FARM - Earnings call transcript Q2 2018

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Operator

Good afternoon, ladies and gentlemen, and welcome to the Farmer Brothers Second 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] And as a reminder, this conference call is being recorded. I would now like to turn the call over to your host, Jean Young. ahead. go Please

Jean Young

after Executive Earlier afternoon second Financial Good to Participating you on presented our that an Commission's www.sec.gov. joining audio of website and Investor release, release to the we for the issued The today's section call link Robson, Thank Form fiscal X-K everyone. information is available The year A exhibit press unaudited. will of our note our this also on Treasurer which on Officer. Brothers Chief replay call. President a website available conclusion Keown, as the is our be quarter and is are replay Call. of all and this Please hours and Webcast XXXX Farmer today, financial this the audio-only today David be will Chief call you. www.farmerbros.com. website. available included Mike Exchange Securities on Thank Officer; Relations Earnings the also on on two conference available of and at press website Conference approximately at

Results any date. not and and upon regulations. subsequent future we constitute laws statements. plans under call, These begin differ as as forward-looking various our note, views that those and only make securities Safe federal Before be the during forward-looking relied should of purposes about call our prospects statements please we may of of for today forward-looking this provisions statements remarks materially the our the as expectations, represent representing Harbor from views could

available share non-GAAP events in forward-looking to common On including today's cause income, press could that those results net diluted, income website. use adjusted comparable the filings, non-GAAP in Relations and we performance. our differ is net non-GAAP EBITDA, release, are of our Executive which EBITDA, on public our and the turn Relations Mike our certain will over from materially and per directly Mike, available the Officer. Company's EBITDA EBITDA section in these factors margin, other call, and measures, margin, measures release statements financial on on is information which Investor non-GAAP Additional measures our Investor Keown, press Reconciliation the GAAP included operating go adjusted now I of website. most assessing call section of financial to ahead. is their President please available in to earnings Chief actual

Mike Keown

of you, our provide Jean. continue highlights operational On Thank the execution pleased the strategy. the growth. key call everyone. reflect our continued we for then on on strategic, second today's as financial completion Hello quarter performance will well which long-term our a an results and platform we us. and believe acquisition as update initiatives how up strategy, with joining We'll We're and is growth creating the which of questions. that quarter Boyd's the the you cover the Thank execute solid in we for open call, of for to

expanding inorganic to in focused the related acquired customers. our business. with we've increased XX.X% the increasing our second business on distribution Boyd's opportunities investments which in remain continue the organic facilities, quarter year-over-year, includes leveraging adding sales on both financials, and made newly and sales roasting briefly see We the customers network, new growth Touching and existing to

solid second pounds increased year-over-year year-over-year Boyd's XX.X% contributions increased highest the Boyd we the to quarter, EBITDA slightly integrate margin. volume of additional Boyd's in in expect coffee from processed sales the in currently XX.X% with businesses green the as and The in addition the and of $XX.X helped drive over our QX quarter, million expansion EBITDA corresponding synergies. with Boyd's and volume in We to we million prior increase further in Adjusted adjusted quarter, EBITDA QX. in of period included quarter. a coffee the increased Excluding volume processed single adjusted adjusted green year realize XX EBITDA X.X%

As expectations of operational $XX continue we savings I to adjusted expect organization, $XX million, were XXXX of back the benefits half a million the fiscal from organization deliver of to our line related and based the mentioned, transformation and Boyd, EBITDA in to with in as results synergies cost our to these we capture DSD selling year. work to channel achieve

initiatives sales key Boyd's based of in quality me Let strategy safe plan, a continued network. integration DSD channel our progress ramp selling and certification discuss moment we've the of food to of towards under take making specifically Northlake the implementing execution our facility, up our the our been

pleased First, an of am the integration I be effort proven is has with and on to business track excellent to what the date. Boyd's

are contributions XX pleased month we the months to only consistently our While and the from I integration, three team. progress been XX into with have integration

to retain by our channels while revenue Our thorough business customer strengthen remain and goals integration disciplined integration plan capture providing is customers same and and service working the to our potential our exceptional synergies.

staff are in The any line second to We the report performed transitioned Boyd's without quarter. successfully business we've in customers pleased Boyd disruption. expectations with

production three our next including our integration and into to facility Farmer identifying as our milestones include the branches Boyd's six synergies ongoing Brothers combined. locations, Farmer are consolidation branch of to Northlake Brothers teams shifting months Over physical additional up facilities

in growth plan related to volumes our business of up Northlake, the to of the our of is including of the movement initiative production the facility. this continued voyage facility ramp Texas portion key the Another

