Farmer Bros Co (FARM) 2017 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to Farmer Bros.' Fourth Quarter and Fiscal Year 2017 Earnings Conference Call.

(Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the call over to your host, Laurie Little.

Please go ahead.

Thank you.

Good afternoon, everyone.

Thank you for joining Farmer Bros.' Fourth Quarter and 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 2 hours after the conclusion of this call.

The link to the audio replay will also be available on our website.

Before we begin, 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 are available on the company's -- 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.

I will now turn the call over to Mike Keown, President and Chief Executive Officer.

Mike, go ahead.

Thank you, Laurie.

Hello, everyone, and thank you for joining us.

Before we begin, I want to thank you for all of your patience over the past 2 weeks as we worked to complete our financial statement reporting process for the fiscal year.

We have been working as quickly and diligently as possible and are glad to be in a position to speak with you all today.

On today's call, we will cover the operational and financial highlights of the quarter and the year and provide an update on our key initiatives before opening the call up for questions.

2017 was a transformational year for Farmer Bros.

as we made significant changes to our operations and infrastructure on our journey to build sustainable, profitable growth and create long-term value for all of our stakeholders.

As we look back on the year and all that was successfully accomplished, I believe it is clear that we are making tremendous progress towards achieving our long-term goals and objectives.

While we've shared with you our major projects throughout the year, we have also made other noteworthy improvements in our operations, including significant improvements in safety, implementation of supply chain projects that drove cost savings as well as the launch of both fleet tracking and telematics and smart touch tools for our delivery personnel.

We also brought on board new talent in every area of the company and launched a renewed diversity and inclusion program across the organization.

All of these projects were initiated with one thing in mind: creating long-term value.

I'm pleased to report that not only have we made significant strides in bringing new customers to the Farmer Bros.

family.

We also retained key customers and in many cases, have extended contracts out several years.

Finally, we also launched new products and continue to make improvements to our sustainability programs, something we believe is our competitive advantage.

We are extremely proud of our performance in fiscal 2017 with annual green coffee volume growth just over 5%, continued gross margin improvement and a solid improvement in adjusted EBITDA.

We ended fiscal 2017 better positioned for growth than when we began.

We continued to work to ensure that we stay focused on accomplishing our strategic initiatives.

To briefly touch on the fourth quarter.

Green coffee volume was up almost 1% in the fourth quarter as compared to the prior year.

This result is below our initial forecast, and we believe that this less-than-expected result was primarily due to softness in shipments from some of our larger national customers.

Orders from customers do not always occur with predictable timing or patterns and as such, volume fluctuations between quarters can and do occur.

We continue to believe our volume growth should be in the 3% to 5% range on an annual basis for the foreseeable future with variability between quarters.

We delivered a 5.3% increase in green coffee pounds processed and sold for fiscal 2017.

Gross margin was up 100 basis points to 40.1% in the fourth quarter, the highest margin quarter in the past 3 years.

We are pleased to see the benefits of our initiatives take hold and drive increased profitability.

Adjusted EBITDA in the fourth quarter increased 30.7% to $11.6 million with a corresponding 8.7% EBITDA margin or an increase of 210 basis points over the prior year period.

David will walk you through some of the drivers behind this improvement in a few minutes.

Next, I'd like to touch upon our key events of the quarter as well as the full fiscal year.

First, a customer update.

We have made solid progress in bringing in new business and extending existing customer contracts.

And while we are not able to discuss customer specifics between our DSD and direct ship businesses, we recently won an annualized 1.5 million to 2.5 million pounds of coffee from notable customers.

This volume should begin to ramp up late in the second quarter with the majority in the third and fourth quarters, depending on the customer's existing inventory.

These customer wins include brands that are well known to the coffee consumer.

We feel confident about our ability to attract as well as retain high-quality customers.

In addition to our new wins, over the past 6 months, we were able to extend agreements with several existing customers representing roughly 20 million pounds per year.

