Limoneira Co

Greetings and welcome to the Lemonera's second quarter fiscal year 2022 financial results conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, John Mills with ICR. Thank you. You may begin.

Good afternoon, everyone, and thank you for joining us for Lima Nera's second quarter fiscal year 2022 conference call. On the call today are Harold Edwards, President and Chief Executive Officer, and Mark Palamountain, Chief Financial Officer. By now, everyone should have access to the second quarter fiscal year 2022 earnings release, which went out today at approximately 4 p.m. Eastern time. If you've not had a chance to view the release, it's available on the investor relations portion of the company's website at limanera.com. This call is being webcast and a replay will be available on Limanera's website as well. Before we begin, we'd like to remind everyone that prepared remarks contain forward-looking statements and management may make additional forward-looking statements in response to your questions. Such statements involve a number of known and unknown risks and uncertainties, many of which are outside the company's control and could cause its future results, performance, or achievements to differ significantly from the results, performance, or achievements expressed or implied by such forward-looking statements. Important factors that could cause or contribute to such differences include risks detailed in the company's 10Qs and 10Ks filed with the SEC and those mentioned in the earnings release. Except as required by law, we undertake no obligation to update any forward-looking or other statement herein. whether a result of new information, future events, or otherwise. Please note that during today's call, we will also be discussing non-GAAP financial measures, including results on an adjusted basis. We believe these adjusted financial measures can facilitate a more complete analysis and greater understanding of Lehman Air's ongoing results of operations, particularly when comparing underlying results from period to period. We have provided as much detail as possible on any items that are discussed on an adjusted basis. Also, within the company's earnings release and in today's fair remarks, we include adjusted EBITDA, which is a non-GAAP financial measure. A reconciliation of adjusted EBITDA to the most directly comparable GAAP financial measure is included in the company's 10-Q and press release, which have been posted to our website. And with that, it is my pleasure to turn the call over to the company's president and CEO, Mr. Harold Edwards.

Thanks, John, and good afternoon, everyone. We achieved top-line growth at 4% to $47 million and generated $5.8 million of adjusted EBITDA in the second quarter. The growth was driven by higher avocado, orange, and specialty citrus revenue. Our avocado segment has continued to outperform expectations this fiscal year with pricing up 50% compared to last year. Lemon pricing remained challenged in the second quarter as the domestic lemon market works through a surplus of inventory. However, we were encouraged to see the lemon export markets begin to return to normal. The top line improvement in the second quarter was partially offset by the cost side of our business as we and our industry continue to face rising labor costs and higher packing and supplier costs. Our company is 129 years old and over the past 20 years we have made important strategic investments in our overall business to become a leading global producer, packager, and marketer of citrus leading to the creation of our One World of Citrus. This new marketing plan combined with our recent investments have enabled us to increase our revenue by over 200% from $54 million in 2010 to over $166 million in fiscal year 2021, which equates to an 11% TAGR. Today, we have over 15,400 acres of rich agricultural lands, real estate properties, and water rights in California, Arizona, Chile, and Argentina, with a fair market value of over $600 million in today's market, yet a book value on Limonera's balance sheet of $220 million because many of these assets were acquired many years ago at a low basis. Selective monetization of certain assets in Luminaire's portfolio going forward creates a tremendous value creation opportunity for our shareholders. Based on this, and in order to better leverage our leading global position and enhance shareholder value, over six months ago our board of directors and management formulated a plan that included updated priorities and objectives for LumenEra to achieve in the coming years and certain metrics to measure our progress. Our board's objectives are as follows. Number one, to reduce debt and right-size our balance sheet. We also reiterated today that we expect to receive approximately $95 million over the next five years from harvest at LumenEra beginning this year. In addition to harvest, we have identified over $100 million in assets that we will be monetizing or selling in the near term to streamline our operations. Number two, transitioning our one world of citrus to an asset lighter business model. In order to unlock the value of our many assets and better leverage our leading global citrus position, we will be expanding our one world of citrus while also strategically selling certain assets and streamlining our operations to dramatically increase our long-term cash flow. To accomplish this, we will be increasing our focus on growth of the asset-light model using more grower partner fruit in order to reduce the impact of pricing volatility and farming costs. We will continue to develop best-in-class grower services to recruit additional grower partners. We will also be reconfiguring our global lemon packing network to better support our grower partners' fruit. This may include reducing certain orange and