X or on XXXX expected us by to fully in help steps end the meaningful we coffee of continue ramp sustainability in the integrated that margins progress industry which for the improvement SQF receive volumes is operating year the further of the associated program fiscal in increase business. we in to and required this SQF make believe improving utilization fiscal we Further, enable completed Northlake of as Safe the following. state-of-the-art this Northlake voyage we many with on large can to significant have our many are to to expect We our we capacity a we Quality quarter under important track production facility. production accounts fiscal at that an by we increase are third once in continue Food currently significant on step bring elevating Brothers on leadership required and focused Farmer certification is pound volumes million also target the our remain will margin to certification

chain; promoting reducing within and environmental conserving and energy biodiversity; standards waste second, product and efficiency economic, First, resources supply our improving our roasting in fourth encourage plants landfill. compliance to third, social

roasting Portland our we centers. fact, pleased and In report zero in and landfill two waste distribution plans our to Houston achieved recently targets to our I'm Northlake,

is audit mandate. We certification to certification to in XXXX. have our headquarters announce expect productivity potential lead our calendar of year completed and current to customers attractive and own corporate of sustainability and for combination sustainability whom many their be proving The have our

were our first house this at open our cutting November. past we to host Northlake investor edge Lastly, new facility pleased

those why tool of of great think customers. we so you and the new to to proud I understand a why For you who join were attract think facility were able selling tremendous great is us, it

new service we DSD base model. delivery will base value-add on better executing member continued maintaining the under channel as this serve model strategy customers made our in team might strategy in increase from selling completed the we and channel June sales progress selling DSD we and you remember training believe our while Finally,

to automates As completed tools to smart deployment the selling routes drive The and touch this fourth completed a half incremental and quarter. this the organization sales process to be expect our we allowing the full selling have of touch model, ordering of part with sales. smart of deployment the it tool by streamlines our

demonstrates customers as to our product six customer that initially best-in-class pivotal typically opportunities. supplier a have on window initiatives regeneration sales strategy. teams inventory. as to have Brothers service through focused three months modernization the larger Our six our to customer from and business, more commitment growth Farmer providing can long-term contract product new transition or period comes it to then These works pervious signing When a gestation of months take

inventory in their to expected previous suppliers' wins in work to been sales QX. quarters Our through as recent QX contribute service sales and full transitioning late have to and/or they

held To are in in all medals that January. to end, two the I'm Championship developing created tour rewards won our and recent deliver tea and add coffee's has are new quality conclusion, enjoy tea's products. of committed are at tasting we the submissions pleased the that to In to opportunities. and and consumers three this These share delivering our success the working Tea high strategy customers and we our at of quality place. that that Global do pipeline diligently and strong are We pipeline and differentiation efforts center market to testaments the best our medals execution silver the on bringing of bronze

you the Now, financial in would to drivers behind to I quarter. over of David it walk some our turn performance through the

David Robson

Thanks Mike.

on more year-over-year of on few and results, the green our as only some had of increase coffee release, now key Turning touch to all the chance with beginning Volume review of processed will areas, a coffee Boyd's to a I press volumes. with sold detail XX.X% you volumes. inclusion

mix the X.X and As XXX,XXX Mike over give we on network Volume mentioned, represent sold a this acquired year distribution new or with last Boyd total To flat discussed of XX% represented were driven to through DSD total across to last million in coffee volume, X.X% us or million line with for million ship call. processed for by sales base quarter approximately the volumes. few while volume year. better distributors volumes increasing volume X.X customers or our customers a of XX.X sense large through and approximately pound of relationship including total coffee relatively for pound our ago business through quarter, during approximately pounds XX.X% distributor is a by a record expectations our direct founds we our of network,

to statement; for in increase contribution $XX.X $XXX.X the Now, XX.X% or the million, representing net increase of was were sales turning primarily increase a from income to This of compared the year $XX.X an net Boyd. driven million million as quarter. quarter acquisition by prior the sales

