Farmer Bros Co (FARM) 2019 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to Farmer Bros.

First Quarter 2019 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, Kaitlin Kikalo.

Please go ahead.

Thank you.

Good afternoon, everyone.

Thank you for joining Farmer Bros.

First Quarter 2019 Earnings Conference Call.

Participating on today's call are Mike Keown, President and CEO; and David Robson, Treasurer and CFO.

Earlier today, the company issued a press release, which is available in the Investor Relations section of Farmer Bros.

website at www.farmerbros.com.

The press release is also included as an exhibit to the company's Form 8-K available on the company's website and on the Securities and Exchange Commission's website at www.sec.gov.

A replay of this audio only webcast will be available approximately 2 hours after the conclusion of this call.

A link to the audio replay will also be available on the company's website.

Before we begin the call, please note that all of the financial information presented is unaudited and that various remarks made by management during this call about the company's 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 the company's views only as of today and should not be relied upon as representing the company's 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 public filings.

On today's call, management will also use certain non-GAAP financial measures, including adjusted EBITDA, and adjusted EBITDA margin in assessing the company's operating performance.

A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures is also included in the company's press release.

I will now turn the call over to Mike.

Mike, Please go ahead.

Thank you, Kaitlin.

Welcome everyone, and thanks for joining us this afternoon.

Our team entered the new fiscal year with energy and enthusiasm as we continued to focus on executing our strategy.

Moving ahead to complete the integration of the Boyd's business, taking additional steps to enhance our DSD operations and leveraging investments in our roasting facilities by bringing on new customers as well as expanding business with existing customers.

David will review our financial results in detail, but I'd like to highlight a few things.

We processed and sold over 25 million pounds of green coffee in the first quarter.

This was consistent with our volume from the fourth quarter and up 9.6% from the first quarter of fiscal 2018 with Boyd's contributing approximately 14.5% of our total volume.

Sales in the first quarter, including sales from the Boyd's business were $147.4 million, an increase of approximately 12% over the first quarter of fiscal 2018.

Adjusted EBITDA for the quarter was $11 million compared to $12.5 million we reported in the prior year period.

You'll recall, we had noted on our last earnings call that we expected first quarter fiscal 2019 adjusted EBITDA would be lower than the prior year period, and we anticipated delivering stronger results in the second half of the year as we ramp up production in our Farmer Bros.

facilities, more fully realize synergies from Boyd's and generate cost savings from route optimization in our DSD business, which I'll talk about in a moment.

Overall, our start to fiscal 2019 has unfolded largely as we had expected and, in some cases, better-than-expected with adjusted EBITDA ahead of our plan.

I'd like to turn now to a review of our key areas of focus in the first quarter where we continue to make meaningful progress.

First, Boyd's.

We are just past the 1-year mark for closing the acquisition, and I remain incredibly proud of how our team has executed on the integration.

Bringing Boyd's direct ship and DSD customers into our business, transferring coffee production to our plants and transitioning other production-related functions has proceeded in line with our plans over the last 12 months.

We have brought 100% of Boyd's branches into our DSD network, and we are also now producing 100% of Boyd's SKUs in our Farmer Bros.

facilities.

Our transition services arrangements concluded in October, and we are in process of decommissioning our assets at the Boyd's plant.

We have largely completed our integration work and continue to expect to realize the full targeted synergies and benefits from this transaction in the second half of the fiscal year.

Boyd's is a terrific example of how we are able to bolster our long-term growth by acquiring complementary businesses.

In addition to continued progress in the Boyd's integration, we are also seeing great success with our West Coast Coffee business, which grew coffee volume of green coffee pounds by approximately 17% and revenue by approximately 8% compared to the first quarter of fiscal 2018.

We were also pleased with the performance of China Mist in the quarter.

While our near-term focus remains on completing the Boyd's work, we believe the acquisitions we have made in the past few years have enabled us to establish a strong roadmap to follow as we evaluate opportunities down the road.