lemon acreage globally while still increasing the packing and marketing of the fruit grown on these locations. In the coming years, we expect 30% of our lemon global supply chain to come from limonara fruit and 70% to come from grower partner fruit while maintaining our overall growth goals. To put this in perspective, today 50% of our fruit is produced on limonara properties. As an example, last week we announced our engagement with the Yuma Mesa Irrigation and Drainage District in a two-year fouling and forbearance program at the company's Associated Citrus Packers Ranch in Yuma, Arizona. The program targets 400 acres of farmable land on the property over the duration of the agreement and will result in excess of 4,200 acre feet or more than 1.3 billion gallons annually of saved water that may be retained in Lake Mead as Colorado River System conservation water. In addition to conserving natural water resources, the program converts previously unprofitable acreage to be profitable with an estimated annual savings of approximately $1 million. As a reminder, our associated Citrus Packers Ranch includes 1,300 acres of land comprised of approximately 900 acres of productive lemon orchards and 400 acres of other crops and facilities with access to the Colorado River for crop irrigation. We cultivate, harvest, and pack fruit for sale within the Limonera family of brands as well as third-party contract partners. Now, with the following program in place, we will have 700 acres of productive lemons, 400 fallowed acres, and 200 acres of other crops. We will continue to leverage our existing supply chain for the 700 acres of lemons and expect to add more grower partners in the desert area into our supply chain in the coming year. This will result in more lemon volume than we previously generated. This asset-like model will enable us to achieve improvements in the following metrics our board is using to measure progress and position us to improve shareholder value. reduce investment risk outside of North America, generate more stable and higher growth in EBITDA and earnings, and lastly, to improve our annual return on invested capital. During the past 12 years, we grew our One World of Citrus offering. We also made certain investments in assets that were embedded in this growth and the overall infrastructure of Limonera. Now we'll be focusing on monetizing certain of these assets that have increased in value over the years and this will dramatically improve our return on invested capital. We expect to also leverage our leading avocado position by increasing avocado production in Ventura County and exploring additional ways to participate in the packing, marketing and selling of avocados as a complement to our One World of Citrus. Our fifth strategic objective is enhancing our ESG goals. We have a long history of sustainability practices, and this is one of the reasons our company has enjoyed almost 130 years of giving back to the community. We build housing for farm workers, sponsor community programs, reduce our carbon footprint with seven solar installations, manage green waste with a 20-acre facility that receives 200-plus tons per day of organic green waste, minimize pesticides, and we are a pioneer in water conservation. However, in order to ensure our land is here for future generations, we are redoubling our efforts on environmental, social, and governance standards. We're increasing our focus on regenerative agricultural practices, including expanding our relationships with third-party agronomists to further enhance and properly nurture our soil and water conservation efforts. We continue to improve our digital information system to increase efficiencies across our supply chain. This system will work in tandem with our agricultural practices by monitoring daily tree health and fruit growth, identifying labor and distribution needs, predicting the right time to harvest and match harvests, food grades, and sizes to meet global demand. Lastly, we are evolving our governance structure to ensure best practices. We believe that this new strategic plan will result in an asset lighter business model, dramatic debt reduction, reduced volatility, and an increase in EBITDA and earnings per share, higher return on invested capital, increase in our quarterly dividend, higher ESG scores, expansion of global fruit packaged and marketed by Luminera, and lastly an increase in the growing, packing, marketing, and selling of avocados. We'll update you on a regular basis regarding our progress and we believe we will be in a position to announce additional asset sales and streamlining of our business model in the coming quarters. Our entire team at Limonera is very excited about our new strategic plan to realize the value of the many investments we have made over the past 20 years. This will dramatically improve our financial position and expand our one world of citrus opportunities. We have a deep history of being a leader in the citrus and avocado world, and this new plan will elevate Ligonera and enhance the value of our company for all stakeholders. And with that, I'll now turn the call over to Mark. Thank you, Harold, and good afternoon, everyone. For the second quarter of fiscal year 2022, total net revenue was $46.8 million compared to total net revenue of $45.1 million in the second quarter of the previous fiscal year. Agribusiness revenue was $45.4 million compared to $44 million in the second quarter last year. Other operations revenue was $1.4 million compared to $1.1 million in the second quarter of the previous fiscal year. Agribusiness revenue for the second quarter of fiscal year 2022 includes $27.3 million in fresh lemon sales, compared to $28.7 million in the same period of fiscal year 2021. Approximately 1,552,000 cartons of fresh lemons were sold during the second