$X Boyd, slightly expectations. Excluding net or X.X% million better our than increase sales

and realize was with margin line model our performance the last XX fourth that the the into The XX.X% year XX certification expect benefits the ago. of operating basis basis expect which points margin points margin ago. with facility fiscal to Huston volume our margin of Gross which changes rates year. growth improve We're new of quarter basis throughout a Boyd, had large as increase remain of a in XX further liquidation but by the from gross acceleration in year QX year-over-year believe sales will than and cost second of cost in and year national Excluding top coffee we We this inclusion effect at sales and associated quarter DSD basis in in cost of the slightly over part SQF to flat inventory, were major the facility anticipate lower second from plans volume to improvement these gross XX.X% us efficiencies Northlake important stronger quarter our as margin production reducing pleased from of to relatively for XX absence of lower not volume decline customers able quarter new equipment. were points benefited structure of is produced We sales, cost basis Boyd's in during compared new third channel basis points both our completion well the year basis point, to the brewing was prior the of our allow a quarter. and LIFO net late 'XX. increase fiscal and mitigate to which sales we of XX the which 'XX the our we 'XX. with points fiscal XXX a of our only drivers beneficial points gross in XX

an million second we increase of operating recorded as expenses; year's prior of quarter Now, were recall or the in expenses from sales recognized to XX.X compared sale. facility XX.X% or million the of million in last $XX.X our $XX.X year turning of sales, that million Torrance operating in XX.X% $XX.X to gain quarter, the quarter

business million items million and increase decrease and in business In from increasing million addition, other the increase the X operating of X.X G&A higher were additional with expense integration on expense West the second million year, $XXX,XXX restructuring transition corporate from last year. by in which business last plan from depreciation year, last $X.X quarter contest increased a of Boyd acquisition Coast reflected $X offset in one-time associated expenses proxy year's the our million These resulting over Coffee included and acquisition the operating base amortization relocation expenses, X.X selling addition Total in in million and partially this the Boyd and $XXX,XXX. by expenses expenses comparison costs, from cost. $X.X

operating We excluding we as expect to time one-time over integration leverage Boyd synergies our go integration related improve the acquisition expense forward of realize to expense as additional progresses.

expense, the prior-year quarter due up last higher Turning second interest $XXX,XXX period. to was borrowings to year $XXX,XXX the interest to in expense compared from

We expect made of interest associated to compared in to given early year the to levels continue Boyd closed at higher which remain borrowings acquisition October. with expense the last

reduction act period. compared tax a increase recalculation XXXX in rate and income The to was our expense we Turning tax annual tax deferred and tax resulted the the jobs million that prior-year XX.X the quarter in of in by assets. effective taxes, in recorded driven our the estimated of $XX.X of to million cuts

net reduction result diluted per million to the beginning expect cash the forward share tax in loss of common remain this share at tax rate we $X.XX QX, quarter $XX.X operating approximately was was performance in or was the common quarter the compared EBITDA in incremental due between second $X.XX margin deferred we adjusted of EBITDA We volume loss million Boyd year in Net our XX.X go of we the compared forward the the unchanged as in or tax income our were $XX.X with the rate $XX.X from to X%. quarter tax volume diluted Net to and the and from to prior-year from and resulting through the compared tax per our the prior-year our compared cost the EBITDA period a to sales million XX% to assets synergies incremental for will Going loss XX.X in a quarter DSD X% adjusted business incremental future X.X% of new as expense our be period. improvement to expect expected primarily prior-year in from Adjusted EBITDA and margins X% in base further increase adjusted prior and the pleased channel. million realize expansion in laws. period. includes efficiencies

turn XX.X had revolving let's balance we Now million borrowed the we the on a million at end of facility. the cash, credit to had X.X sheet, quarter in

the related our base we our line availability end closing. complete acquisition XX.X availability our borrowing cash XX.X Boyd's September Our cash borrowing next integration end we debt net addition in the XX once the at business was at At of include debt The cost to net our was quarter, increase expect to under consideration to primarily and base. the making credit Boyd's and to working our at and the increase to to XX, in quarter related paid the to further the quarter onetime investments million cash XX.X million million, compared incremental investments Boyd's of credit used transaction XXXX. including assets our in process short-term and facility capital of under associated million was to fund within

amortization XX currently of investments the resulted of expect our versus prior of X.X deployment expectations with amortization depreciation commitments was Boyd's of and the our expenditures Now in CapEx, our we've smart and current million for organization quarter. X.X at made this the quarter. million in per million depreciation the X our Depreciation turning Northlake addition million million million in to to new million next the maintenance maintenance with currently we our quarter of for expense by X.X assets amortization of several asset amortization which facility Boyd's new capital the approximately useful the quarter fixed in used X.X million depreciation spend expense and and DSD devices Based for XX.X on touch coffee acquisition The is line the of to primarily X.X maintenance annually. year-to-date expense and Boyd's the in were quarter. million existing CapEx added CapEx, the in of and cash expenditures, from amortization to spend million and coffee. quarter in our from increase and and expense year spent for including in capital XX our X.X acquisition million life facility, The depreciation run intangible X.X