Lastly, we continue to enjoy a full pipeline of additional opportunities, and we'll update you on our progress in the coming quarters.

Shifting gears.

Our DSD reorganization remains on track with a channel-focused DSD group staffed as of June 1. We began training sessions over the summer, and they have hit the ground running.

We believe we have the right people in the right places now and are beginning to see some customer wins come in as I noted earlier.

So far, the feedback from our customers regarding our new channel focus has been very positive.

Onto operations.

As we mentioned last quarter, our state-of-the-art facility and corporate headquarters in Northlake, Texas, is up and running, manufacturing coffee.

We are currently producing at an annualized rate of 6 million pounds, and we are still on schedule to achieve our SQF or Safe Quality Food Level 3 certification this year.

In addition to getting our roasters up and running, we've also been completing several other projects focused on efficiencies and cost savings.

During 2017, we realized savings from such areas as better truck utilization and controlled temperature production distribution, an improved pallet management system, a fuel savings program and other procurement-related savings projects.

This is on top of savings from the consolidation of the distribution center operations at our Oklahoma City location into our Northlake, Texas facility.

Sustainability continues to be a very important way of life at Farmer Bros.

and something we take pride in every day.

We believe that our efforts in sustainability are a competitive advantage for us as we partner with new and existing customers.

A few notable achievements in this area include: establishing science-based targets, and we are the first coffee company to do so using 100% recycled pallets that are 100% reused or shredded for compost; we are achieving 70% diversion of waste in accordance with our 0 waste to landfill objective; we are installing LED lighting at many of our facilities and have received 2 grants for piloting trucks in California; finally, we were recently recognized by McDonald's for their 2017 U.S.A.

Supplier Sustainability Award, which is a tremendous honor and acknowledgment of our commitment to sustainability.

Having the right people in the right places is crucial when growing a business.

While we have been adding in talent throughout the organization, we have also been strengthening our management team.

We recently hired a Senior Vice President, Integration to focus on efficient integration of our newly acquired businesses, a new Chief Information Officer and a new head of our DSD or direct-store delivery organization, who was promoted from within.

We believe that these new additions to our team bring much needed skill and expertise to enable Farmer Bros.

to continue building for the future.

Next, a quick acquisition update.

It has been only a few weeks since we announced the Boyd Coffee acquisition, and I'd like to say that working with the team at Boyd's has been a pleasure.

This acquisition is all about growth, combining 2 well-established coffee roasters with a long history of exceptional customer service to the food industry.

Once complete, we should be able to recognize greater opportunities within highly desirable customer channels and expand our presence nationwide but with particular emphasis on the West Coast, which can bring in increased penetration of our distribution footprint.

We plan to leverage our new scale as well as best practices from the combined company with a focus on increasing our relevance in key markets and target channels.

The addition of the production volume associated with the Boyd's business should build production volumes and enhance our capacity utilization throughout our production facilities.

I want to thank Boyd's CEO, Jeffrey Newman, and his team for their commitment and support as we prepare for closing and commencement of transition and integration of the business.

We believe that our success with the China Mist and West Coast Coffee acquisitions have prepared us for this new integration and believe those acquisitions, combined with the Boyd's transaction, will prepare us for future acquisition opportunities when they arise.

Before I turn the call over to David, I wanted to touch on the recent hurricanes, Harvey and Irma.

First, all of our employees are safe, and we will continue to help them as well as the impacted areas.

Frankly, many worked heroically in a horrific situation.

From an operational standpoint, Farmer Bros.

implemented a previously prepared contingency plan.

With our plant in Houston down for approximately 3.5 days, we were able to realize the value of having additional roasting facilities, which allowed us to move production volume across our system and continue to meet customer needs.

We feel that this is a competitive advantage as compared to some of our peers who may not have similar options if a disaster occurred.

