Q3 2022 Farmer Bros Co Earnings Call
[music].
Good afternoon, ladies and gentlemen, and welcome to the Farmer Brothers financial third quarter 2022 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, if anyone should require operator.
[laughter] assistance during the conference call. Please press Star then zero on your Touchtone telephone.
As a reminder, this call is being recorded joining us today are developed Mazarin, President and Chief Executive Officer, and Scott Drake Chief Financial Officer earlier today. The company issued its earnings press release, which is available on the Investor Relations section of the farmer brothers' website at.
W. W. Dot farmer Bros. Dotcom. The press release is also included as an exhibit.
Now to the company's form 8-K and is available on the company's website and on the Securities and exchange Commission's website at Www Dot SEC Dot Gov. A replay of this audio only webcast will be available approximately two hours. After the conclusion of this call. Its a link to the audio replay will also be.
Billable 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 the 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 Law and regulations. The forward looking statements represent the company's views only as of today and should not be relied upon as representing representing the company's views on any other subsequent date results could be.
Very materially from those forward looking statements additional information on factors that could cause actual results and other events to differ materially from these forward looking statements is available in the company's press release and public findings 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.
Reconciliation of these non-GAAP financial measures to their most directly comparable GAAP measures is also included in the company's press release I will now turn the call over to Devan Deborah. Please go ahead.
Thank you and good afternoon, everyone.
Thanks for joining us today.
Our 2022 fiscal third quarter represents another period of meaningful performance improvement across the business.
Highlights by our seventh consecutive quarter of gross margin expansion and higher net sales.
As volumes in both our DSD and direct ship businesses continued to recover.
Further we posted meaningful progress in our adjusted EBITDA performance by obtaining a 20 million annual run rate this quarter.
Operationally, we saw incremental improvements and continued recovery across our business throughout the fiscal third quarter.
These improvements were aided by the efficiencies we implemented across the businesses over the past couple of years, which have reinforced the strength of our distribution network and positioned us for further improvement as the industry continues to recover.
While our fiscal fourth quarter is subject to typical seasonality, we expect to finish out the fiscal year on a strong note and we're excited to see the full potential of our improved business as the recovery continues and consumer behavior normalizes.
We posted net sales of $119 million in the third fiscal quarter, representing a 28% increase from the prior year, which was again driven by continued recovery in our DSD and direct ship channels.
With N D. S. D. We experienced our highest average weekly sales since early 2020 and have more routes running over 1 million of annualized sales than we've had in many years. We are seeing net new customer sales growth and increased drop sizes at our long term customer locations.
Additionally, our direct ship channel saw year over year growth of 23, 7%, primarily due to higher volumes among critical customers and the increasing impact of our cost plus price increases which are now flowing through our P&L.
Turning to our gross margin, which as we mentioned has continued to expand over the past seven consecutive quarters.
We reported a 29, 8% margin in the third quarter, representing a four 2% or 420 basis point increase.
From the prior year period, and an expansion of 30 basis points from the previous quarter.
As noted earlier, our adjusted EBITDA improved meaningfully two $5 million compared to a loss of <unk> 8 million in the prior year period, representing the most robust operational performance we've seen since the onset of pandemic, while we recorded higher adjusted EBITDA and our physical first in <unk>.
Second quarters of 2021.
Those quarters benefited from one time gains from our retiree medical plan that were not a direct result of our field operational performance.
Turning now to an update on our operations.
With respect to specific markets, we saw a substantial recovery in our eastern and northeastern markets, both of which were more significantly impacted by COVID-19.
Additionally, during the quarter a major competitor closed over 60, plus branches and we are seeing others get back which is presenting us with opportunities to expand our current offerings in these markets.
While our highest customer concentrated western region. In addition to our northwest and southern regions saw better sales compared to pre COVID-19 levels.
There were not as heavily impacted in the prior year and did not have quite the same year over year growth opportunity. Nonetheless.
Nonetheless, all regions trended positively throughout the quarter and continued to show improvement year to date.
In the Pacific Northwest, we continue to make progress in Portland, which will ultimately allow us to offset some of the higher costs. We've been seeing it is also part of our proactive strategy or the region.