Turning to our DSD business.

In the first quarter, we continued to onboard customers in the new business pipeline created by our channel sales teams.

Although new customer wins did not fully offset turnover in street account sales, we are seeing increased traction from our channel-based selling approach.

We had a strong quarter in terms of new installations, completing 261 installations with Foodbuy, as well as other installations that include Taco Cabana, Baylor Scott & White Health and Choctaw Casinos.

We also established a partnership with a major food supplier to universities and colleges that has yielded new installs.

We have already begun to generate revenue from these new installations, with more expected over the course of the fiscal year.

Within our DSD channels, retail is performing well, restaurants are rebounding generally, and we are experiencing good traction with convenience stores.

In addition to the movement we are beginning to see from our channel sales pipeline, we are also taking steps to enhance how we approach street account sales.

As we mentioned last quarter, through our learnings during the integration of Boyd's DSD accounts, and as a result of the route density we built through the integration of Boyd's, we began a review of our network, routes and branches.

As a first step, we implemented a new routing software solution that is identifying ways we can deliver to our customers more efficiently and enable more customer-facing time for our salespeople which will help to make us more competitive in the marketplace.

In the first quarter, we also launched an initiative to optimize our DSD routes and consolidate branches, successfully eliminating 46 routes as of the end of the quarter.

We are currently on track to eliminate a total of up to approximately 80 routes by the end of the third quarter.

So we are making great strides in making our DSD business markedly more efficient.

But the changes to our DSD business are not just about cost improvement, but also about taking steps to drive the top line.

We are expanding the deployment of the service and delivery method that Boyd's used to great effect and efficiency.

And as we complete our route optimization and branch consolidation, we are taking the opportunity to reconfigure our street sales teams by adding more dedicated sales staff with a sharp focus on new business generation to complement the existing team members we have targeted on delivering customer service.

We believe these improvements to our street sales approach will position us to win in this competitive area of our business.

We remain confident that we have taken and continue to take the right actions to drive more consistent DSD growth over the long term and that we are poised to see improvement in this business over the course of fiscal 2019.

Now turning to our direct ship business.

During the first quarter, as expected, we experienced a headwind from production for 2 of the brands we previously serviced being brought in-house by the owner of those brands.

We also continued to see softer volume from 2 of our top customers similar to what we've seen in the last few quarters.

However, we have initiated a new relationship with a large global convenience store retailer and are in discussions with one of our online retail customers to substantially increase the size of their program.

And we expect to see benefits of both in the latter part of the fiscal year.

Further, we have begun a relationship with a large international beverage customer for a new line of products.

Lastly, we continued the final onboarding steps with a very significant customer that we believe has the potential to grow and become one of our top 3 accounts over time, and we began limited commercial production and shipments to this customer in the first quarter.

Before I turn the call over to David to discuss the financial results in more detail, I'd like to briefly touch on coffee trends we are seeing across our customer base in both direct ship and DSD.

Within the green coffee pounds that we are roasting and producing, we are seeing stronger demand from our customers and good growth in premium blends, particularly in sustainably sourced coffee.

As we have discussed previously, we believe that Farmer Bros.' continued progress in sustainable sourcing, manufacturing and distribution practices help make us a more attractive partner for our customers and potential customers.

In fact, given our leadership in this area, we are even working with some of our customers to help them bolster their own sustainability message.

Overall, we had a solid start to fiscal 2019, making important progress in executing our strategy and implementing initiatives to strengthen our platform for long-term growth.

We grew coffee volume and sales for the quarter.

And while down from the first quarter of fiscal 2018, we exceeded our expectations for adjusted EBITDA.

The integration of Boyd's continues to proceed in line with our plans.

We are adding new customers to our pipeline in both direct ship and DSD, and we are taking additional steps to further enhance our DSD organization.

Given we are just a few months into the new fiscal year, we believe it is prudent to maintain our adjusted EBITDA guidance of $49 million to $52 million.