We anticipate that we will undoubtedly have some short-term operational and financial impact from both the hurricanes, and David will touch on those briefly and to the extent we can at this point in time.

However, our primary focus, as I mentioned before, is on assisting those communities in their recovery.

Now I will turn the call to David for a more detailed review of our fourth quarter and fiscal year-end results.

Thanks, Mike.

Before I begin, I would just like to briefly expand on Mike's comments regarding our delayed earnings report.

As we stated in our 8-K on September 12, our delay of the announcement of full results is due to the additional time we needed to complete the review, testing and evaluation of internal control procedures for the fiscal year.

We have been working as quickly and diligently as possible to conclude this process and be able to report our full and final financial results for the fiscal year.

Now that we have completed this work, we will also be filing our 10-K today with a sign-off from our auditors.

Turning now to some more detail on our results.

As all of you had a chance to review the press release, I will only touch on a few key areas.

Beginning with the income statement, net sales for the quarter were $133.8 million, representing a decrease of $400,000 or 0.3% as compared to the prior year quarter.

When you exclude West Coast Coffee, China Mist and the sales we generated last year related to our spice business we divested, net sales increased 0.2%.

Green coffee processed and sold increased 0.9%, and excluding West Coast Coffee, volume was flat with last year.

As Mike mentioned, our fourth quarter coffee pounds and net sales growth was slower than we anticipated due to the softness in our national account business late in Q4.

Going forward, we still expect our business -- base business coffee pounds to grow in the 3% to 5% range annually.

However, there can be fluctuation between quarters, especially with our large national accounts.

This is demonstrated in our full year results for fiscal '17, where coffee pounds, excluding the benefit of West Coast Coffee, increased 5% year-over-year with quarterly volume fluctuating.

Looking at gross margin in the fourth quarter, it was 40.1% compared to 39.1% of sales in the prior year quarter, an increase of 100 basis points to our highest quarterly gross margin in 3 years.

The year-over-year gross margin increase of 100 basis points in the fourth quarter demonstrates our ability to drive higher levels of profitability through the business.

Although our new Northlake facility was a drag on margins in the fourth quarter, once we begin to drive meaningful incremental volume through the state-of-the-art facility, we can expect further economies of scale allowing us to drive further margin improvement.

In Q4, the 100 basis point improvement in gross margin over the last year was primarily due to the combination of higher DSD pricing and lower green coffee hedge cost as well as the benefit from the contribution of China Mist and West Coast Coffee, which carry higher gross margins than the base business.

The drag to gross margin in the fourth quarter from Northlake due to the higher depreciation and overhead cost was approximately 120 basis points.

Turning to operating expenses.

Operating expenses in the quarter were $51.9 million or 38.8% of sales compared to $49.4 million or 36.8% of sales recorded in the prior year period, which is an increase of $2.5 million or 200 basis points.

However, when excluding restructuring and other transition expenses, acquisition costs and net gains and losses from the sale of assets, net operating expenses declined by $374,000 or 20 basis points to $49.1 million or 36.7% of sales.

The restructuring charges that we incurred in the fourth quarter include $1.1 million in expenses associated with the company's DSD restructuring plan.

The acquisition costs reported in the fourth quarter relate to consulting and legal expenses incurred in connection with the agreement to acquire Boyd Coffee Company.

Looking at interest expense.

We incurred interest expense of $755,000 in the fourth quarter, up from $84,000 last year due to higher borrowings compared to the year ago.

We expect interest expense to climb in fiscal '18 from fiscal '17 given our higher existing debt levels and additional borrowings under our letter of credit facility for the anticipated acquisition of Boyd's, which we expect to close the second quarter of fiscal '18.

Now turning to income taxes.

Our income tax rate in the fourth quarter was 3.8%, which is lower than our expected marginal rate of 40% due to reduction in certain nondeductible operating expenses in the fourth quarter versus what we estimated in our fiscal year '17 tax provision through year-to-date Q3.

