 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 website. 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 website. 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 website. 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. Here is the agenda for this call. First, I will do a top line review of our first quarter of fiscal 2016 results, then update you on our corporate relocation and other strategic initiatives, and finally conclude with some commentary on the overall business. I will then turn the call over to Isaac Johnston, our Treasurer and CFO, who will discuss our financial results in greater detail. Before I do, however, I want to take a moment and thank Mark Nelson for his service as Treasure and CFO, over the last two and a half years. As many of you know, Mark has been a critical leader in the turnaround of Farmer Brothers and is not able to make the move to Texas for family reasons. Mark's fingerprints are on so many areas of improvement with many outside of the core CFO role, it is tough to summarize, so I'll just leave it that we will miss his business acumen, leadership, energy and passion. I've asked Mark to stay through a transition period and he will continue to help the company over that time. We all wish nothing but the best for Mark and his family in the years to come. So on to the business, overall, we continued to make progress improving our operating performance. To further understand the moving parts behind our performance, I would draw your attention to our presentation of key non-GAAP measures such as net income, net income per common share diluted, adjusted EBITDA and adjusted EBITDA margin as they help to draw and to sharper focus the moving pieces of our turnaround. As a reminder a reconciliation of each of these non-GAAP financial measures to the nearest GAAP financial measure is…

Thank you, Mike and hello everyone. I'll spend a few minutes discussing our financial performance for the first quarter fiscal 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, lets go through net sales, net sales in our first quarter of fiscal 2016 was $133.4 million, representing a 1.9% decrease compared to net sales reported in the first quarter of fiscal 2015. This was primarily due to decreases in sales of our coffee and other beverage products. RMG coffee pound volume was down 5.3% for the quarter primarily in several of our large direct ship customers. The decrease in net sales of $2.6 million was partially offset by $1.1 million increase in revenue driven by customers in cost plus pricing arrangements. Most of our direct ship customers utilized commodity-based pricing arrangements which were the changes in the green coffee commodity costs are passed on to the customer. Additionally, most cost plus customers are covered under coffee hedging contracts which help to insolate them from immediate changes in green coffee commodity prices. The duration of these hedging contracts generally create a lag in how commodity price changes are ultimately reflected in our top line revenues. And our gross margin for the quarter of fiscal 2016 was 37.9% or 250 basis points higher than the 35.4% recorded in the first quarter of fiscal 2015. The improvement in gross margin was primarily driven by improvements in conversion and leverage as we move production from our Torrance, California manufacturing site to our Huston, Texas and Portland, Oregon manufacturing facilities. Operating expenses in the first quarter were $51.1 million representing an increase of $5.6 million as compared to the $45.5 million…

Thanks Isaac. I would also like to thank those if you on the call for your continued interest in Farmer Brothers. I want to reiterate our commitment to continued and uninterrupted service for our 1000s of customers nationwide as we accelerate our move to North Lake, Texas. And with that, I'd like to open up the calls for 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. Please go ahead.

Thank you. I have three questions. First of all, I wonder if you could talk about having Torrance closed and you are obviously getting a productivity benefits from that over the next four quarters between now and when the new facility opens at the beginning of 2017, what are the opportunities for further sequential gross margin improvement?

Tony, I'll take a shot at that and then turn it over to Isaac. I think there is two things that we're seeing; one is the fundamental cost reductions that we thought we would see from this project are occurring, secondly we're also seeing a very strong performance from the supply chain, improvements from where we've been historically and we're still getting our arms around what that is. To answer your question moving forward, there are some other opportunities, which I'll highlight at the shareholder's meeting in greater detail and --

More specifically, we believe we'll have them fully realized in fiscal 2017 and the items will ramp up on a timely basis between now and that timeframe. It's hard to give an exact number within individual quarter slots as we look forward but we believe we'll fully realize them in fiscal 2017.

Okay. And second, I know we talk about major strategy being to improve the volume trends in your direct store delivery business, I wonder if you could talk a little bit about what some of your initiatives will be?

Okay, Tony, I'll take that. There is probably two or three key ones, and we'll go into this in greater detail at the shareholder meeting, but one productivity initiative is around improving the routing and the technology we use to plan and execute, we call it mobile sales and we are highlighting some of that technology now. The second area is around improving the selling quality of the organization and we're going to continue to redouble our initiatives to sell the high-quality products that we have be it coffee, tea, ice coffee in particular we made some progress there but I think we need to continue to become a better training organization overtime to execute that on a daily basis in the DSD group.

The only thing I would add is, this is more from a personal standpoint. I've spent 27 years in the DSD world in helping on the optimization and improvement of running DSD businesses including growth. So I'm looking forward to working with the organization over the coming months and years on helping implement some of the items that have been effective within other industries.

Mike, when you talk about improving selling, quality and training, you've been there and done that with a little noticeable effect, so what's going to be different?