On that front, our consolidation efforts remain ongoing and due to our recent announcement that we'll be consolidating our west coast coffee operations into our existing facilities in the area, we expect more branch consolidation in the coming quarters.
Further we continue to make progress with our I T infrastructure in Portland and across the organization in key areas.
Our consolidation efforts remain a key strategic initiative for us across the <unk>.
The board as we continue to increase the efficiency of our footprint throughout the nation.
More specifically, we can work considering the exit or sale of excess properties that will provide both lower operating expenses and potentially additional capital that would be used to reduce our debt levels. We.
We are currently reviewing these branches along our vast asset base for opportunities to optimize our capital structure.
And expect to share more details on our plans for improvement that would include lower debt levels in the coming months.
Despite the ongoing challenges with international shipping.
We're pleased to see domestic shipping starting to normalize again.
And we continue to find new ways to offset many of the higher costs, we're facing due to the macroeconomic challenges.
One such way where doing so is by proactively managing more components of our DSD business for example.
We're able to offset some of the product and labor inefficiencies during the quarter by targeting our tier five customers or less profitable customers.
And picking up older equipment for refurbishment and Reinstallation at a higher volume and a new customer locations.
Additionally, within our DSD business.
We're continued to implement surcharges, which were now breaking down into individual delivery and fuel costs.
I'll, let Scott discuss all the nuances in more detail, but I'll quickly note that we continue to manage our pricing against inflation in an efficient manner.
The process, we implemented in November is now mostly flowed through our P&L and contributed meaningful to our DSD margin in the quarter.
During March and April we implemented additional price changes that essentially protect our margins for the current cost environment that we are seeing.
In closing, we continue to manage through the inflationary environment during the third quarter and are encouraged by trends, we see in the business as the initiatives. We've been working on continuing to take hold and translate into continued improvements in our financial performance.
We're pleased with how quickly the business has responded to post Covid world, which in large part is being driven by operational changes we executed throughout the pandemic.
As we entered the fiscal Q4, we continue to focus on forecasting and managing inflation directly and indirectly and despite the normal seasonality we tend to experience in our fiscal fourth quarter. We are confident in our ability to close out our fiscal year on a strong note.
Before turning the call over to Scott I want quick quickly mentioned two things as the 'twenty 'twenty calendar year March two significant anniversaries for farmer brothers.
First the company turned 110 years old this year.
While we're proud of all the progress we've made and are happy to say that we've been providing the U S with delicious coffee for over a century, we by no means plan on slowing down in fact, we plan on being even more ambitious in the next hundred and 10 years.
Second we recently released our 10th annual sustainability report, which can be found on our website.
We are among only input companies that set in that specific scientific based criteria in this room.
As a result, we're proud to say that for the second consecutive year. We were listed on the carbon disclosure report CDP supplier engagement leader Board and recognized as one of the best companies for supplier engagement rating SCR, indicating our commitment to collaboratively with our suppliers on climate action.
Sustainability remains a priority for us as it has for 10 years now and we're incredibly proud of the work we've done there.
With that I'll turn the call over to Scott to walk you through our financials.
Thanks Deborah.
Since deferral hit on the high level numbers I'll focus my commentary on the performance drivers in the strategic initiatives that enable us to achieve them.
As Daryl mentioned, our total sales were up 28, 2% from the prior year period, which was driven by continued recovery across our channels.
Our continued gross margin expansion was driven by higher contribution from DST, given the channels higher product margins.
Our DSD sales continued to recover in Q3, and we saw volume improvements on a year over year and quarterly sequential basis.
During the quarter, we experienced our highest average weekly DSD sale since the onset of the pandemic and now have more routes running over $1 million on an annual sales run rate basis than we've had in many years.
Within the channel. We also saw increased drop sizes at our long term customer sites and we continue to see new customer sales growth year to date.
Please note our DSD year over year comparisons reflect better production variances and inventory scrap write downs from the closure of our aged Houston, Texas plant that happened last year.
And while this quarter and our fiscal fourth quarter will have some negative production variances due to the omicron slowdown we do not expect these impacts to carry into our 'twenty 'twenty three fiscal year in any meaningful way.