Going forward, we continue to expect our marginal tax rate to range between 39% to 40% and our cash tax rate to range between 3% to 4%.

For the full year, our marginal tax rate was 39.5%.

Diluted shares outstanding were 16.8 million compared to 16.7 million shares last year.

Net income was $1.1 million this quarter or $0.07 per diluted share as compared to $84.2 million or $5.05 per diluted share in the prior year period.

Excluding onetime and nonrecurring items, non-GAAP net income this Q4 was $3.2 million or $0.19 per diluted common share compared to $3.8 million or $0.23 per diluted share in the fourth quarter last year.

The $0.04 decline in non-GAAP net income per diluted common share was primarily due to higher year-over-year depreciation expense of $1.3 million or $0.05 per diluted common share.

Adjusted EBITDA was $11.6 million for the quarter as compared to $8.9 million in the prior year period, and adjusted EBITDA margin was 8.7% as compared to 6.6% in the prior year period.

The $11.6 million in adjusted EBITDA is approximately $0.5 million lower than we anticipated going into the quarter as a result of softer sales volume.

That being said, the adjusted EBITDA margin at 8.7% compares favorably with the prior year period.

Our full year adjusted EBITDA was $46 million or 8.5% of sales compared to last year of $41.4 million or 7.6% of sales, a $4.6 million or 90 basis point increase.

Now turning to the balance sheet.

At the end of the quarter, we had $6.6 million in cash and short-term investments.

We had $27.6 million borrowed on our revolving credit facility.

Our debt net of cash and short-term investments was $21 million this quarter compared to $11.9 million at March 31, 2017.

The increase in debt net of cash and short-term investments over the quarter was $9.1 million, which was used to fund a portion of our CapEx spend during the quarter with the balance of the CapEx fund -- funding coming from operating cash flows.

As we previously announced, we amended our credit facility, increasing our maximum credit line to $125 million from $75 million.

Some of this incremental capacity will be used to fund the acquisition of Boyd Coffee with estimated cash due at closing of $39 million, which we continue to anticipate will close in our second quarter fiscal year '18.

Now turning to capital expenditures for the current quarter.

Our capital expenditures in cash were $14.1 million, the $12.6 million in spend for our new facility and $1.5 million in spend for maintenance CapEx.

The total CapEx spend on a cash basis was lower than the $19 million to $22 million we projected for the quarter due to the timing of payments coming due.

Depreciation and amortization expense was $6.4 million this quarter versus $5.1 million in the prior year quarter.

Depreciation expense increased as a result of our investment made in our new D-FW facility and amortization of intangibles added from the China Mist and West Coast Coffee acquisitions.

We continue to forecast depreciation and amortization expense to run at approximately $8 million to $8.5 million per quarter in fiscal year '18 based on our existing fixed asset commitments and the useful lives of our intangible assets, excluding the impact of Boyd Coffee acquisition.

Turning to inventory.

At the end of the quarter, we had $56.3 million in total inventory consisting of $31.2 million in coffee inventory, $20.8 million in tea and culinary inventory and $4.3 million in coffee brewing equipment parts.

Total inventory increased $9.9 million or 21.3% over last year primarily due to abnormally low inventory levels last year at our Torrance facility given its anticipated closure as well as incremental inventory this year associated with the acquisition of China Mist and West Coast Coffee.

At the end of the quarter, we held coffee-related derivatives of 35 million notional pounds of green coffee compared to 12 million notional pounds covered as of March 31, 2017.

In addition, we had green coffee fixed-price contract commitments of $66.7 million at the end of this quarter versus $68.9 million as of March 31, 2017.

The use of coffee derivatives and green coffee contract commitments helps to increase the price certainty of our green coffee costs.

Now I'd like to discuss some of the details relating to our relocation plan.