to one-time turning on To-date, EBITDA in incremental estimate Now the contribute and incur Boyd's post million XX incurred approximately to basis. approximately annual business we an integration have we Boyd's we acquisition to continue currently XX million integration acquisition, and million costs the We've expect in adjusted XX to X.X to will of complete costs next acquisition with integration. additional spend integration. associated we X.X the spend months million CapEx, still to to to and X.X in the million XX to to over CapEx to the million X between costs million XX complete yet Boyd's expect the

full earlier, million mentioned that fiscal achieving XX business operating sales realizing in of continue savings. Mike from acquisition, Boyd's and XX As DSD 'XX, additional for believe consolidated we expectations year our based to the cost sales EBITDA between the to will expansion million strategy channel incremental synergies margin be adjusted our and our from on delivering

from full its progress meaningful believe and line drives we'll attracts Boyd's fiscal large for new Looking our team Direct customers. DSD new expansion The additional out 'XX on synergies performance as our to certification operating integration. for growth facility 'XX in top sales matures SQF channel realize we volume Ship top and profit incremental Northlake of further materialize fiscal also as from we

to the for remarks. Now, turn back call closing I'll Mike

Mike Keown

Thanks, David.

pleased of midpoint but our we team we I go Farmer As all achieve It's fiscal call our goals. that continued year for the to thank ways those recognize your to on accomplished, our are have a that we always with Brothers. in has interest

well fiscal forward executing and unlocking fiscal and the of remain strategies we look we've national accounts reap model. the for We XXXX Brothers like more our presented GST And to up full we've the we've optimistic open I'd the half with added that, in in back Farmer focused efficiencies remain implemented XXXX. fiscal positioned we questions. We to new As that benefits realize Operator? our the and the of acquisitions to the on we're about potential. completed, believe to in changes 'XX, differentiating and call opportunities been importantly

Operator

of first line our question Kara with Riley. from the And Instructions] [Operator comes B. Anderson

is line now Your open.

Kara Anderson

bigger that a X.X calls I new of to pound And of another you was that accounts? call. you year new name. corporate business million recap on-boarding you million win in you some think you've couple from So last you then talk overall ago, customers, then are in it business Can where maybe didn’t won the just And announced? new mentioned X.X those pound last but about and notable won

Mike Keown

Sure.

up, So, on it. in call, process ramp on the we in we're early -- two started one the the mentioned we is up though last very

to quite that customer most of on other this The frankly quarter. volume come begin

we've So but the a or norm. two customer in been out nothing transition, behind of step we're said where maybe still the we've

it. So I'm most feel about new good What in generally excited we facility about running. getting up is obviously the

we to that's the this SQF and the of begin have step desktop moving leverage process the think really can and going second are through We where the of facility portion forward. I cleared they

there get a Regarding ground I to lot it that around cover how just your in last could XX of is there. if best customers won months, the question

Kara Anderson

another time. Alright, we off on that line can at take

with laid from kind question XX to guidance of other XX million to to three respect ways. me, EBITDA your one out Just million

get think there. you You

I'm addition if I in and additional on way like it if synergies it the you elaborate is Boyd, wondering sounds think with third to can that was you it am I understanding properly? savings. cost said that

David Robson

Kara. right That’s

back operational you are primarily our efficiencies was cost SG&A we've toward kind we which and so going start some X but what leverage. realized of to it gave I in those thought was million a or restructuring this the year, more through the of see look million going year ended May back of probably when through to be to others back of of were half to of DSD that we view we think like said X savings

Operator

our Pellegrino [Operator of Instructions] line And Sidoti. comes next from the question Francesco with

is open. now line Your

Francesco Pellegrino

potentially at quarters So Sporadically, I just maybe which volumes wanted a not like flat year-over-year. couple as potentially if maybe a as wondering the get turning uptick big organic as we'll just you quarter certify to point touch nice of past in we've your we're business seen you I'm any that to the away, come up sort the to the I'm thinking aren't be your and during sales just new were of business contracts fully lot guys on had to when will some does the business certification just now? waiting that just hand opened for of having floodgates all of because through able of you're And like SQF you sitting way on right to handle that a occur currently their right sort really come a now better? market certification able like

