Good afternoon, ladies and gentlemen. Welcome to Farmer Brothers Second Quarter Fiscal 2017 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 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 2017 earnings conference call. I'm the Company's General Counsel and Assistant Secretary. With me today are Mike Keown, President and Chief Executive Officer as well as Rene Peth, Vice President and Corporate Controller who will be available during the Q&A portion of our call. 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 the financial information presented on this conference call today is unaudited. A replay of this audio-only webcast will be available approximately 24 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 in 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. On today’s call I will cover the highlights of the quarter both operationally and financially, provide an update on our key initiatives, and then finish the call by going over our financial results in greater detail before opening the call up for questions. Overall we are very pleased with the progress we made during the quarter to continue the positive momentum from 2016 and the first quarter of fiscal 2017. Although we faced certain distractions during the quarter, such as our corporate relocation and the proxy contest I'm very proud of the way our team remained focused on our business and continued executing on our initiatives. I believe that with a business that is transforming and improving as well as a strong balance sheet that provides us with greater financial flexibility we are well positioned to create long-term growth and value for our stockholders. Turning to a few highlights from the quarter, first coffee pound volume. Coffee volume was up 5.7% making this our fourth consecutive quarter that we have achieved volume growth rate of mid single-digits or greater. For the quarter we processed and sold 24.5 million pounds of green coffee compared to 23.2 million pounds during the prior year period. We are pleased to see our volume growth being driven by both existing and new customers. We also continue to see expansion in gross margin where we saw year-over-year improvement. Gross profit for the quarter increased 4.1% to $55.1 million from $52.9 million in the prior year period. While gross margin increased 240 basis points to 39.6% in the quarter driven by lower conversion costs and the hedge costs of green coffee. Second quarter net income was $20.1 million significantly higher than the prior year…

[Operator Instructions]. Our first question comes from the line of Francesco Pellegrino of Sidoti, your line if open.

Good afternoon Mike.

Hi, how are you?

Pretty good, so a second straight quarter where you throw in acquisition at us. So you did your first acquisition after the hiatus from the 2008 period. Small acquisition then you did China Mist the last quarter, you did West Coast Coffee. Today, China Mist is at 11 million, this West Coast Coffee was at 14 million. When we think of acquisitions are we thinking the sweet spot is somewhere between $10 million to $20 million, is the focus on small -– on acquiring a lot of small brands or acquiring a couple small brands and investing in their growth?

It's a good question. I think there's two ways we evaluate acquisition opportunities. One would be where we can get distribution efficiencies and I think West Coast is a terrific example of that. A very strong DSD system with a good brand that will work very synergistically in that regard. Another way we view it is through the lens of the brand and China Mist actually brings us a wonderful brand with good equity and a different distribution network which I think is a wonderful benefit. To answer your question in terms of size, we really try to work off what's available in the market and what those opportunities are. It could be larger. I think as we grow muscles and show what we can do it could be more significant if that opportunity presents itself and I think that's what will let guide us, what's the right fit, what’s the right model for us, and what's the right future not necessarily be driven by a certain size.

When I look at these acquisitions in the past obviously the company is exposed to a commodity. Are we investing in acquiring brands or more so the distribution efficiencies that you were talking about as I've seen this being done with some other companies that are like industrial grade commodity manufacturers and they almost built like a branded economic moat around the commodity business. And at the end of the day you're acquiring a lot of these attractive small brands and you just look at where the commodity cost environment is for you for your customers, it's rather favorable and I'm just wondering if it makes more sense in the short-term to acquire a lot of brands or just over the long-term to have this long-term strategy, how aggressive are you going to be over the short-term?

You know again it's difficult to say. What I would tell you is, we conducted a pretty thorough landscape assessment. I think we might have mentioned it a quarter or two ago to give us a very good view of the U.S. coffee industry and from that there were some targets that popped up either from a distribution size or branded perspective and in some cases there could be both. That coupled with what's happening in the market is what's driving us. It is a little bit difficult to answer your questions in a challenging environment.

The increase in the coffee bean volume growth of 5.7%, is this with the increase in more so the DSD business, the DTC business, I know you said it was like a lot of small accounts, so?

Well, those were the ones that we -- what I would say is if you look at the last four quarters I think we've averaged about 8% volume growth. And in our business when I see basically fixed it is in the same range and things can move up and down a couple of points. So, I'm pleased with what we've accomplished over the last year. I am very pleased with our string of wins in the DSD business over the last two quarters. And I think it's a real testament to the team that's executing there. But we don't break it out as you probably remember by segment.

Okay, so if you don't break it out by segment and I'm just trying to think about the acquisition policy and sort of implementing brands into your portfolio, is there may be a different way to talk about the quality of this growth, was the majority of the quality of the growth in a branded category or was it in an unbranded category.

In our most recent customer wins they were unbranded or we developed a brand for them and they were a notable string of wins that happened to be in our DSD group.

Okay, I know you haven’t completed the transition fully into the new North Lake facility but at what point, because only -- because you brought it up there in your commentary about looking into additional business development opportunities for the company, do you start looking at a conversation about maybe additional supply chain consolidation with manufacturing at Houston as well as some of the distribution at Oklahoma City, when does that conversation make sense, once you've fully moved into North Lake, a year after you moved into North Lake, what milestones are we looking to achieve before we start revisiting maybe some of the other dominoes that could fall for your story?