With our Corporate Relocation Plan now complete, our total incurred expenditures through the end of '17 was $31.8 million, including employee retention and separation benefits of $17.4 million, facility-related costs of $7 million for our temporary office space and $7.4 million associated with the move and relocation of the Torrance operations and other related costs.

As of June 30, 2017, we had accrued $300,000 and incurred corporate relocation expenses to be paid in fiscal '18.

Turning to construction costs.

With Phase 1 of our new facility now complete, our final construction costs for the building, facilities and land were $60.8 million and total costs for machinery and equipment, furniture and fixtures was $33.2 million.

As of June 30, 2017, we had aggregate cash spend of $89.6 million with the balance of approximately $4 million to be paid in Q1 of fiscal year '18.

Regarding our announced agreement to acquire Boyd Coffee Company, many of you have requested more information regarding their financial profile.

We have mentioned Boyd's had approximately $95 million in revenue for their most recent trailing 12 months provided to us, and their margin profile is similar to Farmer Bros.

If the transaction closes early in Q2, we expect the business to deliver between $4 million to $5 million in incremental adjusted EBITDA in fiscal '18, ultimately increasing to $13 million to $16 million on an annual basis, 12 to 18 months after the close of the transaction.

Nearly all of the onetime costs will be incurred within the first 12 months after the transaction closes.

These estimates could change depending on the actual closing date of the transaction.

Finally, earlier in the year, we provided a fiscal year 2018 outlook predicated on what the base business would look like on a steady-state basis with no material customer wins or acquisitions.

We gave guidance of coffee pound growth at market rates or faster and gross profit dollar growth of 2% to 3% and adjusted EBITDA margin rate improvement of 50 basis points to 100 basis points.

Our opinion of that outlook currently remains the same, which puts our adjusted EBITDA range between $50 million to $53 million for fiscal '18, excluding the benefit of the Boyd's acquisition.

If you include the Boyd's acquisition, we expect adjusted EBITDA for fiscal '18 to range between $54 million to $58 million.

Looking out to Q1.

We expect both coffee pounds and net sales to be flat to slightly positive compared to Q1 last year with net sales currently expected to range between $131 million to $132 million.

We currently estimate that Hurricane Harvey and Irma will impact Q1 pounds and net sales by approximately 2%.

We will again update our outlook later this year assuming the transaction with Boyd's is closed.

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

Thanks, David.

As always, I thank those on the call for your continued interest in Farmer Bros.

We ended fiscal 2017 better positioned for growth than when we began.

We are continuing to rebuild ourselves, making significant progress towards our strategic initiatives and position Farmer Bros.

for the next 100 years.

Our restructuring efforts are showing great success by delivering solid financial results and continued improvements in operations.

And with that, I'd like to open up the call for questions.

Operator?

(Operator Instructions) And our first question comes from the line of Francesco Pellegrino with Sidoti.

So just the first thing.

Just given, I guess, some of the things that have happened to the time line when you reported your fourth quarter, are you still going to have your Analyst Day on October 10?

I think there was some tentative conversation about that.

Yes.

This is David, Francesco.

We want to make sure that you guys had enough notice, so a calendar date is probably going to go out in a few days after this call to give you about 30 days' time frame to put it in your calendar.

So it'll happen a little bit later.

Okay, perfect.

This was some nice gross margin expansion.

I think part of the concern was, during the first 3 quarters, a lot of the margin expansion was just temporary as a lot of the manufacturing was being consolidated and that we shouldn't really be expecting things to be as rosy.

But then it looks as if the product mix sort of helped you out with higher price point products and lower raw material commodity costs.

Is this something that we should be thinking is more of a onetime thing?

Or is this something that's going to be catching up to you in the first half of 2018?

What we said was, and it's consistent with the guidance before, that, yes, our margin will have somewhat of a drag on it because of the D-FW facility.

But I think you can expect the margin to be maybe 75 to 100 basis points lower than the 40%, but it's going to get close to 40%.

Okay.