Additionally, the price increases and delivery surcharges implemented across our DSD network and the previous quarter and flowing through our results in Q3 helped to mitigate that impact and we will continue to offset some of the higher supply chain and product costs.
We continue to keep our heads down on inflationary forecasting and do what we can to stay ahead of the pressures.
As such the price hike, we implemented in November was by design and was needed to offset the higher inflation, we experienced throughout the current quarter.
We feel that our more recent price increases have positioned us well for the current environment. We are operating in.
We've also started analyzing our price increases by individual components, such as delivery and fuel surcharges. Instead of just product types, which provides us with more data and helps us forecast and manage the pressures more effectively.
Additionally, it will also help us provide relief to our customers should the needed surcharge costs dissipate.
If you recall, we made mention of another price increase last quarter, which went into effect in April .
So you can expect that to start to materialize in our financials throughout the fiscal fourth quarter.
Even with the impacts of omicron and the inflationary and other challenges we faced and continue to face we posted our best gross margin in recent history for Q3, which speaks to our ability to manage expenses and implement price hikes strategically and effectively.
As noted we expect Q4 to be the first full quarter of normalized DSD operations with Omicron finally in the rearview mirror.
And thus expect the efficiencies we've implemented to be better reflected in our gross margin.
Turning now to our direct ship business as previously discussed our direct ship business operates under a cost plus model, which means the pricing pressures flow to our customers instead of us manually increasing prices.
As such the inflationary challenges, we face from September through March and our direct ship business won't be fully realized until the next quarter as our pricing engine captures these increases and pass them along to our customers.
While a portion of those price increases are recognized in our P&L. The remainder sits within our inventory line items.
This is because two thirds of our coffee pounds roasted and shift our for our direct ship customers, which again by by the cost plus model.
Because we have the data in control of our supply chain from Bean to Cup. We've also started to help our customers manage their inventory as the supply chain challenges around getting coffee beans into the U S and the continued increases in coffee spot prices have become increasingly burdensome for them.
So to ensure that our customers stay in stock when possible, we've begun ordering our specialty coffee beans further in advance, especially our limited types of arabica beans, which had been significantly impacted by the higher commodity prices.
As a result, our net debt is higher in the quarter due to the upfront investments we've made.
In fact, the primary investments we've made throughout the quarter, we're in inventory, which increased by $13 million from the prior year period.
$10 million of which were direct investments in coffee.
Coffee spot prices from our 2021 fiscal year end or the period ended June 30 of last year have increased by 42% on a cost per pound basis.
At the same time, our coffee inventory balance on a cash basis over that same period has only increased by 27%.
So while our hedging strategy is working and helping mitigate those increases we are still expecting some inflationary investment and coffee inventory on our balance sheet in the upcoming quarters.
In the long run our focus will be on optimizing the efficiency of our inventory to improve working capital metrics, which will also aid in lowering our debt leverage.
Turning now to our operating expenses.
In the third quarter of fiscal 2022, our operating expenses increased by $5 2 million or 15.2% to $39.5 million.
From $34 $3 million in the prior year period.
As a percentage of net sales or operating expense decreased by over 260 basis points to 33, 1% of sales compared to 36, 8% of sales in the prior year period.
The increase in operating expenses on a dollar basis were driven by a $4 $7 million increase in selling expenses and a $600000 increase in general and administrative expenses.
The increase in selling expenses was primarily due to variable costs, including payroll associated with the return of DSD routes over the past year and the operating costs associated with our new distribution center in Rialto, California.
The increase in payroll in both selling and general and administrative expenses was predominantly due to the exploration of the temporary 15% reduction in base salaries and the exploration of the 401k cash match suspension under the farmer brother Company four one K plan, which were both cost saving actions implemented in fiscal <unk>.
2020, due to the COVID-19 pandemic.
Our capital expenditures for the three months ended March 31, 2022 were $3 million, a decrease of $100000 compared to the prior year period.
This was due to lower investment spending of $1.1 million for several strategic initiatives completed during fiscal 2021.
Partially offset by higher maintenance capital spending of $900000 compared to the prior year period.
The higher maintenance capital was mainly due to coffee brewing equipment refurbished and purchased for our DSD customers as volumes have improved and new customers are being added.