That said, looking forward, we are optimistic about the remainder of 2019.

I'll now turn the call over to David for a more detailed review of our financial results.

David?

Thanks, Mike.

I'll now go into further detail regarding our results for the first quarter.

Beginning with coffee volumes, green coffee processed and sold in the quarter increased by 2.2 million pounds or 9.6% compared to the first quarter of fiscal 2018.

Volumes from our base business were down 6.3% from the prior year first quarter, driven largely by lower volume on a few large direct ship customers.

The mix of coffee volumes processed and sold across our distribution network during the quarter was approximately 8.7 million pounds or 34.8% of the total volume through our DSD network.

While direct ship customers represented approximately 16.3 million pounds of green coffee processed and sold or 64.2% of the total volume, while 1% of the total volume was through distributors.

Turning to the income statement.

Net sales for the quarter were $147.4 million, an increase of $15.7 million or 11.9% compared to the same period of the prior year.

The increase was driven primarily by a $20.5 million increase in net sales from the acquisition of Boyd's.

Excluding Boyd's, net sales declined $4.8 million, primarily due to the impact of lower coffee pricing from our cost plus customers, and the lower volume in the direct ship business I mentioned a moment ago.

We continue to expect to realize volume and top line benefits from our DSD sales channel model and realignment of our street account teams in future quarters and remain confident that the SQF certification achieved at our Northlake facility will help us to increase business with new large national customers over time.

Gross profit in the first quarter of fiscal '18 increased $2.2 million or 4.7% to $48.2 million from $46.1 million.

And gross margin decreased 230 basis points to 32.7% from 35% in the prior year period.

The increase in gross profit dollars was primarily due to the addition of the Boyd's business.

While the decrease in gross margin rate was primarily due to a lower gross margin rate on the Boyd's business, higher commercial beverage equipment expenses associated with the increased install activity during the quarter and higher freight costs.

The negative impact to gross margin rate we realized in the first quarter was in line with our expectations.

Given that the transition service agreement arrangements with Boyd's temporarily drives the higher production cost than our own production facilities and the significant increase in the activity of new coffee brewing equipment installs placed during the quarter was a result of the successes of our channel sales team business wins we have discussed on prior calls.

Now with the completion of the Boyd's transition service arrangements as of October, in future quarters, we expect to realize better cost absorption through our production facilities associated with the incremental Boyd's volume being produced.

We also expect the higher level of beverage equipment installs we performed during the quarter to bring additional revenue in future periods.

Turning to operating expenses.

Operating expenses for the quarter were $50.3 million or 34.1% of net sales as compared to $44.2 million or 33.6% of net sales recorded in the first quarter of the prior year.

The increase of $6.1 million in operating expenses was primarily due to a $4.5 million increase in selling expenses and a $4.3 million increase in restructuring and other transition expenses, partially offset by a $2.7 million decrease in general and administrative expenses, $1.4 million of which represents the decline in acquisition and integration expenses compared to the prior-year period.

Of the total $6.1 million increase in operating expenses, $5.5 million is derived from additional operating expenses associated with the Boyd's business.

G&A expenses of our base business declined by $2.5 million compared to the prior year.

We recognized $4.5 million in restructuring and other transition expenses during the quarter, largely due to a $3.4 million onetime charge associated with the partial withdrawal liability with respect to the Western Conference of Teamsters Pension Trust in connection with our relocation from California to Texas.

As a percentage of net sales, operating expenses increased by 50 basis points.

Most of this increase is attributed to the higher year-over-year restructuring cost of 290 basis points.

Boyd's related integration expenses declined year-over-year by 110 basis points as we near the end of the Boyd's integration activity.

Finally, we saw good leverage on recurring operating expenses, with such expenses declining by 130 basis points, which is a byproduct for our continued efforts to drive more cost efficiencies through our operations.

Looking forward to the remainder of fiscal 2019, Boyd's coffee production is now fully integrated into our production facilities, and we expect our operating expense leverage will further improve as we sell through inventory that have been produced at Boyd's at a higher cost during the transition service period and we more fully realize synergies related to the integration.