Well, I think on the training standpoint, we're learning to become a better training organization, I wouldn't say that our efforts before well -- we haven't got -- got the results that we would like I wouldn't call them ineffective. We've had some key areas of success. I think it's more learning from those endeavors figuring out what works and what we need to do better and then taking that into the market. As you know, I believe you know Tony, we had a new leader in the DSD group demonstrated leader and builder of direct store delivery organization and I think as he gets his arms around the business you'll find that there were some things we did very well and some things we could have done better.

Okay. My last question. How will the transition from Torrance and the eventual sale of that, enclosing of that entire facility affect your pension benefit obligations and the number of ESOP shares that remain outstanding as ESOP shares?

Hold on one second, Tony, we're getting that data.

On the ESOP side I believe there is no change or impact on the ESOP program. It was I believe it was already timed out to occur over the next three year timeframe.

What was the other part of the question Tony?

Pension obligations in terms of how the closing of Torrance and the elimination of much of that work force.

Tony, we're still evaluating exactly what the pension situation is, at this point, I don't think we can get into any greater detail at this point though we will certainly update the external world as we finish that process.

Okay. Thank you.

Thanks Tony.

Thank you. [Operator Instructions] Our next question comes from the line of Kara Anderson with B. Riley & Company. Your line is now open. Please go ahead.

Hi. Just wondering if you guys can discuss sort of general green coffee pricing in the market versus what your costs from your inventory or fixed contracts and derivatives sort of what you expect over the next 12 months?

Boy, if I had a crystal ball and just predict that perfectly I would be a very lucky man. I think if you look at the volatility over the last year and let me start there, we saw quite a bubble over the last 18 months. And if you remember our reaction was to shorten our positions a little bit, we believe we could ride out the storm and then the coffee would come down and that is in fact happened. From a historical standpoint the current cost of coffee are on the lower end of that and we're evaluating what our actions will be because of it, but at this point, I can't go into specifics about that. We're constantly evaluating the market and you've seen the same cost we have and will be determining over the next short period what we do in this environment. But I think it would be premature for me to put out a forward-looking view of what those specific prices and cost will be.

Okay. We haven't talked about the e-ecommerce strategy in a while, I'm just wondering if you could provide an update there what the goal is, what opportunities you're seeing and just how its tracking since you announced a couple of quarters ago?

Sure. It's been a very interesting process. This was something that was new to us. I think that, overall, it's moving in a good direction. We'd probably see that if you were to go online, we'll focus on fewer skews over time. We're learning how we bring that out. We've got several ways. We're currently engaging with our consumer base. And we're also learning that this could be a good tool to engage with our customer base as well. As you know we have a very broad customer network in many cases the best way to engage them is with the DSD high touch model; in some cases, we're learning that perhaps to overlay an e-business strategy in addition of the service we've always provided can be an effective tool. So probably premature for me to put out any revenue specifics or anything except to say that it's a growth avenue one we were probably a little behind on but we're catching up and pretty bullish on the future.

Great, thank you.

Thank you. [Operator Instructions] Our next question comes from the line of Chris Krueger with Lake Street Capital. Your line is now open. Please go ahead.

Hi. Good afternoon.

Good afternoon.

Sounds like you're pretty confident in your prospects for getting a good price on your Torrance facility. Do you have a timeframe in mind when you hope to have that completed by or a goal?

Yes. I can speak to that. So where we're at in the process we've largely finished the preparatory work. We have engaged an outside agent, who is working with us right now to figure out when we go on the market. I think it's fair to say that will be within the next 90 days but what day specifically is probably a premature but very eminent and we're getting their best advices to how to market that property in the Los Angeles area.

Okay. And then beyond Torrance, can you refresh my memory on, are there other facilities you hope to consolidate into the new Dallas facility where would you leave you able to monetize some other properties?

We don't have any announcement in terms of that at this point in time. We're always studying if you go back through our history at least over the last three or four years, we've taken the opportunity to occasionally consolidate a branch or an area and we really view that as more of a cost reduction or efficiency initiative not necessarily with the goal of monetizing real estate, my management will continue to take those types of actions on into the future.

Okay. You mentioned the shareholder meeting, I don't have the date for that, when is that?

December 3, it will be in North Lake and we can get you that information if you'd like.

Sure.

It's about 10 in the morning and we view that as a good time while we're all in Texas to share an update and also provide some visual around how things are taking shape.

Okay. Sounds good that's all I got. Thanks.

Thank you. That's all the time we have for questions today. Mike?

Okay. Once again, I want to thank everybody for their interest in Farmer Brothers. As I just mentioned, our shareholder meeting is in North Lake, Texas on December 3, and we welcome you and we look forward to continuing our discussion with the investment community and continuing the progress we've made in the last few years and we'll update you along the way. And thanks again have a great afternoon.