Several key initiatives, including the focus on refurbished coffee brewing equipment to drive cost savings on a per unit basis have helped reduce our purchases as DSD sales volumes return.
Turning now to the balance sheet.
At the end of fiscal Q3, our total outstanding borrowings were $101.1 million, an increase of $10 $1 million from June 30 of 2021.
While our cash balance increased by $100000 from $10 3 million as of June 30th 2021 to $10 4 million as of March 31 2022.
The increases in our total outstanding borrowings were primarily due to higher inventory costs and the investments. We've made there. In addition to the payment of our fiscal 2021 employee incentive program.
These uses of cash were partially offset by cash proceeds from the sale of three branch properties. During the nine months ended March 31, 2022 and.
And realized hedging gains.
Our net debt, which we define as total outstanding borrowings less cash and cash equivalents with $97 million at the end of our third fiscal quarter compared to $87 million at fiscal year end of 2021.
Primarily due to the noted investments in inventory and incentive plan payments.
Going forward, our focus remains on generating improved cash flow and paying down our debt.
With that I'll now turn the call back over to Darryl.
Paul.
Thanks, Scott and thanks to all of you.
Tuned in for our call today.
We will now turn it over to the operator to take your questions operator.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your headset before pressing the keys to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Our first question comes from Gerry Sweeney from Roth Capital. Please go ahead.
Hi, Good afternoon Tomorrow, and Scott Thanks for taking my call.
How're you doing.
Good I wanted to could we.
Just talk about the price increases.
You put one through in November and then it sounded as though you put another one through in April but the one in April Thomas It may be a little bit more targeted or have more surcharge in nature in terms of specific cough.
Is that correct or could we review that.
And if if you're up for it maybe discuss how much of a price increase that youre looking at.
Yeah. Jerry this is Scott the I think we were just trying to call out the nature of how where we're not just doing blind or blank across the board price increases that we're breaking it out into the surcharges on both fuel and delivery costs and I think at this point, both the fuel and delivery cost have risen up.
Where they're somewhat stabilizing in recent months. So I would say that April was really more about the coffee market in coffee pricing and getting us where we are now fully caught up I think with with where the markets are so hopefully it's the end of you know kind of near term price increases, but we'll obviously watch the market closely.
Gotcha so.
Maybe to summarize these price increases get back get you back to where you thought back to EBITDA, where you believe is the appropriate pricing and margins for the products across the board.
Right right and we know we have our hedging in place still and you know those hedging programs. They run for a few more quarters. So we're not really you know what I guess, a little bit ahead of the curve just because we know it takes a while for that adoption. You know we've got a 30 day notice period on price increases.
You know and the like so we like to get the price increases out there knowing that you know it takes a little bit of time to get them out there, but the sizing you know I guess I didn't hit out Matt the sizing of this most recent price increases. It is it's not the same size as November it's a smaller price increase than the than our last one.
Got it and we should see that Gary just to get a little sorry, just a little more context. When you think about our process as it's been for many many years, we'd do one your annual price increase which we did last year.
And mid year, and then we came back in November and we adjusted for inflationary.
Coffee increases on various aspects and then that one was where we really thought we were going to be netted out and then of course as you saw the April one that you just announced and it's basically coming through right. Now is really kind of addressing the supply chain inefficiencies are occurring due to geopolitical and other issues around the world.
<unk> fuel and <unk>.
Shipping charges and transportation charges in the U S. So as we said in the prepared remarks, we've seen shipping in the U S. Specifically transportation rail and truck starting to stabilize to a degree and then.
Shipping internationally has been the challenge and we're managing that very closely and watching it to make sure we align with actual increases there because we don't want to do anything more than pass along those types of Cogs given just the sheer nature of the increases that we've seen over the last year. So I think we're in really good.
Specific callouts on each.
As Scott mentioned.
We're managing it incredibly close and watching it and trying to minimize because this is unusual for us to have.
What we have had in terms of the number over the last year and that is only a function that we've tried to be prudent and take measured approach to how many we've put in but as you know this market has moved in an unprecedented way.
And we've been managing that along with managing the efficiencies that we can draw down otherwise our results in this quarter would have been substantially better. If we wouldn't have the leakage. We've had for some of the things that are calling on and now we're getting back into a routine of managing it. So we can.