You know I give you a lot of credit for being consistent in asking that question every call and I'm going to be consistent in not answering it. But I can tell you that we don't have anything to announce at this time. We've just come through our second quarter which you know is our busiest quarter due to seasonality. And we're pleased with the performance. We're always studying additional supply chain optimization. In fact I referenced the consulting expense in the quarter and a portion of that was for a whole host of efficiency opportunities that we see. But I don't have anything to announce to the hypothetical questions you are answering -- asking now.

And my last question for you and I've been asking this of all my companies. Under a Trump Presidency, I just look at I guess the employee base of a lot of the companies that I cover and some of them really rely on the H-2B visa program, does Farmer Brothers have any reliance on this program historically whether it's seasonal or whether it's throughout the year?

You know what we -- I don't have anything really to comment on that. It's a human resource issue, it would be inappropriate to comment.

Okay, that's it for me. Thanks again.

Thank you.

Our next question comes from the line of Kara Anderson from B. Riley and Company, your line is open.

Hi Mike, how are you?

Doing well Kara, how are you?

I am good, thank you. Just wondering if you can provide more details on the West Coast Coffee acquisition with regards to maybe some revenue numbers or categories of product sold, how the margins might compare to Famer Brothers products any greater context is helpful?

So, a couple areas that I could provide, they serviced about 2500 largely convenient stores through a DSD model that we think will be very synergistic with our own. We generally think this is going to be accretive. We're optimistic about what this organization can hold for us in the long-term and that's probably as far as I can go right now.

Okay and then I'm not sure if I missed it, on the CAPEX for the equipment and machinery related to the new facility, the 35 million to 39 million, did you say what has been spent thus far and what's remaining and timing for that?

No, I did not. So just to kind of give you a summary that the total are very consistent with what we did is in fact entirely in line with what we had disclosed previously. Rene, do you have the spend, she is looking that up right now. We will see if we can get that by the end of the call Kara otherwise we'll follow-up.

Sure and then also I guess sort of related, could you talk about the balance of the 18 million to 20 million in annualized savings from the relocation with West and sort of expectation on timing for that?

Sure, we're probably about 60% to 65% through at this point. Some of it's in process maybe even a little bit ahead of that. So as the remainder of the project continues you'll see it come through. I will just reiterate, from where we've come since we announced this in early 2015 we're pleased that we're still well within the range. We've accomplished quite a bit, and I think you'll see the rest of the initiatives come in line over the next quarter or so. As I look back on it we had a little bit of slowness due to some rain in the facility start up. May have been distracted a little bit through some of the start up of the new facility and some other issues but overall we're very pleased with how far we've come in approximately two years.

Okay and then last question for me, I know you talked about sort of having greater certainty on green coffee pricing given six contracts and derivatives that you have in place. But with rising green coffee prices and what we've seen from other big players in the market, do you have any plans to implement any pricing actions for those spot on commodity post pricing contracts?.

It's a really good question. So there's you'll see a couple of things that what we've done in this regard. If you were -- if you heard what we talked about in terms of the length and the amount of some of our contracts I think we responded well to the market. We have taken pricing in the market that is implemented even in the non-cost plus world with certain lead times for various customers and so forth. But we have and you've seen a number of the larger players in the category have and we've taken that opportunity too as it presents itself.

Great, thank you.

Thank you.

Our next question will be taken from the line of Chris Krueger from Lake Street Capital. Your line is open.

Good afternoon.

Good afternoon. How are you?

Good, How are you?

I'm doing well. Thanks Chris.

You're giving up providing figures on your new DSD wins, you said Comcast at 58 properties, Skylines 70, what was the number for that last one the Stop and Save?

No, I don't have it was smaller. So we'll see if we can get it up but I'm going to guess 10 to 15 somewhere in that range. It was a little smaller than the other.

Okay and I guess my other question, just in general with the new President in place what are your thoughts on just importing and potential tariffs and all that kind of kind of overview there, at least at first glance what do you guys think?

I'm not familiar with anything that’s coffee specific at this point. So I guess we'll let the political leaders work that out. I tend to look at it a bit simplistic, coffee continues to grow as you and I have spoken. A key driver of that growth is millennials now. We are all millennial now and to some extent driven by carbonated soft drink avoidance. So I think the future of coffee is bright and I hope that there's nothing that pops up in any type of political or agricultural way or anything that would limit that. It's a very dynamic industry as you know, in fact some of the factors you mentioned could come into play but also droughts and rust and other coffee diseases could be more of a concern for me in the short-term.

Is there a specific incident on that in those areas right now or is that just something that's obvious?

Oh, but if you look back over the last few years occasionally these things have popped up and I think that companies responded well and the Board's been very supportive of providing us additional flexibility in our hedging program to adjust as we see that. And if you look over the last five years in particular I think we've managed it pretty well.

Okay, that's all I got. Thanks.

Your next question comes from the line of Carter Dunlap from Dunlap Equity. Your line is open.

Hi gentlemen, I have a quick one. At your annual meeting I think you cited that you had one person dedicated to M&A, has that grown?

It's one that's fully dedicated. We've brought some other external resources on to help through some of these processes in a number of different areas and that would be the additional source of help has been more external than internal.

So you mean like a banker?

Yeah, just -- so let's just say consultants now.

Okay. Thank you.

Thank you, Carter.

I’m seeing no other questioners in the queue at this time, so I’d like to turn the call back over to management for closing comments.

Well thanks again. We really appreciate your continued interest in Farmer Brothers and we are very excited about the future and look forward to sharing our plans for that future in the near-term, mid-term, and long-term. Thank you very much.

Ladies and gentlemen, thank you again for your participation in today's conference. This now concludes the program and you may now disconnect at this time. Everyone have a great day.