David Robson

of So tell customers, interest last can lot had on types visits, larger of things. you what we those months from I certainly over six is, site a the

think fully is is there exciting the business business any of will away SQF better remain much And really customer, answer poised on the part with question, that turning we bring I at your step. certified we get about this an of we're specific maybe and all, once the be to the certification we not first to it. but then important your process typically certification

tool You've have will to help with powerful facility, those do types things seen marketing help call on sustainability and all customer the a to the along recruit many of and new we people to seen be the it our very think the customers grow. facility, programs programs, we of our and

Mike Keown

that’s Mike big a in a control. But that can been certainly lot we’re move a our think the of have And the don’t we happen that we the the which quarters where our customers but unchanged can that outlook of you quarters, softer have flat just big a we then of last opportunity outside of couple business growth when we win a large said, that few few than 'XX thing of as or pretty remains just couple expected, said course to once some nature of passed business. over ongoing around. of We that our bigger last an one choppy get bullish is for customers certification be which a thing

Francesco Pellegrino

guess just business. new wining I keeping of comment that with

that retailer large their to convenience guys divested a When recently that, So C see they sort business businesses? those is you just store. to to we business? or Does get of after understood manufacturers that going is of go coffee to continue stores like food that excited those are competition? something rosters supply supply be with Or on existing that the currently that type

Mike Keown

years. think thrilled we're the of customers. convenience some with we I of pleased those really we the stores in five six growth that awards some over last or won with the had We're from

the at last who get you well good as it go referencing be we channel service. business, and want as and after six a considerable track that to to price in knowing like business it’s you're table the assuming won we it good without at over for We five look So our other directly, that always some to structure and record the years.

Francesco Pellegrino

for this it's new topic, tax David And everyone question is law. and the favorite

us your NOL trailing unchanged had unchanged that amount cash offset regarding Was some rate certain you position through sort point went pretax to tax a into that have up certain cash provided was that with? you rate, guidance your that the previous to that to anything for the of X% income. implications thought I limitations X%. guiding were remains there You of of

David Robson

a we is tax rate into I amount off. Yes, X%. to go you took account we and Yes, forward our was the can thought our X% cash think XX% write still to math with that NOLs limitation respect what there

Operator

from question of Markets. line Thank Krueger Capital with Chris the you. next Street our And Lake comes

now line Your open. is

Chris Krueger

couple a Just of quick ones.

there on was the any business? quarter lingering your hurricane First, in impact

Mike Keown

the California, not story. as critical part with lumps the had a in the of few have really small but Yes, a we a fires hurricane it's

Boyd's as We the we We have have then through impact and but the of new drag continued towns from and the out those hurricane our so business in of just effect of continue of Texas, some course are there the that restructure feel been a parts compelling. may in integration sizable wouldn't the a lingering I of cities to pretty And much facility, the areas DSD. the think as which certain and of all of to let those well build rebuild. got be distract

David Robson

branches have the in second we claims affected, from the in We to our out. QX impact the material bring out we us was insurance measured much had for employees wasn��t is and individual And but but effect and which certainly that it bigger fire enough why call quarter.

Chris Krueger

new that ability attract lot location? talent new now moved had know is, you question have have make and other good to My people key you the to Torrance move all from to people. your to the in a a people place Texas. didn’t I some Are hire of and now had you

Mike Keown

and answer yes. The yes

ability really to relocations the people are talent key going are place. in well the pleased with attract and We

As three have since been very and in distribution needs we the our know set roasting areas meet component center in forth like able a you needs and marketing in areas all so we and to diverse headquarter a this of pretty facility have and has finance well. distribution

David Robson

headquarters really forward questions good of recruits I and admires great have think of in additional talent. think no time. the health that we this sustainability under thinking I way point And view [Operator Instructions] those our that on and we it at

turn like for remarks. to call back closing I So, to any would management the

Mike Keown

those the call very your interest to we very with always like And Thank to you I much. in Farmer continued Brothers. for forward thank look would you much, thank as you Well, speaking on again soon.

Operator

have call. in participating Everyone This you for you the does a may all thank disconnect. program gentlemen, and today's conclude Ladies great and day.

Farmer Bros. (FARM) 6 Feb 182018 Q2 Earnings call transcript