What I think the street is asking is this just start to lay out some.
Groundwork is too.
A little more guidance than what we've done just on capital and a few other things but.
Real guidance as we've been talking about doing it.
I look at that right now the guidance that we'd like to give I think we still need another quarter or so given just the global stability, we're playing in right now and how it's impacted consumer demand in the U S and while we are encouraged and see great results on this quarter. We've got a lot more to do to drive efficiencies and move forward in a productive way.
You get the confidence of the consumer back and also manage.
Customers, who have been struggling to get back because not all channels have reacted equally across the U S.
Gotcha.
Shifting gears, a little bit the world you'd mentioned a customer selling 60 branches.
Moving.
We've spoken a little bit about this they were moving away from the higher touch DFT business sort of outsourcing that opportunity.
How do you look at that for me.
Our strategic or tactical advantage for farmer brothers in the next 12 to 18 to 24 months.
Well I think the first thing we've done is we recognize that we are following a different playbook, we firmly believe in DSD and we believe DST is doing is the engine that's going to continue to go well, we're doing a lot in DSD to drive innovation or.
Our existing customers in terms of new products, we're looking at different ways to service. These DSD customers.
We've got a very robust installation repair and refurbishment.
<unk>.
Segment.
Business component within the business that serves our.
Our DSD customers. So we believe in the strength of that model.
And the way we're attacking it is we've added.
Many what we call sales ambassadors, which are frontline salespeople outside of the direct store delivery Route service Representatives that manages the orders and delivers the product in.
Manages the need the interaction with the customer.
And then we've added some business development managers, because we believe there's a lot of opportunity in these regions, where we can look at the best opportunities that were being serviced by DSD and use our branches and our assets too.
Tack these customers and really provide them our white glove service. So we're looking at those top tier one two and three customers and being smart about the lower.
Producing you know monthly to quarterly top customers.
And we've been in the southeast and the northeast.
The gas hard on calling on a lot of these new customers and I think youre seeing us get our fair share of those and manage those directly and by default we're seeing the same thing in.
In our strength areas and I think time will tell as these.
Various distribution channels that have gone slower than the restaurant up and down the street business has <unk>.
<unk>.
Pre COVID-19 levels all the other channels that we serve on DSD.
Had a gap from where they were at pre Covid and so this new business. We're gaining is kind of holding all of that flat.
And when you look at our price increases that we've had which would be above where we were at a pre COVID-19 level. So as we start to ascertain and look at the various dynamics within the DSD, which is where the bulk of our profit comes as you know we only put out pounds forecast then.
Between the two.
In terms of where we are on a pounds basis and report pounds only.
Now I'd like to get to a point, where we could start to report more information on guidance on EBITDA and others. So I think as this settles out we'll see the DSD business start to.
Operate at a more new normal level as we've been calling out and get another good quarter under our belt and I think.
March standpoint, you know our criteria executing well beyond just fixing the base and starting to get into growth mode as well as start to really lay the foundation, that's more consistent where the last two and a half years I've been to three years have been very challenging with the turnaround and all things.
<unk> COVID-19 related so well.
We're very optimistic at this point and feel like that we've got a lot of good efficiencies ahead of us to still draw out and we're just trying to weather all these cobra.
Covid related expenses, and we're being prudent on where are we going on some of these DSD accounts due to the fact that trips.
Transportation has been up both in rail and truck importation of those beans are not equal, we're not seeing beans coming into the west coast. Many.
Many of those have been shifted the golf golf's under pressure and we're starting to see them come into the east coast. So that means you got to move beans around to where you're roasting facilities are in our roasting facilities are predominantly in DFW.
An important so with some co Packers and bearish.
Spots across the country, so where we serve and where we're stronger obviously, we got.
Better efficiencies and penetration.
And I think that's about as deep of an answer I can give you to kind of give everyone. A perspective of how we're looking at at present, but we are running a different playbook against many of our competitors.
Gotcha.
Just speaking of the route based obviously there's.
Growth opportunities there, but is there anything specifically you can do to help drive.