Something that is a little bit confusing to me is -- look, I know we're lapping some great coffee volume pound growth in the year-ago period, and if we include West Coast Coffee, the acquisition in the fourth quarter of this year, and if we exclude it, it almost seems as if there was like no pound contribution from West Coast Coffee, even though they closed on February 7 in the third quarter.

So -- and if it's -- the only incremental data point we got when you did the acquisition was that they had a customer base of 2,500 convenience stores.

So just a little bit of color there and understanding why the volume contribution wasn't a little bit more.

Francesco, we're getting good growth out of the West Coast Coffee business.

We don't plan to break it out.

It's not a separate segment.

It's going to get integrated into our DSD network.

What we can say is that if you back out West Coast Coffee for the quarter, our pounds growth was about flat.

So you can say the 0.9% growth was the delta for the benefit of West Coast Coffee for the quarter.

Right.

And I guess that's what I'm getting at.

So if we back out the 0.9% growth [than] what was really contributed, we can back into what West Coast Coffee contributed on a pounds basis, right?

Yes.

It's just simple math.

And it just seems as if it's not much.

Yes, you could -- it's -- they have about 2,000 customers.

It's a growing business.

But yes, relative to the overall DSD business, sure, it's small.

{Operator Instructions) And we do have a follow-up question from Francesco Pellegrino with Sidoti.

All right, guys.

I'm back.

So when you guys did the Boyd's acquisition, you had provided trailing 12-month revenue for Boyd's and you provided us with post consolidated synergy EBITDA guidance for the business once you're able to invest in certain product lines.

And just when I look at where your EBITDA guidance is for this year of $50 million to $53 million, if that doesn't include Boyd's.

And if we include Boyd's, it would be an incremental $4 million to about $5 million.

The guidance that you had given on the Boyd's conference call included a lot of assumptions.

You expected it to eventually deliver $13 million to $16 million in incremental adjusted EBITDA after approximately $9 million to $11 million of employee-related [fees] and capital expenditures of $8 million to $11 million.

Is there -- could you give us a longer outlook in regards to when we'll be able to recognize that incremental EBITDA that you had provided on the morning of the Boyd's acquisition?

Sure.

What we said was the integration period's 12 to 18 months.

We think it's going to be on the shorter end of that range, and then you're going to see that incremental EBITDA flow through on a run rate basis.

So if the initial guidance was 12 to 18 months and you think it's going to be towards the shorter end of that range, then of the $13 million to $16 million, then a big chunk of that's going to be coming into the -- in the first quarter of 2019 or the...

Well, on a run rate -- yes, on -- the 12 months will happen in the back half of, yes, the first quarter of 2019.

You're right, a year from the fourth -- the second quarter this year.

So if we run with the assumption that you're using now for your EBITDA guidance, excluding the Boyd's acquisition, which, I guess, assumes no new customer wins, the $50 million to $53 million, we would then be adding on the $13 million to $16 million?

That's right.

That's right, yes.

So then we're really looking at a $63 million to $69 million EBITDA business for fiscal 2019 assuming no new account wins.

That's right.

Fiscal year '20, right, you get a full year.

Would still be the partial year in '19.

Yes.

Can you talk about maybe some of your opportunities or how -- the success rate of your sales team in pursuing some new foodservice accounts?

Because it seems as if you've been doing a pretty good job with just acquiring higher-margin like DSD business, but I would think what's going to really be driving operating leverage for the next 4 to 6 quarters is going to be anything that's really high-volume business.

I'm just wondering how is the pursuit of that type of business going.

And I think

(inaudible) you've been able to give us...

Yes, so I'll take that one.

You've been able to give us like metrics.

Like, we have 2 of the top 20 foodservice accounts.

Maybe you can give us, without identifying them, like how many of the accounts that you don't -- of the 18 that you don't currently have relationships with, like, are you having conversations with 10% of them, 20%, 30%?