We also expect to realize additional cost savings resulting from our route and branch optimization efforts that we began during the first quarter.

Now turning to interest expense.

Net interest expense increased $700,000 to $2.9 million in the quarter compared to $2.2 million for the first quarter of last year, principally due to higher borrowings related to the Boyd's acquisition.

In the current quarter, we also adopted new accounting standards associated with the accounting for pension expenses resulting in a reclassification of the 5 benefit pensions and other post-retirement plan-related interest expenses from cost of goods sold and selling and general and administrative expenses to interest expense of $1.6 million for both the current quarter and the prior year.

Net losses on coffee-related derivative instruments in the quarter were $1.1 million compared to net gains of $100,000 in the comparable period of the prior fiscal year due to mark-to-market net losses on coffee-related derivative instruments not designated as accounting hedges which resulted from the drop in coffee prices during the quarter.

Result in other income declined by $1.1 million to $700,000 from $1.8 million primarily due to the $1.1 million in derivative losses resulting from the drop in coffee prices during the quarter.

Given this derivative loss relates to coffee hedges we entered into for the benefit of our customer base, the markdown in inventory values which is driving the $1.1 million in higher expense will result in future lower cost of sales and associated higher gross margin rates once we sell through the associated inventory, which is carrying a discounted inventory value from our hedge cost.

Additionally, with the new accounting standards for pension expenses, we reclassified pension income, which was previously recorded in cost of goods sold and selling and general and administrative expenses, which increased other income by $1.8 million in the current quarter and $1.7 million in the prior year period.

Turning to income taxes, we recorded a $1.3 million income tax benefit this quarter compared to a $600,000 income tax expense in the first quarter of last year.

The decrease in income tax expense was primarily a result from the change in net income.

Net loss available to common stockholders for the quarter was $3.1 million or a loss of $0.18 per diluted share compared to net income available to common stockholders of $800,000 or $0.05 per diluted share in the prior year period.

Adjusted EBITDA was $11 million for the quarter compared to $12.5 million in the prior year, while adjusted EBITDA margin was 7.5% for the quarter compared to 9.5% for the same period last year.

While down from the prior year period, our first quarter adjusted EBITDA and adjusted EBITDA margin were better than we had anticipated, driven by, among other things, lower general and administrative expenses which includes the successful execution of cost savings initiatives above what we anticipated across our DSD network.

Now let's turn to the balance sheet.

At the end of the quarter, we had $5.5 million in cash, $2.6 million in restricted cash, and we had a $101.8 million borrowed on our revolving credit facility.

Our debt net of cash at the fiscal year-end was $96.3 million compared to $87.3 million as of June 30, 2018.

Our debt net of cash increased primarily due to higher inventory levels as well as $2.6 million in restricted cash deposits at our coffee brokerage trading accounts set aside to cover losses on coffee hedges associated with the drop in coffee prices during the quarter.

The higher inventory levels we were carrying at the end of the quarter were planned in anticipation of the ending of the Boyd's transition service arrangements as of October and the shutdown of the Boyd's production.

These higher inventory levels were important to ensure we continued to meet customer demand while we transitioned production from the Boyd's facilities into our facilities.

Over the course of the year, these higher inventory levels we expect to fall which should deliver improved working capital as we run down the excess inventory build.

Our bank availability under our credit facility at the end of the quarter was $21.2 million compared to $25.3 million as of June 30, 2018.

Subsequent to the end of the quarter, on November 5, we've replaced our existing asset-based credit facility with a new cash flow-based senior secured revolving credit facility with a borrowing limit of up to $150 million.

This new credit facility increases our credit line by $15 million compared to our prior agreement.

And our total availability will not fluctuate with changes in the value of our asset base as was the case under our previous ABL credit facility.

This new credit facility includes an accordion feature, allowing us to increase the commitment by up to an additional $75 million, subject to certain conditions.