I I get new customers, but a larger drop size per customer what can you do to expand what you're doing with your existing customers to drive some more efficiencies there.
Yeah, I think the number one thing is as we are up in drop sides, even at the present, which is one of our stated strategic objectives and we've been doing that and the way we've been doing that first and foremost because this is just.
Operating better and that is selling the products that we have to those that don't buy all our portfolio and so if you're buying are copies, but you may not have been buying the pancakes or the syrups than we're in there, giving the RSR the freedom to make those price changes and ensure that we compete.
With those that are competing against us in some of those allied based categories. The same would be true for sauces, and dressings and anything else that complements that breakfast lunch and brunch hour with coffee and tea and Cocos where.
We're doing that's number one.
Is that something we can immediately get impact and we're seeing that work really demonstrates some success.
Second thing we are increasing the premium <unk> of all the copies that we serve our customers and offer our customers and were constantly moving them up into espresso based beverage programs.
Where it's a higher coffee than maybe some of the standards farmer brothers and Boyds copies that we've served for.
The 110 to 122 and Boyds that we have over these.
Centuries.
And from that perspective, where <unk>.
Looking at continuing to draw on our experience of the team to push higher espresso based programs with our equipment manufacturers.
And our equipment team because we sell in that area.
Third thing we're doing is we've got a lot of new innovation Cross shop projects on the drawing board that are directly.
<unk> to consumer research customer research so focusing on not just the customers are served but also the consumers that they serve and bringing products to the market that meet the need of those consumers and customers and you'll hear us talk more about in the coming quarters, those new products that we'll be launching into the field.
And I'm really excited about that because that's been that gives kind of a third leg of the strategy, where we said we would.
You know fix and then optimize and grow and grow is really about bringing new innovative products.
We've been working a lot more with high brew with Bolivia farms and distributing plant based products along with <unk>.
Hi, Brewing there are T D and we'll see more of that type of product working with those two companies and see that pushed out onto Ralph and anything else that matches up with.
With the current products that we serve because again I'll say it and I say this often we are not a food service distributor abroad. One we worked with those companies and have many accounts and those types of customers, but we are a specialty beverage distributor.
But anything that complements the coffee tea or cocoa products, we're going to sell and serve off of our RSR DSD routes and so that hopefully gives you a sense of where our heads are right now and just continuing to improve our execution across the board.
Got it maybe.
Maybe one or two more revive that was the CBE business that your white label then.
Rolling out right now.
How is that progressing to date any update on that front.
It is progressing well and I'm going to let Scott take this one because he's been the executive in charge of really putting processes and systems in place.
For the last year. So we can ensure we could be.
Bill and collect and provide a good base of service and we are really doing some great things that it's starting to become the point, where we think we can report some numbers against it in the next six months or maybe even less so Scott.
Yeah, Thanks, Daryl and Jerry as we've talked about you know, we'll start to give more insight on those numbers and what not you know it's still you know when we're not a huge company, but still it takes a while for new business to become meaningful enough to talk about but I think the best indicator and you may have seen this out you know when the posting boards and whatnot, but the best indicator is that we're currently recruiting.
For a a leader for this business you know we have deemed that.
Based on both customer response that we're seeing manufacturer partnerships that we're seeing and you know quite honest that we talked about the five geographies that we were operating in and doing this test in as we were rolling it out and so many of those partners are just asking us to go beyond those boundaries. So we've started that but obviously, it's going to grow at a rate that we can grow it based on.
Making sure that these technicians and all the people involved in the business. You know are trained properly they've got the background for it and you know that we can keep up with it and do the work really well because that's what matters. That's that's a lot of what's lacking out there in the market places. So we wanted to be a differentiator for us when we think of service and we want it to be really quality service.
First and foremost so I think what you'll see is we'll get a new leader in place. It's the indications that we're certainly serious about growing it and having it become a meaningful part of the business you know in the upcoming quarters. So I would say all is going are you know as well as can possibly be expected.
Got it and then final question you did mentioned as well.
Do you have real estate, obviously on the balance sheet and we've done some work on that front.
What's the equation youre going to sort of equations or how are you going to look at.
Progressing with that.
Dallas Fort worth of.
<unk> facility I believe you own it outright.