Just a little bit of color in that regard.

Sure.

I think 2 things are notable.

One, in the spirit of trying to give you all a little better insight into the business, we were very pleased to be able to announce that we have 2 customer wins.

Both are brands that would be recognizable, and obviously, we can't speak about the specifics.

And we put an annualized volume of 1.5 million to 2.5 million pounds to try to get that going.

With some of the other businesses we've won over the last 5 years, we think there's some potential for ramp-up, but it all really is on how you execute.

So we try to give you something to react to there.

We were very pleased, as I commented earlier, that we were able to extend contracts of roughly 20 million pounds, and I think a lot of that is testament to the new facility, the team, the capabilities that are in the organization.

And as I've said the last couple quarters, we believe the pipeline's really robust.

I'd prefer not to get into channel specifics, and I don't think that's probably the best use of our time to go down that path.

So overall, I'm very bullish.

I mentioned in the call we'll finish up SQF certification this year to put a rough time to it.

We've been consistent.

It's approximately the third quarter, subject to a lot of work that's occurring here from our operations team, and that's an important milestone to enable additional growth in the Dallas facility, although we have some capacity in Houston and a little bit in Portland.

So when you put all that together, I know I'm giving a longer answer to the question than you want, but I think it paints a bullish picture for us to go out and continue to execute.

Okay.

Your EBITDA guidance, excluding Boyd's and including Boyd's, we don't really get that much insight into what the depreciation contribution for acquiring Boyd's is going to cause the run rate to be because you gave the depreciation and amortization range of, what was it, $8 million to $8.5 million a quarter.

But if you didn't acquire the Boyd's facility and the only incremental investment that you have for Boyd's is investing in new product lines, which have a long depreciable life.

I would think that, that $8 million to $8.5 million, even though it excludes Boyd's, we're not talking about -- inclusive of Boyd's, anything that significant in regards to incremental depreciation and amortization.

Am I thinking about that correct?

Well, we said we're going to spend $8 million to $11 million in CapEx investment to integrate Boyd's.

There's going to be some fair value accounting for goodwill and intangibles, which we haven't done yet.

So once we go through that work, we'll give you the calculation.

But you can use the $8 million to $11 million and depreciate it over a reasonable period of time.

And it's a longer life because a lot of this is for our plant infrastructure.

But I would wait until we do the purchase price accounting to give you a better idea of what that math is.

Francesco, in the spirit of time, we've got some other questions that we should take, and we can follow up afterwards.

And our next question comes from the line of [Michael Hartman] with [Community Western].

I'm just wondering if you can -- you spoke a little bit about some of the clients you've got in the pipeline.

I'm wondering if you can speak to any acquisitions that might be in development, if those kind of pose any major part in future strategic development?

No, we really can't speak to any specifics.

But I think that if you go back over the last 5 years, you see an evolution where 5 years ago, as this management team came in place, that the focus was on driving to profitability, improving the base, and I think we did a pretty good job of that.

Then, there was a period where we took on and proved we could take on some very demanding new customers.

And we began to say that we were thinking about acquisitions as the balance sheet improved and the financials began to improve.

And now we've -- over the last (inaudible) we proved ourselves, first, with some smaller acquisitions and then more recently, with Boyd's that we can do that (inaudible) so -- forgive me.

I think somebody got a train in the background.

I'll wrap it up.

So I think it's fair to say that we're going to continue to participate in the market.

Our first goal is outstanding execution of Boyd's, and then should opportunities come up like Boyd's, we certainly want to participate and compete vigorously to be a part of those.

But it'd be inappropriate to share any specifics beyond that.

And I'm showing no further questions at this time.

I'd now like to turn the call back to Mike Keown for closing remarks.

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 very soon.

Thank you very much.

Ladies and gentlemen, thank you for participating in today's conference.

This does conclude the program, and you may all disconnect.

Everyone, have a great day.