Borrowing under the new facility bears interest based on a leverage grid with a range of prime plus 25 basis points to prime plus 875 basis points or adjusted LIBOR rate plus 1.25% to adjusted LIBOR rate plus 1.875%.

The new facility matures on November 5, 2023.

We believe this new credit facility is an important improvement over our prior credit facility, providing us more flexibility and liquidity to support our go forward objectives.

Now turning to capital expenditures.

For the first quarter, our capital expenditures in cash were $7.8 million, with $5.5 million related to maintenance and $2.3 million to add further capabilities to our Northlake, Texas facility.

Depreciation and amortization expense was $7.7 million in the first quarter versus $7.3 million in the same period of the prior year.

The increase in this expense primarily related to assets acquired as part of the Boyd's acquisition, offset by some assets that became fully depreciated.

The Boyd's acquisition added $700,000 in depreciation and amortization expense in the quarter.

Based on our existing fixed asset commitments and useful lives of our intangible assets, including the addition of the assets from the Boyd's acquisition, we continue to expect depreciation and amortization expense to run at approximately $7.5 million to $8 million per quarter for the next several quarters.

We continue to estimate that the Boyd's business will contribute approximately $13 million to $16 million in incremental adjusted EBITDA on an annual basis once fully integrated and all synergies are flowing through.

Now turning to our outlook for 2019.

For the fiscal year, we continue to expect green coffee pound volume to be softer in the first half of the year compared to the prior year and improve in the back half as we realize the benefits of new customer wins.

As we communicated on last quarter's call, this outlook assumes that we continue to ramp up production for the very significant customer Mike mentioned earlier and that we will continue to convert new direct ship and DSD customers in our pipeline.

But this will be partially offset by production of 2 of the brands we have historically serviced being brought in-house by the owner of those brands.

We continue to anticipate that Boyd's will add an incremental 14 million to 15 million pounds of volume on an annual run-rate basis this fiscal year as we complete the integration of the business.

As Mike noted, we are maintaining our adjusted EBITDA guidance of $49 million to $52 million despite our better-than-expected results in the first quarter.

We are still early in the fiscal year, but looking forward, we are optimistic about the remainder of fiscal '19.

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

Thanks, David.

Looking ahead, we continue to have a positive long-term view of the industry and the prospects for Farmer Bros.

We remain excited about how Farmer Bros is positioned in the market and about our future growth opportunities.

Our DSD channel-based strategy is beginning to generate new, higher-quality customer wins, and we are taking additional meaningful steps to realign our street account teams and further optimize this business.

We are making progress in bringing on new direct ship customers as well as expanding our distribution network and exploring new product categories.

Our priorities for fiscal 2019 remain the same.

Completing the Boyd's integration and achieving the expected synergies, leveraging the investments we have made in our roasting facilities, expanding our distribution network, adding new customers and increasing business with existing customers.

We continue to believe that we have the right foundation in place to deliver growth and value for our shareholders.

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

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

Operator?

(Operator Instructions) And our first question comes from the line of Gerry Sweeney with Roth Capital.

I wanted to start with some of the large customer softness that has been ongoing as well as the 2 brands that went in-house that we talked about before.

One, on the large customer softness, at what point -- does that anniversary at some point so we should start seeing maybe less of an impact?

Then two, could you remind us how much -- how many pounds the 2 large -- the brands that went inside or -- because I thought there were about 3 million pounds on an annualized basis.

And at the end, I'm really just trying to sort of square off this several million pound drop in base business year-over-year.

So if that makes sense.

Sure.

So your recollection is correct on the business that's being internalized.

I think we described that as about 3 million pounds and that still looks like the case.

In terms of volume overall, as David mentioned, we expect to see trends improve over the next couple of quarters.

And through that, you'll see the effect of the anniversary-ing of the 2 large customers coupled with the internalizing of the business and, for what it's worth, those are the only customers we have that also roast their own coffee.