quarter of fiscal year 2022 at a $17.57 average price per carton, compared to approximately 1,528,000 cartons sold at an $18.79 average price per carton during the second quarter of fiscal year 2021. Lemon pricing has remained challenging for the first half of fiscal year 2022, as we've dealt with adverse weather on the East Coast, as well as the emergence of the Omicron variant, creating an oversupply of lemons in the marketplace. We are seeing the lemon export market to begin to return to normal levels. However, it is expected to be a slower recovery, and so while we expect improvement in the second half of this year, it is still expected to be down year over year. The company recognized $2.7 million of brokered fruit and other lemon sales in the second quarter of fiscal year 2022, compared to $2.3 million in the same period last year. The company recognized $3.6 million of avocado revenue in the second quarter of fiscal year 2022, compared to $2.7 million in the same period last fiscal year. Approximately 1,877,000 pounds of avocados were sold during the second quarter of fiscal year 2022 at a $1.90 average price per pound compared to approximately 2,142,000 pounds sold at a $1.26 average price per pound during the second quarter of fiscal year 2021. The company recognized $2.6 million of orange revenue in the second quarter of fiscal year 2022 compared to $1.4 million in the same period of fiscal year 2021. Approximately 328,000 cartons of oranges were sold during the second quarter of fiscal year 2022 at a $7.98 average price per carton compared to approximately 154,000 cartons sold at a $9.12 average price per carton in the prior year period. Specialty citrus and other crop revenues was $1.4 million in the second quarter of fiscal year 2022, compared to $1.2 million in the second quarter of fiscal year 2021. Total costs and expenses for the second quarter of fiscal year 2022 were $44.1 million compared to $42.7 million in the second quarter of last fiscal year. The increase in operating costs was primarily attributable to the company's agribusiness associated with an increase in packing and growing costs, partially offset by decreases in third-party grower and supplier costs in the second quarter of fiscal year 2022. Operating income for the second quarter of fiscal year 2022 increased to $2.7 million compared to operating income of $2.4 million in the second quarter of the previous fiscal year. Net income applicable to common stock after preferred dividends for the second quarter of fiscal year 2022 was $1.4 million compared to a net income of $1.8 million in the second quarter of fiscal year 2021. Net income per diluted share for the second quarter of fiscal year 2022 was $0.08 compared to a net income per diluted share of $0.10 for the same period of fiscal year 2021. Adjusted net income applicable to common stock for the second quarter of fiscal year 2022 was $1.7 million compared to net income of $1.8 million in the same period of fiscal year 2021. Adjusted net income per diluted share was $0.10 for the second quarter of fiscal year 2022 and 2021. A reconciliation of net income to adjusted net income is provided at the end of our earnings release. Adjusted EBITDA was $5.8 million in the second quarter of fiscal year 2022 compared to $6 million in the same period of fiscal year 2021. A reconciliation of net income to adjusted EBITDA is provided at the end of our earnings release. Now turning to our balance sheet and liquidity, long-term debt as of April 30, 2022, was $135.6 million, compared to $130.4 million at the end of fiscal year 2021. We believe the level of debt will decrease throughout fiscal 2022 due to expected cash flow from our agriculture and real estate businesses. Now, I'd like to turn the call back over to Harold to discuss our fiscal year 2022 outlook and longer-term growth pipeline. Thanks, Mark. As we all know, the COVID-19 pandemic continues to affect our food service business and industry logistics on a global basis. However, due to our diversified food business, we expect to achieve stronger top-line growth in the third quarter compared to our second quarter and improve EBITDA. We are beginning to experience improved lemon demand domestically, but we expect lemon pricing to remain pressured this fiscal year until we see the Asian export markets fully open again. We continue to expect fresh lemon volumes to be in the range of 4.5 million to 5 million cartons for fiscal year 2022, and we expect strong, profitable avocado demand to continue into the third quarter of fiscal year 2022. We also expect volumes to be in the 6 to 7 million pound range for fiscal year 2022. We continue to expand our product offerings in fiscal year 2022 by marketing another producer's oranges and specialty citrus through our One World of Citrus program. We have a growing list of customers that enjoy our ability to provide all of their citrus needs from one single supplier. And by increasing our oranges and specialty citrus offerings, we will be able to attract even more customers. We continue to expect to receive $95 million from Harvest at Limonera during the next five fiscal years, beginning in fiscal year 2022. Currently, we are in negotiations of phase two, which represents 554 residential lots. The breakdown of annual cash flows expected from Harvest at Limonera is as follows. Fiscal year 2022 is expected to generate $8 million of cash to leave an area. Fiscal year 2023 is expected to generate $15 million. Fiscal year 2024 is expected to generate $27 million. Fiscal year 2025 is expected to generate $30 million. And fiscal year 2026 is expected to generate $15 million. These expectations from harvest do not include the potential opportunity of a medical campus in our East Area 2 development. Now, I will open the call to your questions. Operator?