Good afternoon, ladies and gentlemen, and welcome to the Farmer Bros. Third Quarter Fiscal 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we'll 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. You may begin.

Thank you, Norma. Good afternoon, everyone. Thank you for joining Farmer Bros.' third quarter fiscal year 2017 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 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 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, 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 website. And with that, I will turn the call over to Mike Keown, President and CEO.

Thank you, Laurie. Hello everyone, and thank you for joining us this afternoon. 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. First, I am very pleased to have our new Treasurer and CFO, David Robson, with me today to discuss our third quarter results. The addition of David strengthens both the overall depth and skill of our management team. As brief background, David has over 25 years of experience, with a proven and well-established track record of successfully developing and leading finance teams, and he has significant experience as a public company CFO. Since he's arrived, David's hit the ground running and has already been an integral part of our team. We're excited to have David on board and look forward to his many contributions. Turning to a summary of our third quarter. We continue to make significant progress against our strategic initiatives, highlighted by the following: First, our relocation to Northlake is now essentially complete. Second, we fired up our roasters, and as of May, we have begun to produce roast and ground coffee products in the new facility. We are going through the quality certification process similar to what we did in our Houston and Portland facilities. Third, we implemented a restructuring plan to reorganize our DSD operations to a channel-based selling strategy model, which was designed to drive sales growth. I will touch on these items in more detail. But first, some specifics of our quarterly results. Coffee volume was up 6.9%, making this our fifth consecutive quarter that we achieved a volume growth rate of mid-single digits or higher. We are pleased to see our volume growth being driven by both existing and new customers.…

Thanks, Mike, and thank you for the nice introduction. I'm glad to be part of the Farmer Bros. team and reporting on results for the quarter. Beginning with the income statement, net sales for the quarter were $138.2 million, representing a 2.8% increase as compared to the prior year. The year-over-year improvement is primarily the result of $5.3 million or a 6.4% increase in roast and ground coffee net sales, and a $1.5 million increase or 24.4% in tea product net sales, driven by the addition of China Mist, partially offset by a $2.4 million decrease in net sales of spice products resulting from the sale of our international spice business. And as Mike mentioned, we also saw a $700,000 or 7.6% decline in frozen liquid coffee sales due to the loss of a large casino customer. Our normalized comp growth, after excluding the impact from both the acquisition of China Mist and West Coast Coffee and the divestiture of our spice assets, was 2.4%. Also as Mike mentioned, we had a 6.9% increase in coffee pounds sold in the third quarter, and year-to-date, we increased 6.9%. Gross margin in the third quarter was 38.9% of sales compared to 39.1% of sales in the prior year quarter. Gross margin decreased by 20 basis points, impacted by startup costs for our Texas production facility of 40 basis points, primarily offset by favorable pricing. Operating expenses in the third quarter were $51.8 million as compared to $52.3 million recorded in the prior year period, a decrease of $0.5 million or 0.9% of sales. The decrease was primarily due to lower restructuring costs of $0.7 million, offset by higher proxy costs of $0.2 million. In the third quarter of this year, we incurred $2.5 million in restructuring costs compared to $3.2 million in…

Thanks, David. In closing, we are pleased with the progress of our turnaround strategy by delivering solid financial results and demonstrating substantial improvements in our operations. Before I open the call to questions, I would like to recognize 2 of our long-standing board members. As we announced 2 weeks ago, Dr. Berger and Hami Assadi will not seek reelection to the board at the conclusion of their terms in December 2017, ending for each, decades of distinguished service to the company. Guenter has been with the company for a remarkable 57 years. During his tenure, he spent 25 years working for Roy F. Farmer as Vice President of the Torrance inventory, production, coffee roasting and distribution operations. He became President and then Chief Executive Officer in 2005, and continued his service as a member of the Farmer Bros. Board of Directors following his retirement in 2007. Guenter's vast knowledge, wisdom and guidance were instrumental as the company expanded into specialty coffee and grew its geographic reach, ensuring that the company was well-prepared for continued success for the next 100 years. Hami has been part of the Farmer Bros. family since 1985, working in various roles including Tax Manager, Cost Accounting Manager, Assistant to Corporate Secretary and in production and inventory control, before her retirement in 2007. Hami has been a valuable member of the board since 2011. The company has benefited from their contributions through the investment of their time, talent and passion to our business. While we will continue to benefit from Guenter and Hami's service and contribution through the end of their terms, we want to acknowledge that their support and valuable guidance will be missed, and once again thank them for their years of loyalty and dedication. As a brief update, we are conducting a search for new board members to nominate, and we'll provide an update as appropriate. And with that, I'd like to open the call up to a few questions. Operator?

Thank you. [Operator instructions] Our first question comes from Francesco Pellegrino of Sidoti & Company.

Francesco? Operator, why don't we go to the next question, and we'll circle back.

Thank you. [Operator instructions] Our next question comes from Chris Krueger of Lake Street Capital.

Hi. Good afternoon.

Good afternoon.

On the last few quarterly calls, you guys mentioned specific customer wins. I was wondering if you had anything to report there during this quarter? And if you can comment on the potential pipeline going forward.

Thanks Chris. It's Mike. I'll take this one. We don't have any specific customers to announce in this quarter. But I would reiterate what I said over, I think, the past several calls. The pipeline is very deep. We're optimistic. And if you look back over the last few years, we've got a pretty strong track record of bringing on new customers. So, I remain bullish, but nothing specific to report at this point.

And then just to be clear, to go after some of these potential opportunities, is getting that SQF Level 3 certification kind of the first step before you can really go after it?

No. We're -- we've been aggressively pursuing new customers as we developed an optimism that the plant was going to start up. So, we're not slowing down at all while we achieve those certification levels. We have customers in multiple phases of the pipeline, but nothing too solid to report. But to answer your question, no, we're not -- what I think I understand the question to be, we're not waiting for that to pursue new customers.

All right. Thank you.

[Operator instructions] Our next question comes from Beth Lilly at Crocus.

Thank you. A question for you. If you look at the model going forward and what you think you're able to achieve with the new facility in terms of operational improvements and cost savings, can you give us a sense of where you think you can get EBITDA margins to over the next, let's call it, two to three years?

Hi. This is David. We have -- we don't give out guidance. We gave kind of guidance out for the next quarter, which says our EBITDA will probably stay about where it was this last quarter, but we're certainly trying to pursue a model that we drive north of 10% EBITDA in the long-term, but we can't give you any more details on that.

Okay. And so, the north of 10% is based on the facility of Northlake up and running, the additions of customers, things like that. That's your -- would you say that's your goal over the next two to three years?

I wouldn't give that kind of specificity, but clearly, we've made an investment in this new facility and gives us added capacity where we can attract new customers and win business, and that's our plan.

Okay. Great. Thank you so much.

Thank you. [Operator instructions] I'm showing no questions in the queue at this time. I'll turn the call back over to our host for closing remarks. Mr. Keown, please go ahead.

As always, I would like to thank those on the call for your continued interest in Farmer Bros., and we look forward to speaking with you all again soon.

Excuse me, Norma. I think we have one more question.

Yes, we do. Kara Anderson from B. Riley & Co.

Hey guys. This is Aman. I'm jumping in for Kara. Just wanted to get -- you guys increased green coffee pound by 6.9%. Was this mostly due to DSD business? What are we looking at here?

No, I think it's more tiny. So, the amount we buy every year, it'll move around. And I think, when you get to the fourth quarter, it's going to get consistent where it was last year.

Okay. That's it for me.

Okay. Thank you very much once again.

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