And then what we're really excited about is the new business where it looks like we're turning the corner to begin commercialization.

So it -- and that will be ramping up over the back half of the year.

So you have probably 3 different moving pieces there as some of the business exits and then the new business comes on.

And as you also heard in my prepared remarks, we're really seeing the impact of the channels team begin to take effect.

And I gave just a smattering of what some of those customers are.

So we're excited to see that begin to pay off.

As you and I have spoken, that was probably a quarter or two later than what we would have hoped.

But it is coming and we're excited about that.

Got it.

And that was sort of a good segue into my next question was you talked -- I mean you did throw out a bunch of new -- I think new customer examples or wins, I don't know how you want to categorize them.

But obviously, we had the one large one, but then there were a few others, large convenience store and online.

It -- kind of trying to keep it on to an online customer, I think it's something on the beverage side.

But could you maybe anecdotally provide a little bit of maybe how big those are?

I mean maybe an aggregate, just trying to figure out their impact on a grander scheme.

No, that's -- what we're trying to do is give you all a better insight into the business.

At the same time, we have customer confidentiality.

So what we try to do is give you some sense, for example, on the large customer.

We're starting -- could be a top 3 customer.

I would say the online customer would probably move into our top 10, and perhaps be a top 5. But it'd be inappropriate to begin to get past those rough guide posts.

No, that's fine.

I fully respect that.

So I mean at the end of the day, these are -- can be needle-moving sort of improvements is what I'm trying to say...

That's right.

Especially in aggregate.

I mean, they could be substantial -- okay, got it.

All right.

Right.

That's right.

And Gerry, I'd also say the work to internalize Boyd's, which has been a significant effort for us over the last year, is coming to fruition.

And we're really excited about that.

As you know, that's 14 million to 15 million pounds of coffee, which is approximately 15% of where we were.

But if you think of the work the team has done to match up over 200 coffee SKUs, that's over 80 blends, and then you multiply that by the number of coffees in a blend, it's really quite notable and I think says a lot about what the organization can achieve.

So we're very excited about bringing that into our system, and it's now being roasted in Farmer Bros.

facilities.

Got it.

And then on some of the cost savings, I think on the route-based work that you're doing.

Is that already included in the synergies that you talked about with Boyd's, or is that something in addition to?

Before we go there, and I'll let David answer that one.

Let me just give you flavor for what it is we're talking about here.

So over the years, Farmer Bros.

legacy leadership had done a nice job building a DSD business, but that model really hadn't been sorted through with all of the modern technologies to better route trucks throughout our network.

And we learned a lot through the Boyd acquisition.

Actually, there's a lot we've learned from the Boyd organization and -- overall, but this was one area.

So we're applying that technology now to try to reduce cost, but also redirect some of those costs into resources which can grow the business.

In fact, we're seeing some of those street sales people perform very well.

David, in terms of the synergy, you could probably better describe that?

Gerry, it's above and apart from Boyd's.

So Boyd's has its own separate synergies that we've talked about that delivers that long-term EBITDA growth of $13 million to $16 million when we're fully integrated.

This separate route optimization delivers incremental cost savings, but as Mike said, our plan is to reinvest a good part of that into our sales force.

And we've seen good signs of growth.

One of the leading indicators that we called out in the prepared remarks is our coffee brewing equipment installs are up.

Our investment in coffee brewing equipment is up, by about $1 million in the quarter, so it's pretty sizable increase.

And those are the signs that we like to see, that we're getting more customer traction from the street sales teams.

I would say reflected in the $49 million to $52 million is a function of some of those savings that we're going to realize.

But a good part of it, we want to reinvest into productive sales.

Okay.

That mean, at the end of the day, you're making an improvement but it's obviously allocating that capital back in.

And David, I'm sorry.

Just as you said the amount that the brewing equipment was in the quarter, it broke up on my end so I didn't get that number.

We usually spend -- if you look at our historical filings, we spend around $3 million in coffee brewing equipment a quarter.