Yeah, it's tens of millions of dollars.
Multiples of that in value, but what's kind of what's going to be the driving factors.
Making you maybe decide to sell them do a lease back et cetera.
Obviously, your coffee company not a real estate company, but any any more light you can shed on that.
Yeah, I think that you know it is kind of the the the gift of Richardson away you know, having such a real estate portfolio that you're right, we do own outright and obviously, we have you know.
Liens against it with our debt, but we own our real estate outright we own tens of millions of dollars of equipment outright in our fleet as well just it's it's a lot of assets and so the review, we're really doing specifically to point it to real estate.
Is a couple of things one is what we always do it's just that optimization of our footprint and Daryl talked in his comments a little bit about how we're continuing to consolidation within Portland.
I think that will result in some excess properties most of those properties up their leased but still we're just going to optimize the footprint, whether its owned or leased and make sure. We've got the best footprint that we need to service the business. So I think when we get through that process of just normal optimization of the branches as we come out of Covid there'll probably be a couple of properties that we just.
Deem or excess.
The other approach we have is to your point its its robust outs asset bases and values and you know.
We're exploring a lot of things there you know we indeed during COVID-19, we explored the sale leaseback option, where we're familiar with it we've got a good handle on what that means but you know we're currently exploring other options, where we can fully retain.
Possession of the properties, yet still unlock some of that value and the cash flows within those properties. So we're just seeing if that's viable and meaningful for us, but what we're doing it across the board. We're looking at you know the machinery and equipment fleet, just a full kind of capital allocation model to make sure. We're primed for what we need to be set up for the the next cut.
Full of years, you know obviously the.
Deal, we did a year ago, if you look at our interest costs year over year, even though debt's much higher our actual interest cost is much lower.
The deal we put in place. So it worked really well you know theres an old interest rate swap in there that's finally, helping us as well.
So it's all worked really well, but we're just ensuring that we're set up for the next two three years versus kind of being in just a true Covid mode. You know, we're ready to grow and optimize the business going forward.
Got it.
Jerry on that point I'm, just going to say one other thing and take you back to our prepared remarks.
No I think it is good for everybody to hear as you look and you know probably better than any one as you've analyzed that we've told many people about the public information you provided in reports a little dated but you know obviously real estate has continued to increase in value if not double in most cases, but if you go back to my comments on opportunities.
Optimize our capital structure and expect to share more.
More details on our plans for improvements that include lower debt levels in the coming months I think.
Without speaking any more than what Scott has just stated and what I've stated that is really our intent and yes, when we put it in that foundries.
A couple of months that puts us up to our fiscal year end as we closed the year at the end of June so stay tuned and we'll be.
Dosing some public comments between now and then.
Trying to give you some leading questions to pull some more of that but.
Of what you just said, but I got you. So I appreciate I I I would love to say more at this point, but you know.
As you know you have to wait.
We will get it out there and you know we're not the only public you know coffee company more so maybe we will produce a little bit more given others diminished afraid in the last quarter.
Alright, I appreciate it I'll I'll leave it at that thanks, guys.
You get extra thank you Gerry.
This concludes our question and answer session I would now like to turn the conference back over to you about our master plan for any closing remarks. Please go ahead.
Thank you.
Again for joining us today and in closing, we're really pleased with our financial results and we're proud of initiatives, we've executed against given the very challenging turnaround times and most importantly, the last couple of years of Kobe.
We continued to take hold and translate in continued improvements as we look at our financial performance against those things that have been occurring.
The business is responding well to a post COVID-19 world and we look forward to seeing how it responds once consumer behaviors.
Boyd normalized along with many of these geopolitical in second and third order types.
Costs are coming through we've got enough synergies.
And cost efficiencies that we're working on right now as we speak to help continue to push.
Host the types of results and as you know, we posted our seventh quarter Progressive gross margin.
Expansion again this quarter, our best quarter without question across both revenue.
P S and EBITDA in all cases, beating the forecast that were estimated so we feel good about where we're at I mean, we thank you for your.
Tension in our interest in farmer brothers, and we look forward to talking to you.
In the months and the quarters yet thank you.
This conference has now concluded. Thank you for attending today's presentation you may now disconnect.