And it's about $1 million higher in the quarter.

And our next question comes from the line of Kara Anderson with B. Riley.

So you did call out that the biggest driver behind the EBITDA outperformance versus your internal expectations, I think, was lower G&A.

But when we think about the impact that has on the guide, is it really just conservative -- conservatism built in to the guide at this point, given we're early in the year?

Or is there something else going on that's different relative to the next 3 quarters than what we previously expected?

What we tried to say, and thanks for the question, was we're optimistic on the year, but it's still early in the year.

And as you know, we had a challenge or two last year.

And so we think while we're off the block is good, it's early.

And we'll let you know when we change the guidance but...

Okay, but there's nothing, I guess, incremental or changing to the 3 quarters for the balance of the year at this point?

No, no.

I mean, we were just having -- about 2 months ago, we walked through the guidance, I guess, 50, 60 days ago.

We're still in line with what we told you before.

Okay.

And then you gave us pounds sold through DSD direct ship and through distributors.

Is there any way we could get a revenue breakout or even a percentage of revenue for the channels?

We try not to break some of that out more for competitive reasons.

So at this point, we're just going to stick to the pounds mix that we provide.

Okay, thought I'd try.

The well -- we appreciate that.

To add maybe just a step or two of flavor, most of our allied products and non-roast and ground coffee products flow through the DSD or non-direct ship channel.

So that might give you another way to think about that.

Yes, it's a really good point.

You can carve out the DSD revenue.

For the allied, it's essentially all DSD and non-direct ship.

Got it.

And then David, can you recap the CapEx expectations for the balance of the year?

We're not updating our guidance at that point.

So I'd just refer to what we said at the last call in our script.

Any way you can, I guess, remind us of what that was?

What we said on the last call was $32 million to $38 million was what we said on the last call.

(Operator Instructions) Our next question comes from the line of Chris Krueger with Lake Street Capital.

I just have a couple of quick ones as most of my others have been answered.

If I do my math correctly, your base business was down about 3% in the first quarter.

Is that kind of the rate it's continuing in the second quarter as well?

Yes, I'm not sure there's going to be too much change in the second quarter.

As I mentioned earlier, by the third quarter, we'll see the impact of the installations that we're doing in Q1 but also Q2.

We'll see the lapping of some of the large customer issues.

And so we expect to see the back half improve on a number of different fronts.

But the second quarter, I don't think you'll see a dramatic change.

And Chris, one thing you should think of, coffee prices have been falling, so part of that revenue decline is an impact from just lower coffee prices.

Okay.

My other question is related to Boyd's.

I can't remember if you've broken this out before, but can you give us a pro forma growth rate for the results in the first quarter top line?

Yes, we broke it out in our Q what the standalone revenue for Boyd's was.

And in the quarter, it was $20.5 million.

And we have a follow-up question from the line of Gerry Sweeney with Roth Capital.

Just speaking of coffee prices, it almost was like, September 30, they started moving back up and they've gone up by a decent percent over the last 6 weeks.

Curious what type of impact if any this has on it and especially if it appears to be a faster move or a rather volatile move.

Any comments on that by chance just for our edification?

Great.

We actually hedge far out, so the current move in coffee prices doesn't necessarily have a direct impact on us.

There's a cost plus for direct ship customers so we pass on that hedged cost to them.

And for our DSD network, when coffee prices are low, we typically go longer.

And so we'll take advantage of the lower cost in prices, and we'll get that benefit in future periods.

And I'd say from a longer term basis, while the prices have come up, they still remain in a lower model if you look at it on a 5 or 10-year basis.

And we'll work to continue to take advantage of that as best we can.

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

So with that, I would like to turn the call back over to Mike Keown for closing remarks.

Well, once again, thank you everybody for your interest in Farmer Bros., and we are looking forward for the next update.

And hopefully, we'll see several of you at our annual sales meeting next month -- or annual meeting -- excuse me, shareholder meeting next month.

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 wonderful day.